##### 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 June 30, 2003

OR



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

For the transition period from

to

Commission file number:
1-13488

British Sky Broadcasting Group plc

(Exact name of Registrant as specified in its
charter)


England & Wales

(Jurisdiction of incorporation or
organization)


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

(Address of principal executive
offices)





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

|                                                                                                                                                          |  |                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------
|Title of each                                                                                                                                             |  | Name of each exchange      
|Class                                                                                                                                                     |  | on which registered        
|                                                                                                                                                          |  |                            
|Ordinary shares (nominal value 50p per share)                                                                                                             |  | New York Stock Exchange (1)
|American Depositary Shares, each of which
    represents 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)...........................................1,937,754,876

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

Yes x No
o

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

Item 17  o               Item 18  x



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TABLE OF CONTENTS



|                                           |                                                                                       |  |  |  |  |  |  | 
|------------------------------------------ | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|FORWARD LOOKING STATEMENTS                
|PART I                                    
|                                           | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        
|                                           | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|                                           | ITEM 3. KEY INFORMATION                                                              
|                                           | ITEM 4. INFORMATION ON THE COMPANY                                                   
|                                           | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|                                           | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|                                           | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|                                           | ITEM 8. FINANCIAL INFORMATION                                                        
|                                           | ITEM 9. THE OFFER AND LISTING                                                        
|                                           | ITEM 10. ADDITIONAL INFORMATION                                                      
|                                           | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|                                           | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                   
|                                           | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|                                           | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|                                           | ITEM 15. CONTROLS AND PROCEDURES                                                     
|                                           | ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                           
|                                           | ITEM 16B. CODE OF ETHICS                                                             
|                                           | ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                     
|                                           | ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                 
|PART III                                  
|                                           | ITEM 17. FINANCIAL STATEMENTS                                                        
|                                           | ITEM 18. FINANCIAL STATEMENTS                                                        
|                                           | ITEM 19. EXHIBITS                                                                    
|SIGNATURES                                
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|REPORT OF INDEPENDENT AUDITORS            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|GLOSSARY OF TERMS                         
|Exhibit 4.3                               
|Exhibit 4.4                               
|Exhibit 4.5                               
|Exhibit 8                                 
|Exhibit 11                                
|Exhibit 12.1                              
|Exhibit 12.2                              
|Exhibit 13                                
|Exhibit 14                                



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##### Table of Contents



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                                                       |  | 10  
|ITEM 5:                    |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                     |  | 36  
|ITEM 6:                    |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                       |  | 62  
|ITEM 7:                    |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                |  | 78  
|ITEM 8:                    |  | FINANCIAL INFORMATION                                                            |  | 79  
|ITEM 9:                    |  | THE OFFER AND LISTING                                                            |  | 79  
|ITEM 10:                   |  | ADDITIONAL INFORMATION                                                           |  | 80  
|ITEM 11:                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK                   |  | 92  
|ITEM 12:                   |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
    SECURITIES                       |  | 95  
|                          
|PART II                    |  |                                                                                  |  |     
|ITEM 13:                   |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                  |  | 95  
|ITEM 14:                   |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
    HOLDERS AND USE OF PROCEEDS |  | 95  
|ITEM 15:                   |  | CONTROLS AND PROCEDURES                                                          |  | 95  
|ITEM 16A:                  |  | AUDIT COMMITTEE FINANCIAL EXPERT                                                 |  | 95  
|ITEM 16B:                  |  | CODE OF ETHICS                                                                   |  | 95  
|ITEM 16C:                  |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                           |  | 96  
|ITEM 16D:                  |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
    COMMITTEES                   |  | 96  
|                          
|PART III                   |  |                                                                                  |  |     
|ITEM 17:                   |  | FINANCIAL STATEMENTS                                                             |  | 96  
|ITEM 18:                   |  | FINANCIAL STATEMENTS                                                             |  | 96  
|ITEM 19:                   |  | EXHIBITS                                                                         |  | 97  
|GLOSSARY OF TERMS          |  |                                                                                 





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##### Table of Contents






FORWARD LOOKING STATEMENTS

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

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

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

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

3



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##### 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 June 30, 2003 and as at June 30, 1999, 2000,
2001, 2002 and 2003.

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

The selected profit and loss account data set
forth below for the years ended June 30, 2003, 2002 and
2001, and the balance sheet data at June 30, 2003 and
June 30, 2002 are derived from audited consolidated
financial statements included in this Annual Report on
Form 20-F, which have been prepared in accordance with UK
GAAP and differ in certain respects from US GAAP. A
reconciliation of certain amounts from UK GAAP, as well as a
description of principal differences between UK GAAP and US GAAP
applicable to the Group, is presented in Note 28 of the
notes to the Consolidated Financial Statements. The selected
consolidated profit and loss account data for the years ended
June 30, 2000 and 1999, and the balance sheet data at
June 30, 2001, 2000 and 1999, 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 June 30,                
|                                                                |                                                                                                           |                                    
|                                                                |                                                                                                           | 1999                                |        | 2000   |   | 2001 |        | 2002   |   | 2003 |        | 2003(1)
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |        
|                                                                |                                                                                                           |                                    
|                                                                |                                                                                                           | (in millions except per share data)
|Profit and Loss Account: Amounts in accordance
    with UK GAAP |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|                                                                | DTH subscriber revenues                                                                                   |                                     |        | £979   |   |      |        | £1,189 |   |      |        | £1,537  |   |  |        | £1,929 |   |  |        | £2,341 |   |  | $      | 3,870  |  
|                                                                | Cable and DTT subscriber revenues                                                                         |                                     |        | 253    |   |      |        | 303    |   |      |        | 299     |   |  |        | 279    |   |  |        | 202    |   |  |        | 334    |  
|                                                                | Advertising revenues                                                                                      |                                     |        | 217    |   |      |        | 242    |   |      |        | 271     |   |  |        | 251    |   |  |        | 284    |   |  |        | 469    |  
|                                                                | Interactive revenues                                                                                      |                                     |        |       |   |      |        | 5      |   |      |        | 93      |   |  |        | 186    |   |  |        | 218    |   |  |        | 361    |  
|                                                                | Other revenues                                                                                            |                                     |        | 96     |   |      |        | 108    |   |      |        | 106     |   |  |        | 131    |   |  |        | 141    |   |  |        | 233    |  
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Group turnover                                                  |                                                                                                           |                                     | 1,545  |        |   |      | 1,847  |        |   |      | 2,306  |         |   |  | 2,776  |        |   |  | 3,186  |        |   |  | 5,267  |       
|                                                                | Operating expenses, net, before amortization of
    goodwill and operating exceptional items              |                                     |        | (1,360 | ) |      |        | (1,762 | ) |      |        | (2,146  | ) |  |        | (2,584 | ) |  |        | (2,815 | ) |  |        | (4,653 | )
|                                                                | Amortization and impairment of intangible fixed
    assets                                                |                                     |        |       |   |      |        |       |   |      |        | (44     | ) |  |        | (118   | ) |  |        | (122   | ) |  |        | (202   | )
|                                                                | (Provision against) release of provision against
    remaining unprovided ITV Digital programming debtors |                                     |        |       |   |      |        |       |   |      |        |        |   |  |        | (23    | ) |  |        | 5      |   |  |        | 8      |  
|                                                                | Estimated cost of reorganization of Sky
    Interactive                                                   |                                     |        |       |   |      |        |       |   |      |        | (23     | ) |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                | Cost of abortive Man Utd bid                                                                              |                                     |        | (6     | ) |      |        |       |   |      |        |        |   |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                | Estimated cost of transitioning analog customers
    to digital service                                   |                                     |        | (450   | ) |      |        | (58    | ) |      |        |        |   |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                | Estimated cost of termination of analog operations                                                        |                                     |        |       |   |      |        | (41    | ) |      |        |        |   |  |        | 4      |   |  |        |       |   |  |        |       |  
|                                                                | Estimated cost of Sky In-Home Service Limited
    reorganization                                          |                                     |        |       |   |      |        | (6     | ) |      |        |        |   |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Operating expenses, net                                         |                                                                                                           |                                     | (1,816 | )      |   |      | (1,867 | )      |   |      | (2,213 | )       |   |  | (2,721 | )      |   |  | (2,932 | )      |   |  | (4,847 | )     
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|                                                               
|Operating (loss) profit                                         |                                                                                                           |                                     | (271   | )      |   |      | (20    | )      |   |      | 93     |         |   |  | 55     |        |   |  | 254    |        |   |  | 420    |       
|                                                                | Share of operating results of joint ventures                                                              |                                     |        | (58    | ) |      |        | (122   | ) |      |        | (256    | ) |  |        | (76    | ) |  |        | 3      |   |  |        | 6      |  
|                                                                | Joint ventures goodwill amortization, net*                                                               |                                     |        |       |   |      |        | (14    | ) |      |        | (101    | ) |  |        | (1,070 | ) |  |        |       |   |  |        |       |  
|                                                                | (Loss) profit on sale of fixed asset investments                                                          |                                     |        |       |   |      |        | (1     | ) |      |        |        |   |  |        | 2      |   |  |        |       |   |  |        |       |  
|                                                                | Share of joint ventures loss on sale of
    fixed asset investment                                       |                                     |        |       |   |      |        | (14    | ) |      |        | (70     | ) |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                | Amounts written off fixed asset investments, net                                                          |                                     |        |       |   |      |        |       |   |      |        | (39     | ) |  |        | (60    | ) |  |        | (15    | ) |  |        | (25    | )
|                                                                | (Provision) release of provision for loss on
    disposal of subsidiary                                   |                                     |        |       |   |      |        |       |   |      |        | (10     | ) |  |        | 10     |   |  |        |       |   |  |        |       |  
|                                                                | Interest receivable and similar income                                                                    |                                     |        | 4      |   |      |        | 11     |   |      |        | 18      |   |  |        | 11     |   |  |        | 4      |   |  |        | 6      |  
|                                                                | Interest payable and similar charges                                                                      |                                     |        | (59    | ) |      |        | (103   | ) |      |        | (153    | ) |  |        | (148   | ) |  |        | (118   | ) |  |        | (195   | )
|                                                                | Exceptional finance (charges) credits                                                                     |                                     |        | (5     | ) |      |        |       |   |      |        | 3       |   |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|(Loss) profit on ordinary activities before
    taxation        |                                                                                                           |                                     | (389   | )      |   |      | (263   | )      |   |      | (515   | )       |   |  | (1,276 | )      |   |  | 128    |        |   |  | 212    |       
|                                                                | Tax on (loss) profit on ordinary activities                                                               |                                     |        | 103    |   |      |        | 65     |   |      |        | (24     | ) |  |        | (107   | ) |  |        | 62     |   |  |        | 103    |  
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|(Loss) profit on ordinary activities after
    taxation         |                                                                                                           |                                     | (286   | )      |   |      | (198   | )      |   |      | (539   | )       |   |  | (1,383 | )      |   |  | 190    |        |   |  | 315    |       
|                                                                | Equity dividends  paid and
    proposed(2)                                                               |                                     |        | (47    | ) |      |        |       |   |      |        |        |   |  |        |       |   |  |        |       |   |  |        |       |  
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Retained (loss) profit                                          |                                                                                                           |                                     | (333   | )      |   |      | (198   | )      |   |      | (539   | )       |   |  | (1,383 | )      |   |  | 190    |        |   |  | 315    |       
|                                                                |                                                                                                           |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|(Loss) earnings per share  basic                               |                                                                                                           |                                     | (16.6p | )      |   |      | (11.3p | )      |   |      | (29.2p | )       |   |  | (73.3p | )      |   |  | 9.9p   |        |   |  | 16.4¢  |       
|(Loss) earnings per share  diluted                             |                                                                                                           |                                     | (16.6p | )      |   |      | (11.3p | )      |   |      | (29.2p | )       |   |  | (73.3p | )      |   |  | 9.8p   |        |   |  | 16.2¢  |       
|Dividends per share(2)                                          |                                                                                                           |                                     | 2.8p   |        |   |      |       |        |   |      |       |         |   |  |       |        |   |  |       |        |   |  |       |       
|Dividends per share(2)(US dollars at
    date of payment)       |                                                                                                           |                                     | 4.5¢   |        |   |      |       |        |   |      |       |         |   |  |       |        |   |  |       |        |   |  |       |       






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



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

5



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|                                                           |  |                                     |       |      |  |      |        |      |  |      |         |         |  |   |         |   |  |   |       |   |  |   |       |  
|---------------------------------------------------------- |  | ----------------------------------- | ----- | ---- |  | ---- | ------ | ---- |  | ---- | ------- | ------- |  | - | ------- | - |  | - | ----- | - |  | - | ----- | -
|                                                           |  |                                    
|                                                           |  | Year ended June 30,                
|                                                           |  |                                    
|                                                           |  | 1999                                |       | 2000 |  | 2001 |        | 2002 |  | 2003 |         | 2003(1)
|                                                           |  |                                     |       |      |  |      |        |      |  |      |         |        
|                                                           |  |                                    
|                                                           |  | (in millions except per share data)
|Amounts in accordance with
    US GAAP                     |  |                                     |       |      |  |      |        |      |  |      |         |         |  |   |         |   |  |   |       |   |  |   |       |  
|Total revenues                                             |  | £                                   | 1,644 |      |  | £    | 1,911  |      |  | £    | 2,296   |         |  | £ | 2,707   |   |  | £ | 3,082 |   |  | $ | 5,094 |  
|Amortization and impairment of intangible fixed
    assets |  |                                     | (12   | )    |  |      | (12    | )    |  |      | (58     | )       |  |   | (145    | ) |  |   | (5    | ) |  |   | (8    | )
|Operating profit (loss)                                    |  |                                     | 118   |      |  |      | (247   | )    |  |      | (176    | )       |  |   | (30     | ) |  |   | 370   |   |  |   | 610   |  
|Joint ventures goodwill amortization, net                 |  |                                     |      |      |  |      | (10    | )    |  |      | (71     | )       |  |   | (712    | ) |  |   |      |   |  |   |      |  
|Income (loss) before income tax                            |  |                                     | 2     |      |  |      | (473   | )    |  |      | (660    | )       |  |   | (940    | ) |  |   | 259   |   |  |   | 428   |  
|Net (loss) income                                          |  |                                     | (14   | )    |  |      | (351   | )    |  |      | (625    | )       |  |   | (1,047  | ) |  |   | 286   |   |  |   | 473   |  
|Basic (loss) earnings per share                            |  |                                     | (0.8p | )    |  |      | (20.1p | )    |  |      | (33.8p  | )       |  |   | (55.5p  | ) |  |   | 14.9p |   |  |   | 24.7¢ |  
|Diluted (loss) earnings per share                          |  |                                     | (0.8p | )    |  |      | (20.1p | )    |  |      | (33.8p  | )       |  |   | (55.5p  | ) |  |   | 14.7p |   |  |   | 24.3¢ |  
|Basic (loss) earnings per ADS(3)                           |  |                                     | (3.2p | )    |  |      | (80.3p | )    |  |      | (135.4p | )       |  |   | (221.9p | ) |  |   | 59.7p |   |  |   | 98.6¢ |  
|Diluted (loss) earnings per ADS(3)                         |  |                                     | (3.2p | )    |  |      | (80.3p | )    |  |      | (135.4p | )       |  |   | (221.9p | ) |  |   | 58.9p |   |  |   | 97.4¢ |  

|                                   |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                   |  |               
|                                   |  | As at June 30,
|                                   |  |               
|                                   |  | 1999           |        | 2000 |  | 2001 |        | 2002 |  | 2003 |        | 2003(1)
|                                   |  |                |        |      |  |      |        |      |  |      |        |        
|                                   |  |               
|                                   |  | (in millions) 
|Balance Sheet:                     |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|Amounts in accordance with UK GAAP |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|Total assets                       |  | £              | 1,187  |      |  | £    | 3,280  |      |  | £    | 3,877  |         |  | £ | 2,201  |   |  | £ | 2,025  |   |  | $ | 3,347  |  
|Long-term debt                     |  |                | (715   | )    |  |      | (1,412 | )    |  |      | (1,768 | )       |  |   | (1,577 | ) |  |   | (1,152 | ) |  |   | (1,904 | )
|Total liabilities                  |  |                | (1,735 | )    |  |      | (2,483 | )    |  |      | (2,816 | )       |  |   | (2,502 | ) |  |   | (2,131 | ) |  |   | (3,522 | )
|Net (liabilities) assets           |  |                | (548   | )    |  |      | 797    |      |  |      | 1,061  |         |  |   | (301   | ) |  |   | (106   | ) |  |   | (175   | )
|Shareholders (deficit) funds      |  |                | (548   | )    |  |      | 797    |      |  |      | 1,061  |         |  |   | (301   | ) |  |   | (106   | ) |  |   | (175   | )
|Capital stock(4)                   |  |                | 1,566  |      |  |      | 3,123  |      |  |      | 3,920  |         |  |   | 3,879  |   |  |   | 3,806  |   |  |   | 6,291  |  
|Shares in issue (number)           |  |                | 1,726  |      |  |      | 1,826  |      |  |      | 1,889  |         |  |   | 1,893  |   |  |   | 1,938  |   |  |   | 1,938  |  

|                                   |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                   |  |               
|                                   |  | As at June 30,
|                                   |  |               
|                                   |  | 1999           |        | 2000 |  | 2001 |        | 2002 |  | 2003 |        | 2003(1)
|                                   |  |                |        |      |  |      |        |      |  |      |        |        
|                                   |  |               
|                                   |  | (in millions) 
|Amounts in accordance with US GAAP |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|Total assets                       |  | £              | 1,428  |      |  | £    | 3,060  |      |  | £    | 4,209  |         |  | £ | 2,853  |   |  | £ | 2,810  |   |  | $ | 4,645  |  
|Long-term debt                     |  |                | (715   | )    |  |      | (1,412 | )    |  |      | (1,768 | )       |  |   | (1,577 | ) |  |   | (1,152 | ) |  |   | (1,904 | )
|Total liabilities                  |  |                | (1,327 | )    |  |      | (2,379 | )    |  |      | (3,359 | )       |  |   | (2,994 | ) |  |   | (2,362 | ) |  |   | (3,904 | )
|Net assets (liabilities)           |  |                | 101    |      |  |      | 681    |      |  |      | 850    |         |  |   | (141   | ) |  |   | 448    |   |  |   | 741    |  
|Shareholders funds (deficit)      |  |                | 101    |      |  |      | 681    |      |  |      | 850    |         |  |   | (141   | ) |  |   | 448    |   |  |   | 741    |  
|Capital stock(4)                   |  |                | 1,566  |      |  |      | 3,123  |      |  |      | 3,920  |         |  |   | 3,879  |   |  |   | 3,806  |   |  |   | 6,291  |  
|Shares in issue (number)           |  |                | 1,726  |      |  |      | 1,826  |      |  |      | 1,889  |         |  |   | 1,893  |   |  |   | 1,938  |   |  |   | 1,938  |  

|                             |  |                |       |      |  |      |       |      |  |      |        |  |  |  |        |  |  |  |        |  |  |  |  | 
|---------------------------- |  | -------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  |  | 
|                             |  |                |       |     
|                             |  | As at June 30, |       |     
|                             |  |                |       |     
|                             |  | 1999           |       | 2000 |  | 2001 |       | 2002 |  | 2003 |        | 
|                             |  |                |       |      |  |      |       |      |  |      |        | 
|                             |  |                |       |     
|                             |  | (in thousands) |       |     
|Distribution of Sky Channels |  |                |       |      |  |      |       |      |  |      |        |  |  |  |        |  |  |  |        |  |  |  |  | 
|DTH subscribers              |  |                | 3,460 |      |  |      | 4,513 |      |  |      | 5,453  |  |  |  | 6,101  |  |  |  | 6,845  |  |  |  |  | 
|Cable subscribers            |  |                | 3,778 |      |  |      | 3,735 |      |  |      | 3,486  |  |  |  | 4,091  |  |  |  | 3,871  |  |  |  |  | 
|DTT  UK(5)                  |  |                | 204   |      |  |      | 740   |      |  |      | 1,105  |  |  |  |       |  |  |  | 1,510  |  |  |  |  | 
|                             |  |                |       |      |  |      |       |      |  |      |        |  |  |  |        |  |  |  |        |  |  |  |  | 
|Total UK and Ireland         |  |                | 7,442 |      |  |      | 8,988 |      |  |      | 10,044 |  |  |  | 10,192 |  |  |  | 12,226 |  |  |  |  | 
|                             |  |                |       |      |  |      |       |      |  |      |        |  |  |  |        |  |  |  |        |  |  |  |  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Solely for convenience, pounds sterling amounts
    for the year ended June 30, 2003 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 June 30, 2003, which
    was US$1.6529 per £1.00.                                                                                                                                                                   
|   
|(2) | An interim dividend of £47.3 million,
    representing 2.75p per share was paid for fiscal 1999. No
    final dividend was paid for fiscal 1999. No interim or final
    dividends have been paid or proposed for fiscal 2000, 2001, 2002
    or 2003.                                                                                                                                                                                       
|   
|(3) | In prior period reporting, the (loss) earnings
    per ADS have been calculated using the weighted average number
    of ADSs outstanding on the basis of 1 ADS for
    6 Ordinary Shares. On December 23, 2002 the ratio was
    revised to reflect a new ratio of 1 ADS representing 4
    Ordinary Shares. Therefore, the current and prior period (loss)
    earnings per ADS have been calculated using a weighted average
    number of

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|    |                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | ADSs outstanding on the basis of 1 ADS for
    4 Ordinary Shares. (Loss) earnings per ADS is not exactly
    four times (loss) earnings per share due to rounding differences.                                                                                                                                                                                       
|   
|(4) | Capital stock includes called-up share capital,
    share premium, shares to be issued and merger reserve (see
    Note 24 within Item 18).                                                                                                                                                                                                                          
|   
|(5) | From fiscal 2003, the number in respect of DTT
    consists of the Broadcasters Audience Research
    Boards (BARBs) estimate of the number of
    homes in the UK with access to Freeview services. Up to and
    including fiscal 2001, this number comprised subscribers to ITV
    Digitals DTT service. For further details see
    Item 4 Distribution.

Factors which materially affect the
comparability of the selected financial data

Accounting changes

During fiscal 2003, US accounting standard SFAS
No. 142, Goodwill and Other Intangible Assets, was
implemented. The impact of the adoption of this standard is
described in Item 18, Note 28 (i).

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 implemented. The impact of the adoption of this
standard is described in Item 18, Note 28 (i).

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

Business combinations

On April 14, 2000, we completed the
acquisition of a 24% interest in KirchPayTV (subsequently
diluted to 22.03%). We gross equity accounted for our share of
results of this joint venture from April 14, 2000 until
February 8, 2002 under UK GAAP, and until
December 31, 2001 under US GAAP. See the consolidated
financial statements for further information relating to our
accounting treatment of our investment in KirchPayTV under UK
and US GAAP.

During fiscal 2001, we completed the acquisitions
of BiB and SIG. The results of these acquisitions were
consolidated from the respective dates of acquisition.

Exchange rates

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

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

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

|               |  |      |        |     |  |  |        | 
|-------------- |  | ---- | ------ | --- |  |  | ------ | 
|Month          |  | High |        | Low
|               |  |      |        |    
|May 2003       |  |      | 1.6484 |     |  |  | 1.6020 | 
|June 2003      |  |      | 1.6840 |     |  |  | 1.6278 | 
|July 2003      |  |      | 1.6718 |     |  |  | 1.5867 | 
|August 2003    |  |      | 1.6170 |     |  |  | 1.5728 | 
|September 2003 |  |      | 1.6642 |     |  |  | 1.5732 | 
|October 2003   |  |      | 1.7025 |     |  |  | 1.6598 | 

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|                    |  |            |        | 
|------------------- |  | ---------- | ------ | 
|Year Ended June 30, |  | Average(1)
|                    |  |           
|1999                |  |            | 1.6421 | 
|2000                |  |            | 1.5919 | 
|2001                |  |            | 1.4509 | 
|2002                |  |            | 1.4479 | 
|2003                |  |            | 1.5915 | 






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(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 November 26, 2003 the noon buying rate
was US$1.7090 per £1.00.

RISK FACTORS

This section describes the significant risk
factors affecting our business. These risks could materially
adversely affect our business, financial condition, prospects,
liquidity or results of operations. Additional risks and
uncertainties 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.

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

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

We generate wholesale revenues from a limited
number of customers.

Our wholesale customers, to whom we offer the Sky
Channels and from whom we derive our cable revenues, comprise
principally ntl Group Ltd. (ntl) and Telewest
Communications plc (Telewest). We understand that
Telewest is in the process of completing a financial
restructuring with its bondholders and shareholders (see
Item 4 Distribution  Cable
Distribution  United Kingdom).

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

We are subject to a number of long term
obligations.

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

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

We face competition from a broad range of
companies engaged in communications and entertainment services,
including cable television, digital and analog terrestrial
television, telecommunications providers, and home video
products companies, as well as companies developing new
technologies and other suppliers of

8



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##### Table of Contents



news, information, sports and entertainment, as
well as other providers of interactive services. Although we
have continued to develop our services through technological
innovation and in licensing a broad range of content, we cannot
predict with certainty the changes that may occur in the future
and affect the competitiveness of our businesses. In particular,
the means of delivering various of our (and/or competing)
services may be subject to rapid technological change.


Our ability to compete successfully will depend
on our ability to continue to acquire, commission and produce
programming content, and attractively package and offer it to
our customers at competitive prices. The program content and
third party program services we have licensed from others are
subject to fixed term contracts which will expire. We cannot
assure you that program content or third party program services
(whether on a renewal or otherwise) will be available to us on
acceptable terms, or at all, and if so available, that such
program content or program services will be attractive to our
customers.

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

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

On December 17, 2002, following an
investigation and the submission by BSkyB of written and oral
representations, the Office of Fair Trading (OFT)
announced that BSkyB had not been found in breach of the
Competition Act 1998. Both ntl and the liquidator of ITV Digital
requested, under the Competition Act 1998, the OFT to vary or
withdraw its decision concerning BSkyB. On July 29, 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
Appeals Tribunal has now expired, without any appeal having been
made. See Item 4 Government
Regulation  UK Competition Law Regime  The
Competition Act 1998.

The European Commission has commenced
investigations into a number of agreements, decisions or
practices leading to the acquisition of broadcasting rights to
football events within the European Economic Area
(EEA), including the sale of exclusive broadcast
rights to Premier League football by The Football Association
Premier League Limited (FAPL). On June 21,
2002, BSkyB Limited and the FAPL notified BSkyB Limiteds
current arrangements for the broadcast of FAPL football matches
to the European Commission seeking either a clearance or an
exemption from Article 81 of the EC Treaty. The FAPL has
also notified the rules of the FAPL to the European Commission.
On December 20, 2002, the European Commission issued a
Statement of Objections to the FAPL outlining certain concerns
in respect of the FAPLs joint selling of broadcast rights
to Premier League football. BSkyB has received several requests
for information from the European Commission concerning the
bidding process undertaken by the FAPL in relation to the sale
of Premier League football rights in respect of the three year
period 20042007. Whilst this EC investigation remains
ongoing, the FAPL announced that BSkyB has been awarded (subject
to contract) all four packages of exclusive live UK rights to
FAPL football, two near live packages of UK rights
to FAPL football (both on a delayed basis), four of the five
packages of live rights in the Republic of Ireland and two
near live packages of rights in the Republic of
Ireland from the beginning of the 2004/05 season to the end of
the 2006/07 season. BSkyB is currently unable to assess whether
this EC investigation will have a material effect on the Group
and its financial results.

We cannot assure you that we will succeed in
obtaining all requisite approvals in the future for our
operations without the imposition of restrictions which may have
an adverse consequence to us nor that

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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.


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

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

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

We license conditional access software and
receive a number of related support services, including the
provision of smart cards, from NDS Limited, which is our sole
supplier of such technology. Were NDS unable to continue to
provide us with such services our business could be negatively
affected.

There is a large existing population of digital
set-top boxes (in which we have made a significant investment
and which are owned by customers). Were a significant number of
these to suffer failure, or were our set-top boxes to be
rendered either redundant or obsolete by other technology or by
the mandatory imposition of incompatible technology, or should
we need to or wish to upgrade the existing population of set-top
boxes this could have a material adverse effect on our business.




ITEM
4.     INFORMATION ON THE
COMPANY

HISTORY AND DEVELOPMENT OF THE GROUP AND
BUSINESS OVERVIEW

Introduction

British Sky Broadcasting Group plc and its
subsidiaries operate a leading pay TV service, principally 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. We also
retail our channels, together with channels broadcast by third
parties, to DTH subscribers and certain of our channels
(together with channels broadcast by third parties) to a limited
number of DSL subscribers. We also make three of our channels
available free-to-air via the UK DTT platform.

At September 30, 2003, there were
approximately 12,576,000 subscribers to our pay TV
service in the UK and Ireland. Of these, 7,015,000 were digital
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), there were 1,710,000 homes in UK capable of
receiving certain of our channels via the DTT platform. Our
total revenues in fiscal 2003 were £3,186.0 million
(fiscal 2002: £2,776.1 million; fiscal 2001:
£2,306.0 million). This was derived from
£2,341.2 million in subscription fees from DTH viewers
(fiscal 2002: £1,929.2 million; fiscal 2001:
£1,536.7 million), £202.2 million in
subscription fees from cable platform operators (fiscal 2002:
£279.4 million (subscription fees from cable and DTT
platform operators); fiscal 2001: £299.1 million
(subscription fees from cable and DTT platform operators)),
£283.6 million in advertising sales revenue (fiscal
2002: £250.7 million; fiscal 2001:
£270.5 million), £218.3 million in
interactive revenue (fiscal 2002: £186.0 million;
fiscal 2001: £93.0 million) and
£140.7 million in other revenue (fiscal 2002:
£130.8 million; fiscal 2001: £106.7 million).

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We are engaged in television broadcasting,
together with certain ancillary functions, principally within
the UK and Ireland, with activities conducted principally from
the UK. All of our turnover principally arises from services
provided to retail and wholesale customers within the UK, with
the main exception of £92.9 million (fiscal 2002:
£62.4 million; fiscal 2001: £32.6 million)
which arises from services provided to retail and wholesale
customers in Ireland and £9.0 million (fiscal 2002:
£7.7 million; fiscal 2001: £5.4 million)
which arises from services provided in the Channel Islands.

As set forth herein, references to fiscal years
are to our fiscal years which ended on the Sunday nearest to
June 30, in each year. We publish our financial statements
in British pounds sterling (£). References herein to
US dollars, dollars, US$,
$ and ¢ are to currency of the US,
references to Euro and
 are
to currency of the European Community and references to
pounds sterling, £,
pence and p are to currency of the UK.
Certain pounds sterling amounts stated herein have been
translated into US dollars at an assumed rate solely for the
convenience of the reader and should not be construed as
representations that such US dollar amounts actually represent
such pound sterling amounts or that such pound sterling amounts
could be converted into US dollars at the rate indicated or at
any other rate. Unless otherwise stated herein, such US dollar
amounts have been translated from the corresponding pound
sterling amounts at the noon buying rate in The City of New York
for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the
noon buying rate) on June 30, 2003, which was
$1.6529 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 within
Item 18.

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

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

Programming

We provide viewers with a broad range of
programming options. Our programming is an important factor in
generating and maintaining subscriptions to our channels by
viewers. With respect to the channels we own and operate, we
incur significant expense to acquire exclusive pay TV rights to
films, the exclusive rights to broadcast certain sports events
live and rights to other general entertainment programming. We
are dependent upon the licenses which grant us these rights as
well as our satellite television services licenses,
telecommunication licenses and authorizations. We also produce
and commission original entertainment programming. We have also
acquired the rights to market the television services of third
parties to DTH viewers. Currently, we own, operate and
distribute 15 Sky Channels via our digital service (or 25
including multiplexed versions of the Sky Channels but excluding
the business channels SkyVenue and the Pub Channel). We also
currently retail to DTH viewers 82 Sky Distributed Channels
(including multiplexed versions of channels). 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 Sky digital subscribers the digital audio
services Music Choice and Music Choice Extra, nine radio
services and the Sky Box Office service. In September 2001, we
ceased broadcasting our residual analog services.

The current Sky Channels are Sky Movies 1
(which was previously branded Sky Movies Premier and which has
four multiplex versions: Sky Movies 3, Sky
Movies 5, Sky Movies 7 and Sky Movies 9), Sky
Movies 2 (which was previously branded Sky Movies Max and
which has three multiplex versions: Sky Movies 4, Sky
Movies 6 and Sky Movies 8), Sky Cinema 1 (which
was previously branded Sky Movies Cinema and which has one
multiplex version: Sky Cinema 2), Sky Sports 1, Sky
Sports 2, Sky Sports 3, Sky Sports Xtra (previously
Sky Sports Extra), Sky Sports News, Sky One (and its
multiplex version, Sky

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One Mix), Sky News, Sky Travel, (including its
multiplex version, Sky Travel Extra), Sky Travel Shop and three
music channels: Flaunt, The Amp and Scuzz. Our channels
multiplexes are versions of the primary channels on which the
programs are substantially the same as those on the primary
channel, but are transmitted at different times.


We retail to our DTH customers various
combinations of the Sky Basic Channels and the Sky Distributed
Channels (other than the Premium Sky Distributed Channels) as
basic tiers of programming, ranging from 7 to 92 television
channels (as well as certain music audio and radio services).
All of these basic packages are collectively called the
Basic Packages. Our DTH subscribers either subscribe
to one of the Basic Packages alone (or together with any one or
more Premium Sky Distributed Channel) or receive one of the
Basic Packages within the cost of any of the Sky Premium
Channels that the subscriber receives. We also offer Sky Box
Office and Music Choice and Music Choice Extra to 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
(other than QVC) are encrypted in order to limit access to
paying subscribers only.

Both ntl and Telewest currently carry all of the
Sky Premium Channels, although both offer our movie multiplex
channels only to their digital cable subscribers. ntl also
carries on its digital networks all of the Sky Basic Channels
other than Sky Travel Shop. Telewest carries three of the eight
Sky Basic Channels (excluding multiplex versions). Both ntl and
Telewest also carry some Sky Box Office events for
re-transmission to their cable subscribers, but do not carry the
Sky Box Office movie service.

According to surveys produced by BARB, as of
June 30, 2003, an estimated 27% of the estimated
24.8 million TV homes in the UK were equipped with digital
satellite reception equipment; 14% subscribed to a cable TV 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 6% had digital terrestrial television. According to
BARB estimates, in the UK the Sky Channels accounted for an
estimated 29% of viewing in homes with cable or satellite
reception equipment of all satellite and cable channels (or an
overall 12% viewing share of all channels available within
satellite and cable homes during the same period) and the Sky
Distributed Channels accounted for the majority of the balance
of viewing of satellite and cable channels.

For the year ended June 30, 2003, BARB
estimates that 42% of all viewing in UK homes with digital
satellite reception equipment (digital satellite
homes) was of channels available via the satellite
platform other than BBC1, BBC2, ITV1, Channel 4 and
five. BARB estimates that in the same period Sky
Channels accounted for 32% of multi-channel viewing in UK
digital satellite homes, with an overall 16% viewing share
across all channels available (including the traditionally
analog terrestrial channels) within digital satellite homes.

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



| |                 
| | ----------------
| | Premium Channels



| |                     
| | --------------------
| | Sky Premium Channels



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

Sky Movies 1 and 2 operate 24-hours per day,
seven days a week and principally show the licensors
output of recent release movies, made-for-TV movies and certain
library movies (in respect of which we are typically granted
exclusive pay TV rights to broadcast the licensors output
during the relevant pay TV window) distributed by major
Hollywood and independent US and European licensors.

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As of June 30, 2003, over 97% of movie
subscribers subscribed to both of the Sky Movies channels.

In the last three years, we have also been
involved in financing the production of feature films to be
exploited on television, including on our own movie channels.



| |                                                
| | -----------------------------------------------
| | Sky Sports 1, Sky Sports 2, 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. At
June 30, 2003, there were approximately 5.2 million UK
and Irish 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 as a free channel to DTH subscribers to both Sky
Sports 1 and Sky Sports 2. Sky Sports Xtra broadcasts
primarily non-UK sports such as NFL, international cricket,
Masters tennis, NBA, UEFA Champions League football (soccer) and
Spanish League football.

Our programming rights for the Sky Sports
channels include exclusive rights to broadcast live 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.

On August 8, 2003, October 3 and
October 30, 2003, it was announced that the Group had
successfully bid for all four packages of exclusive live UK
rights to Football Association Premier League (FAPL)
football, two near live packages of UK rights to
FAPL football (both on a delayed basis), four of the five
packages of live rights in Ireland and two near live
packages of rights in Ireland from the beginning of the 2004/05
season to the end of the 2006/07 season. The European Commission
is investigating the bidding process undertaken by the FAPL in
relation to the collective selling of Premier League football
rights.



| |                   
| | ------------------
| | Sky Bonus Channels



| |                           
| | --------------------------
| | Sky Cinema 1, 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 the Disney
Channel and three additional multiplexes to the core Disney
Channel via DTH, in the UK and Ireland, as a bonus channel to
those of our DTH subscribers receiving both of our Sky Movies
channels and to other digital DTH subscribers on an à
la carte basis.



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

In August 2001, we entered into a joint venture
with Chelsea Village plc in respect of Chelsea Digital Media
Limited (in which we own a 20% equity interest) to establish and
operate a digital subscription pay TV channel dedicated to
showing certain programming relating to Chelsea Football Club.
We offer Chelsea TV to our DTH subscribers solely on an à
la carte basis.

13



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| |     
| | ----
| | 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) to operate a
digital subscription pay TV channel dedicated to showing certain
programming relating to 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 cable carriage of MUTV in
the UK and Ireland.



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

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



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

Artsworld, a pay TV channel (in which we own a
50% equity interest) broadcasting arts-oriented programming,
including classical music, opera and dance, launched in December
2001. We offer Artsworld to our DTH subscribers solely on an
à la carte basis.



| |                      
| | ---------------------
| | Star News / Star Plus

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



| |               
| | --------------
| | Basic Packages



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

Sky One is the general entertainment flagship
channel of the Sky Channels. It is targeted primarily at a 16-34
age group audience and includes first-run US entertainment
programs and UK commissioned factual and drama series. Based
upon BARB surveys, during the 52 weeks ended June 30,
2003, Sky One was viewed by approximately 43.8% of individuals
in all UK TV homes. In December 2002, we launched Sky One Mix, a
multiplex version of Sky One.

Sky News provides 24-hour national and
international news coverage. Sky News is broadcast unencrypted
and can be seen by all DTH viewers 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 third party operators outside the UK.

Sky Sports News 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
currently available to DTH subscribers and to subscribers to
ntls digital cable television services. In August 2002, we
launched Sky Travel Extra offering travel programming and the
opportunity for Sky Travel DTH viewers to purchase a wide range
of holidays via their television set. In February 2003 we also
launched Sky Travel Shop, a tele-shopping channel offering DTH
viewers holiday packages to purchase via the telephone or online.

Versions of Sky News, Sky Sports News and Sky
Travel are available as part of the free-to-view service on DTT
(See Distribution below).

In April 2003, we launched three interactive
music channels, Flaunt, The Amp and Scuzz, currently available
to our DTH subscribers and to subscribers to ntls digital
cable television services.

14



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##### Table of Contents





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

We typically have the exclusive right to offer
the basic Sky Distributed Channels to residential DTH viewers in
the UK and Ireland.

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 relevant) to cable operators in the UK and
Ireland, and have the non-exclusive right to distribute the
Disney Channel to cable operators. The owners of the Sky
Distributed Channels generally sell their own advertising time
on such channels, although we act as an advertising sales agent
for The History Channel, the Biography channel, the National
Geographic Channel, Adventure One, MUTV, Chelsea TV, Hallmark,
the six EMAP music channels (Q, Kiss, Magic, Kerrang, Smash Hits
and The Box) and the eight Discovery Channels (Discovery, Home
and Leisure, Travel and Adventure, Wings, Sci-Trek,
Civilisations, Health and Animal Planet), on a commission basis
as well as for these channels multiplexes other than The
Hits and Discovery Kids.



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

We offer Music Choice, a 24-hour digital audio
service consisting of 10 audio channels, to all DTH subscribers.
This is included in each of our Basic Packages. In addition,
Music Choice Extra, which consists of 30 digital audio channels,
is available to our DTH subscribers as an à la carte
premium service.



| |             
| | ------------
| | Pay-per-view

With our Sky Box Office service, we currently
offer our DTH subscribers 62 screens of TV 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 movie distributors which enable us to show their
movies on Sky Box Office. We also offer seven screens of adult
movies, between 10 pm and 6 am, to our DTH subscribers
via our 18 Plus Movies service.

Following our purchase of exclusive DTH
pay-per-view rights to Premier League football matches (for the
seasons 2001/02-2003/04 inclusive), a further 40 matches (over
and above those matches broadcast on our Sky Sports channels)
are available on a pay-per-view basis via our Premiership
Plus service for the current football season, either for a
per-match price or for a one-off season ticket price.

In addition to our own pay-per-view services, we
retail to our DTH subscribers six 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
Channels. 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. Prior to its
closure in April 2002 we supplied versions of certain of the Sky
Channels to ITV Digital on wholesale terms. These arrangements
with ITV Digital made a material contribution to our operating
profit.

|                             |  |                |        |               |  |      |        |      |  |  |        |  |  |  |        | 
|---------------------------- |  | -------------- | ------ | ------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                             |  |                |        |              
|                             |  | As at June 30, |        | As at        
|                             |  |                |        | September 30,
|                             |  | 2001           |        | 2002          |  | 2003 |        | 2003
|                             |  |                |        |               |  |      |        |     
|                             |  |               
|                             |  | (in thousands)
|Distribution of Sky Channels |  |                |        |               |  |      |        |      |  |  |        |  |  |  |        | 
|DTH subscribers              |  |                | 5,453  |               |  |      | 6,101  |      |  |  | 6,845  |  |  |  | 7,015  | 
|Cable subscribers            |  |                | 3,486  |               |  |      | 4,091  |      |  |  | 3,871  |  |  |  | 3,851  | 
|DTT  UK(1)                  |  |                | 1,105  |               |  |      |       |      |  |  | 1,510  |  |  |  | 1,710  | 
|                             |  |                |        |               |  |      |        |      |  |  |        |  |  |  |        | 
|Total UK and Ireland         |  |                | 10,044 |               |  |      | 10,192 |      |  |  | 12,226 |  |  |  | 12,576 | 
|                             |  |                |        |               |  |      |        |      |  |  |        |  |  |  |        | 






|    |                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | From fiscal 2003, the number in respect of DTT
    consists of BARBs estimate of the number of homes in the
    UK with access to Freeview services. Up to and including fiscal
    2001, this number comprised subscribers to ITV Digitals
    DTT service.

15



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##### Table of Contents



DTH Distribution

We launched Sky digital, our digital DTH service,
in October 1998 and we terminated our previous analog service in
September 2001. During fiscal 2003, whilst there were 1,355,000
new subscribers to Sky digital, digital churn in that same
period was 611,000. Digital DTH churn in total was 9.4% in
fiscal 2003 (digital churn fiscal 2002: 10.5%; total churn
fiscal 2001: 10.0%). We define digital churn as the number of
digital DTH subscribers over a given period who terminate their
subscription in its entirety, net of former subscribers who
reinstate their subscription in that period.

As at September 30, 2003, we had a total of
7,015,000 DTH subscribers, with the Sky World package (the
channel package containing all of the Sky Premium Channels and
the largest number of basic channels) taken by over 54% of our
DTH subscribers.

In fiscal 2003, we achieved an annual net growth
of 744,000 digital DTH subscribers. The future demand and speed
of take up of our digital service will depend upon the
attractiveness of our digital service, the marketing initiatives
adopted both by us and others and the competitive pressures
resulting from the availability of competing services such as
analog and digital terrestrial and analog and digital cable
television.

In fiscal 2003 we derived
£2,341.2 million of our total revenues from DTH
subscription revenues, which are a function of the number of
subscribers, the mix of services taken and the rates charged in
subscription fees from DTH viewers (fiscal 2002:
£1,929.2 million; fiscal 2001:
£1,536.7 million).

In the UK, the price to a DTH subscriber of our
basic package containing the largest number of basic channels is
currently £18.50. In 2001 and 2002 it was £16; in
2000, it was £13. Depending upon the number of Sky Premium
Channels taken (which currently can be between one and five
(plus multiplexes)), the price to that same DTH subscriber in
the UK of taking Sky Premium Channels currently ranges between
£24.50 and £38 (2002: between £26 and £37;
2001: between £24 and £34; 2000: between £21 and
£32).

In Ireland, the price to a DTH subscriber of our
basic package containing the largest number of basic channels is
currently 26.99
(27 between
January and September 2002) (fiscal 2002: IR£16,
IR£21.26 or
27; fiscal 2001
IR£13 or IR£16). Depending upon the number of Sky
Premium Channels taken (which currently can be between one and
five (plus multiplexes)), the price to that same DTH subscriber
in Ireland of taking Sky Premium Channels currently ranges
between 34.61
and 60 (fiscal
2002: between IR£24 and IR£41.74 or between
37 and
53; fiscal 2001:
between IR£21 and IR£36).

We offer our DTH services to both residential and
commercial DTH subscribers in the UK and Ireland. Our commercial
subscribers include offices, retail outlets, hotels, pubs and
clubs.

At June 30, 2003, residential and commercial
DTH subscribers represented approximately 64% (the balance being
made up of subscribers to our wholesale customers) of the total
number of UK and Ireland subscribers to our services.

Digital Satellite Equipment

UK

In order to receive our Sky digital service,
viewers are required to have a digital satellite system which
includes a satellite dish and LNB, a digital set-top box and a
remote control. When we launched Sky digital, the cost of this
equipment to the customer without the benefit of any subsidy
would have been approximately £400. With the benefit of a
subsidy provided by BiB it was £199 (for new customers) or
£159 (for existing Sky analog customers). In 1999, we began
a new initiative to accelerate the take up of digital satellite
by offering free digital satellite systems. During 2002, in
order to receive a free digital satellite system a subscription
to our services was required. However, from January 1, 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 free set-top boxes are still required to pay for
installation and 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

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##### Table of Contents



outbound calls for a 12 month period. From
time-to-time, promotional offers are run and installations may
be purchased at discounted prices to those stated below.


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

The retail price for a set-top box during fiscal
2003 to a customer taking up the free equipment offer has been
as follows:

|                                                        |  |                    
|------------------------------------------------------- |  | -------------------
|Price (one-off ) for set-top box to
    subscribers     |  | Price including VAT
|from January 1, 2002                                    |  | Free               
|Price (one-off ) for set-top box to
    non-subscribers |  |                    
|until December 31, 2002                                 |  | £169               
|from January 1, 2003                                    |  | Free               

Our charges for standard installation of
satellite equipment during fiscal 2003 have been as follows
(charges for installations which are non-standard vary):

|                                                     |  |                       |  |     
|---------------------------------------------------- |  | --------------------- |  | ----
|Installation charge (one-off ) to
    subscribers    |  | Price including VAT  
|from June 5, 2002                                    |  | Sky World subscribers |  | £60 
|                                                     |  | all other subscribers |  | £100
|Installation charge (one-off) to
    non-subscribers |  |                      
|until December 31, 2002                              |  | £100                 
|from January 1, 2003                                 |  | £120                 

We also offer our subscribers the opportunity to
purchase up to three extra standard set-top boxes for use at the
same residence as their original set-top box which enables them
to watch different satellite programs in different rooms at the
same time using just one satellite dish. As well as the cost of
the extra set-top box (currently £99 when taken with an
extra Sky digital subscription), an installation charge and
monthly subscription charge (discounted as against our standard
subscription charges) are also payable by the subscriber. With
each additional subscription the customer is able to obtain all
the channels in his or her subscription for the original set-top
box on each extra set-top box.

The prices for an extra set-top box (Extra
Digibox) to our subscribers for equipment, installation
and subscription have been as follows:

|                                                                                         |  |   |     |  
|---------------------------------------------------------------------------------------- |  | - | --- | -
|Price for each additional Extra
    Digibox                                              |  |   |     |  
|Price of set-top box until October 7, 2002                                               |  | £ | 169 |  
|Price of set-top box from October 8, 2002                                                |  | £ | 99  | *
|Installation charge (standard)                                                           |  | £ | 50  |  
|Incremental charge for any other installation
    (standard) at same time                |  | £ | 25  |  
|Monthly subscription until October 7, 2002
    (regardless of package subscribed to)     |  | £ | 12  |  
|New monthly subscriptions from October 8,
    2002 (regardless of package subscribed to) |  | £ | 15  |  






|  |                                                  
|- | -------------------------------------------------
|* | when taken with an extra Sky digital subscription

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##### Table of Contents



During fiscal 2003, we have continued to offer
Sky Plus (Sky+). Customers pay a one-off fee for the
Sky+ box and must also pay a monthly subscription to use its
recording features. The prices for equipment, installation and
subscription have been as follows:

|                                                                                                |  |   |     | 
|----------------------------------------------------------------------------------------------- |  | - | --- | 
|Price for Sky+                                                                                  |  |   |     | 
|Price of set-top box until October 7, 2002                                                      |  | £ | 300 | 
|Price of set-top box from October 8, 2002                                                       |  | £ | 250 | 
|Price of set-top box from March 1, 2003                                                         |  | £ | 249 | 
|Price of set-top box from August 22, 2003                                                       |  | £ | 199 | 
|Installation charge for Sky digital subscribers
    (standard)                                  |  | £ | 50  | 
|Installation charge for non-Sky digital
    subscribers until March 7, 2003 (standard)          |  | £ | 100 | 
|Installation charge for non-Sky digital
    subscribers from March 8, 2003 (standard)           |  | £ | 120 | 
|Incremental charge for any other installation
    (standard) at same time until October 1, 2003 |  | £ | 25  | 
|Incremental charge for any other installation
    (standard) at same time from October 1, 2003  |  | £ | 10  | 
|Monthly subscription for Sky+ functionality*                                                    |  | £ | 10  | 






|  |                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Since October 1, 2003, this monthly
    subscription fee has not been applicable to any DTH subscriber
    taking two or more Sky Premium Channels (excluding bonus and
    stand-alone premium channels).

Both satellite equipment and subscriptions to our
DTH service are offered by us directly and by 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 equipment initiative and
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 degree of promotion and special offers.
Installation services are provided to customers by some of the
smaller retailers. We provide installation and equipment repair
services through Sky In-Home Service Limited (SHS),
an installation company which is one of our subsidiaries. In
fiscal 2003, approximately 1.0 million DTH systems were
installed in the UK by or on behalf of
SHS (2002: 1.3 million; 2001: 2.1 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, electronic program guide
and navigation technology, as well as applications and online
return path infrastructure to permit the offering by us of
interactive television services. 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. One manufacturer supplies television
sets containing integrated digital satellite and DTT receivers.

At June 30, 2003, we had entered into
agreements committing us until the end of June 2004 to purchase
1.1 million digital satellite set-top boxes from four
manufacturers. Our agreements set the price to us of the set-top
boxes until the end of July 2004.

Sky+ is a set-top box that we have developed,
which contains two satellite tuners and an integrated personal
television recorder allowing approximately 20 hours of
programming to be recorded directly on to a hard-disk recording
facility contained within the set-top box. This enables digital
satellite viewers to watch one live digital satellite program
(or a previously recorded program) while simultaneously
recording another, pause or rewind live TV and automatically
record some series of favorite programs.

From time to time, we update the functionality of
Sky+ (and the digital satellite set-top boxes) using software
downloads into the set-top box, broadcast via satellite.

Ireland

In Ireland, both satellite equipment and
subscriptions to our services are offered directly by us and by
a large number of Irish retailers. Such retailers, like their UK
counterparts, generally receive payments from us in connection
with the supply of satellite reception equipment under our free
digital satellite equipment initiative and commission for the
sale of subscriptions to Skys services sold to DTH
customers in Ireland. Some of the channels offered in Ireland
differ to those offered in the UK.

18



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##### Table of Contents



At September 30, 2003, there were
approximately 297,000 DTH subscribers to our services in
Ireland.

Whilst our digital DTH services have been
available in Ireland since December 1998, it was not until
September 2000 that we made available to DTH subscribers in
Ireland a free set-top box offer. To benefit from this offer,
customers in Ireland must subscribe to our services. In
September 2002, a limited range of online interactive services
were provided to our DTH subscribers in Ireland for the first
time.

Interactive

Our digital DTH service allows a broadcaster,
such as ourselves, to develop and offer its viewers enhanced and
interactive services as well as offering additional
functionality. 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)
and Sky News Active (behind Sky News). BSkyB, as well as other
broadcasters, is enhancing its channels with interactive
services which can be accessed whilst the programming on the
channel stays in view. In fiscal 2003, we derived £218.3
million in interactive revenue (fiscal 2002:
£186.0 million; fiscal 2001: £93.0 million).

Currently, in addition to the Sky Active portal
(see Sky Interactive below), a range of other
interactive services is available, and DTH customers can access
these services by means of either stand alone portals (Sky
Active being one of them) or in conjunction with certain
broadcast channels. Services provided in this manner include
competitions, voting, messaging services, quizzes, games and
betting some of which relate to the program content.

Technological advances during the current year
have allowed us to implement a multi-platform retail offering
using third party fulfillment, and to produce interactive voting
applications which can handle a higher level of call volumes. In
addition, we have developed our browser technology, allowing
betting and other applications to be developed to higher
standards.

We have continued to develop our interactive
advertising technology, for the first time developing
advertising applications that make use of our browser technology
with a view to enabling a wider range of interactive advertising
services to be offered.

Sky Interactive

BiB, through its subsidiary Sky Interactive
Limited, provides an interactive TV platform for the development
and delivery of interactive services, such as games, home
shopping, betting, banking, travel, holiday and e-mail services.
It is also used to deliver the interactive services of third
parties, such as a UK government information service and the
enhanced services of a number of broadcasters. We currently own
and operate four stand alone interactive portals on the digital
satellite platform which relate to a broad range of interactive
services including retail, betting and games.

Major product launches by us during the year
include SkyBetVegas, offering a range of fixed odds betting
games.

Sky Active is currently offered free of charge to
all digital satellite viewers and the customers telephone
line is the return path for these interactive services via a
modem in the set-top box. It derives revenues principally from
(1) premium rate telephone charges in connection with
viewers usage of its services (such as pay-per-play games,
voting and entries to quizzes), (2) revenue sharing in
e-commerce transactions (e.g. retailing or betting)
completed on the platform, (3) advertising and
(4) tenancy and technology fees charged to content
providers that offer services on the platform including licenses
of its Wireless Mark-Up Language technology and backend
infrastructure to third party broadcasters on the digital DTH
platform. In addition, BiB (as well as other companies within
the Group) earns revenues from the conditional access and access
control charges charged to broadcasters and interactive service
providers on the digital DTH platform.

In addition to the broadcasters who are enhancing
their channels with interactivity, there are currently seven
third party providers of stand-alone interactive services (i.e.
separate to those offered with any

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##### Table of Contents



television channel) offering a broad range of
services including games, home shopping, betting, banking,
travel, holiday and e-mail services, as well as a UK government
information service.


Third party channels (and third party stand alone
interactive portals such as PlayJam, GoPlayTV, Teletext
Holidays, UK online and Fancy A Flutter) are increasingly making
use of the interactive potential of the digital satellite
platform. Already third party broadcasters such as the BBC, ITV,
Channel 4, Flextech, UK TV, Discovery, MTV, Nickelodeon, QVC,
Digital Television Production Company Ltd., Cartoon Network and
Disney have successfully launched interactive services. These
services include enhanced television, information services,
games, betting, shopping, voting and quizzes. In October 2002,
attheraces (in which we have a 33.3% equity interest) launched
an interactive betting service linked to its own dedicated horse
racing channel. Third party channels may offer such
interactivity in conjunction with Sky Interactive Limited or
provide their interactive services independently of Sky
Interactive, including making use of competing interactive
infrastructures connected to the digital satellite platform.

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. In
November 2002, we issued 43.2 million shares with a fair
market value of £253 million to BT, HSBC and
Matsushita (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 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. The 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.

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 a digital cable service
across the majority of their cable systems and each accounts for
a substantial proportion of our wholesale revenues, which are
revenues derived from the supply of Sky Channels to cable
platforms. In fiscal 2003, we derived £202.2 million
in subscription fees from cable platform operators (fiscal 2002:
£279.4 million (subscription fees from cable and DTT
platform operators); fiscal 2001: £299.1 million
(subscription fees from cable and DTT platform operators)). We
estimate that, as of June 30, 2003, 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).

We understand that Telewest has recently
undergone a financial restructuring and that on
September 15, 2003, Telewest announced that it had reached
agreement in principle with the ad hoc committee of its
bondholders, subject to certain conditions, on the terms of a
financial restructuring. Telewest has continued to pay its debts
to us as they have fallen due. The Group is keeping its trading
relationships with Telewest under close review.

Although cable operators do not carry all Sky
channels, on their digital cable networks both ntl and Telewest
carry all of the Sky Premium Channels.

Both ntl and Telewest carry certain of the Sky
Basic Channels, but neither carries the enhanced Sky Channel
services, such as Sky News Active and Sky Movies Active. In June
2003, we announced that we had concluded a new agreement with
ntl for the supply of nine Sky Basic Channels until the end of
2006.

Most narrowband cable networks have a more
limited channel capacity than digital satellite or digital cable
and do not generally carry all Sky Channels.

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At September 30, 2003, there were
approximately 3,851,000 UK cable subscribers (including
broadband, narrowband and SMATV subscribers) to our programming.
During fiscal 2003, the overall trend was a decrease in the
cable television subscriber base in the UK. In the first quarter
of fiscal 2004, the trend has been a stabilisation of the UK
cable television subscriber base, however this may not be
indicative of future trends.

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

Ireland

In Ireland, cable subscriber fees for 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 September 30, 2003, there were
approximately 584,000 Irish cable subscribers to our
programming. We currently have arrangements in place with ntl
Ireland and Chorus, the two leading Irish cable operators, for
the re-transmission of certain of the Sky Channels to their
subscribers. Both ntl Ireland and Chorus, have launched, albeit
on a limited basis, digital cable services in Ireland.

DTT Distribution

Following the closure of the ITV Digital DTT
service in April 2002 and the subsequent grant by the UK
Independent Television Commission (ITC) of the
multiplex licenses previously held by ITV Digital to the British
Broadcasting Corporation (BBC) and to Crown Castle
UK Limited (Crown Castle), we broadcast versions of
three of our channels, Sky News, Sky Sports News and Sky Travel,
unencrypted free-to-air via the DTT platform. According to BARB
estimates, as at September 30, 2003, there were 1,710,000
homes in the UK with access to Freeview services via DTT.

Advertising

In fiscal 2003, we derived
£283.6 million of our total revenues from advertising
sales revenue (fiscal 2002: £250.7 million; fiscal
2001: £270.5 million).

In the UK, advertising agencies plan campaigns on
behalf of their clients and allocate proportions of each
clients proposed TV spend to the divisions of broadcasters
that specialize in the sale of TV advertising, which are known
as sales houses. The principal broadcasters in the UK with sales
houses aside from us are ITV, Channel 4 and Channel 5.

Advertising agencies do not buy specific spots
(defined as a 30-second commercial) within particular programs.
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 thirty-second commercial. The amount of advertising
spend a broadcaster receives is proportionate to its share of
audience viewing and the perceived quality of that audience.

We sell (or authorize others to sell) advertising
for all of the 15 Sky Channels (as well as for their
multiplexes) and around all programs that are broadcast on these
channels, irrespective of whether the programming was produced
in-house or purchased from a third party. We also act as the
advertising representative for the National Geographic Channel,
Adventure One, Hallmark, The History Channel, the Biography
channel, MUTV, Chelsea TV, the eight Discovery Channels
(Discovery, Home and Leisure, Travel

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and Adventure, Wings, Sci-Trek, Civilisations,
Health and Animal Planet) and the six Emap channels (Q, Kiss,
Magic, Kerrang, Smash Hits and The Box). We sell advertising
time across all of our channels, but can sell on a specific
channel basis where requested.


Across all UK multi-channel homes, our share (for
all of the Sky Channels) of commercial audiences (excluding
those of the BBC) at June 30, 2003 was (according to BARB
estimates) 17.5%, a slight increase from 17.3% at the end of the
previous fiscal year (fiscal 2001: 18.0%) (in part due to
the growth in subscribers to our channels). Our
subscribers households tend to be younger and more
affluent than the average UK household and reflect the
16-34 year old, ABC1 and male demographic profiles sought
by many advertisers. Since our launch of interactive advertising
in April 2000 over 300 interactive campaigns have been
broadcast by us and others via the digital satellite platform.

Competition

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

Terrestrial Television
Channels

We compete, in the UK, with the five
traditionally analog terrestrial channels (BBC1, BBC2, ITV1,
Channel 4 (and S4C, not Channel 4, in Wales only) and
five) broadcasting free-to-air in the UK (which are
now also available via DTH, cable and DTT, and, in the case of
DTH and DTT, on a free-to-air basis). In Ireland, we compete
with RTE1 and Network 2, the Irish language channel TG4 as
well as the commercial channel TV3. Amongst other things, we
compete with the terrestrial channels in both the UK and Ireland
for the acquisition of programming and viewers and we compete
with ITV1, Channel 4, five, and all of the
Irish terrestrial channels for advertising sales also. Because
we and the analog terrestrial channels (and other broadcasters)
all require 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 mean
that certain programming in which we are interested may not be
available to us.

Cable Operators

Competition in Programming

Whilst we are currently a leading supplier of
premium programming to cable operators in the UK and Ireland,
cable operators are potential competitors for programming rights
such as exclusive live broadcast rights to certain sporting
events. For example, ntl directly bid against us in its attempt
to obtain the exclusive live pay TV broadcast rights to Premier
League football until the end of the 2003/04 season and ntl and
Telewest secured the cable pay-per-view rights to Premier League
football until the end of the 2003/04 season. Competition
between us and other channel providers or programming providers
(including cable operators) may, from time to time, increase our
programming costs. Furthermore, Telewest owns and operates one
of the largest suppliers of television channels, Flextech, which
provides channels to both cable operators and to the DTH
platform.

Competition in Distribution

Cable operators compete with us as an alternative
service to DTH distribution and carry the majority of the Sky
Channels. There are a limited number of areas where it may not
be economically feasible to offer cable TV services, such as
some rural areas. Equally, there are also limited areas in the
UK, such as conservation areas, where, due to planning and local
regulations, DTH satellite reception equipment may not be
installed. Both ntl and Telewest provide digital cable services
in the UK. ntl Ireland and Chorus offer both analog and digital
cable and multipoint microwave distribution system
(MMDS) television services in

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Ireland (albeit on a much smaller scale than in
the UK). Cable networks currently extend to cover approximately
48% of UK homes. 46% of Irish homes currently take cable and
MMDS television services.


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

Digital Terrestrial
Television

The three Sky Channels transmitted via DTT,
together with a number of other free-to-air services (including
those provided by the BBC), are marketed under the generic brand
Freeview. In addition to these channels, there
remains some capacity on the DTT platform for other free-to-air
channels, and the possibility that a small pay TV service could
be introduced in the future.

It is likely that as a result of the availability
of free-to-air television channels via DTT, some consumers will
choose to take such free-to-air DTT services in preference to a
pay service from us or a cable operator. Since the availability
of services under the Freeview brand, as at September 30,
2003, according to BARB estimates approximately 1,710,000
UK homes are able to receive free-to-air services,
including certain Sky Channels, via DTT.

There is currently no DTT service operating in
Ireland.

Other Channels

In addition to competing for programming,
advertising and viewers with the Sky Distributed Channels, the
Sky Channels face similar competition from other TV channels
broadcast via satellite and/or via cable and/or via DTT. Via
satellite, these channels may be broadcast in an unencrypted
form, automatically-entitled encrypted form or may be
independently-retailed pay TV channels. Both the unencrypted
form and the automatically-entitled encrypted form channels
(which together currently amount to more than 160 digital
satellite channels (including radio services)) can be received
by anyone with appropriate Astra satellite reception equipment
(including a smart card for the reception of
automatically-entitled channels) without payment of a
subscription fee. Other than the digital satellite versions of
the analog terrestrial channels (BBC 1, BBC 2,
ITV 1, Channel 4 and five), none of these
channels individually has a viewing share in the UK that
approaches the combined Sky Channels share.

As at November 27, 2003, there were 24
digital encrypted satellite pay TV services for DTH reception
retailed independently of us. There were additionally 14 such
pay-per-view services, all of which are adult television
channels except for the two Setanta Sport pay-per-view services.

Emerging Technologies

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

Home Videos

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

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Advertising

Our primary competitors for TV advertising sales
are Granada plc and Carlton Communications plc, which between
them sell advertising on behalf of all the Channel 3
licensees and ITV 2 (as well as some smaller channels),
Channel 4 (which includes E4) and five. In
October 2003, the Secretary of State for Trade and Industry
confirmed that the proposed merger between Carlton and Granada
could go ahead if certain undertakings could be agreed between
Granada, Carlton and the Office of Fair Trading. We understand
that undertakings were agreed on November 14, 2003. Should
such a merger go ahead, it is not possible to say what effect,
if any, it would have on our business. Based upon the latest
BARB survey estimates, ITV 1 and Channel 4 were
available to approximately 24.3 and 24.1 million TV homes
respectively in the UK (both digital and analog), with
approximately 86% of TV homes receiving an acceptable
five terrestrial analog signal. In addition,
according to BARB, approximately 11.5 million UK homes have
access to satellite, cable, or digital terrestrial television.
Both ITV 1 and Channel 4 have a significantly greater
overall UK TV viewing share than any individual Sky Channel. As
a result of the ability of ITV 1 and Channel 4 to
reach almost all UK TV homes, these channels are able to
generate greater advertising revenues than we do. We also
compete with the Sky Distributed Channels and all other
commercial channels for TV advertising sales.

Within UK satellite and cable TV homes, however,
the Sky Channels in aggregate attract viewing levels which are
comparable to some of the analog free-to-air terrestrial
channels. This suggests to us that, as the number of satellite
and cable TV homes increases, our competitive position with
respect to advertising revenues may improve. The Sky Channels
jointly have an overall viewing share (within UK satellite and
cable TV homes) significantly greater than each of
Channel 4 and five in those homes, although the
Sky Channels joint viewing share is still less than that
of ITV 1 in these homes. However, in UK digital satellite
homes, the aggregate viewing share of the Sky Channels is close
to that of ITV 1. Based upon BARB surveys for the
52 weeks ended June 30, 2003, the viewing shares in UK
satellite and cable homes of the five analog terrestrial
channels and the combined Sky Channels were, respectively, BBC1
19.7%, BBC2 7.0%, ITV1 19.4%, Channel 4 6.9%,
five 4.6%, and the Sky Channels 12.2%, of which Sky
One accounted for 29% of the Sky Channels viewing share.
The remaining 30.2% of viewing was of other (non-Sky) satellite
and cable channels.

Technology and Infrastructure

We control access to encrypted DTH channels
through the use of a conditional access system, VideoGuard, as
described below. Apart from the smart cards, we do not own the
satellite reception equipment in DTH viewers homes (this
equipment is owned by the subscriber (other than the software in
the set-top box to which we retain title), even if they cease to
subscribe). 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. Our overall
capital expenditure represented approximately 3% of revenues in
fiscal 2003. We have £2.5 million of capital
expenditure in fiscal 2004 which has been contracted for, but
not provided for in our financial statements, of which
approximately 75% relates to information technology
infrastructure.

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

Encryption of Digital
Services

VideoGuard is a 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-

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subscription channels (automatically entitled
encrypted form) and encrypted digital pay and pay-per-view TV
and audio channels broadcast on digital satellite for reception
in the UK and/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 unauthorized DTH reception of our services. We
believe that there are no VideoGuard pirate devices capable of
unauthorized decryption of our services at this time in the
market. We take, and will continue to take, appropriate measures
to counter unauthorized reception, including implementing
effective over-the-air countermeasures and seeking 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.
We have recently completed the first periodic replacement of
digital smart cards since our digital launch.

We are actively working with cable companies in
the UK to investigate the use of any cable piracy devices. We
believe that we have suffered a loss of wholesale cable revenue
as a result of the availability of cable piracy devices. We are
unable to quantify this loss, including whether or not such
amount is material. We have not (to date) invoiced any cable
company in respect of such lost cable revenues and therefore
such lost revenues have not been recognized within our financial
statements.

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

Encryption of Channels Retailed by Third
Parties

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

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

As at November 27, 2003, there were 40
(excluding regional variants) third party television channels
(other than the Sky Channels and the Sky Distributed Channels)
using VideoGuard for digital encryption of their channels for
broadcast into the UK and/or Ireland. These include ITV1,
Channel 4, five, Sony Entertainment Television
Asia, the Setanta pay-per-view sports channels and the B4U movie
channel.

In addition to providing broadcast conditional
access services, both for our own DTH offering and those of
third parties, we also provide digital access control services
for interactive services produced by us and others, including
using a telephone return path to carry out transactions between
supplier and viewer. These broadcast conditional access and
access control services are regulated by the Director General of
Telecommunications (and will shortly be regulated by Ofcom). See
Government Regulation  European
Community  Advanced Television Standards
Directive.

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

Throughout the last three fiscal years we have
invested more than £120 million modernizing our
customer relationship management centers. This expenditure has
been focused on building new physical

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infrastructure for the contact centers and a
complete replacement of the contact center applications with
state-of-the-art technology. This project is still in a
development phase and in accordance with other projects of this
size and complexity there are inherent risks which might impact
the ultimate completion or timing of implementation. We have
also provided better training for contact center staff. Our
customer relationship management centers are based in Scotland.
The centers 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 centers to play a
key role in both customer acquisition and customer retention. We
provide customer management services for the Sky Channels and
the Sky Distributed Channels. In addition to providing digital
customer management services for the Sky Channels and the Sky
Distributed Channels, we also currently provide, through one of
our subsidiaries, digital customer management services for three
third party channels: North American Sports Network, Setanta
Sports and The Fantasy Channel. Through our subsidiary, we also
deliver viewer relations services for Discovery Networks Europe
and Discovery Networks EMEA, and manage customer services for
interactive television services, video-streaming services, and
TiVo.


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

Satellites

We lease the majority of the transponders that we
use for digital transmissions for reception by both DTH viewers
and cable operators, from SES ASTRA, the operator of the Astra
satellites. SES ASTRA is 100% owned by SES GLOBAL, a Luxembourg
company in which the Luxembourg State and GE Capital hold
significant stakes. We also lease four transponders via a
sub-lease from British Telecommunications plc (BT)
on the Eurobird satellites, owned and operated by Eutelsat.

We use some of the transponders that we have
leased for the Sky Channels. Some transponder capacity (and in
some cases all of the capacity on a particular transponder) is
subleased to third parties for the transmission of other
channels or services, including certain of the Sky Distributed
Channels.

For the transmission of the digital satellite
service, we have 28 transponders leased from SES on SES
satellites Astra 2A, 2B and 2D. All but five of our digital
transponder leases from SES are for a period of 10 years
with varying end dates between 2008 and 2011. The remaining five
leases expire between 2005 and 2008. We have rights to extend
certain of the initial lease periods.

The term of the digital leases on the Eurobird
satellite is 12.5 years from the operational service date
of the satellite which was in 2001.

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

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

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

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

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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
Isleworth. The Isleworth-sourced channels are fed to the uplink
site at Chilworth using a fiber link, which is backed up by a
diversely routed secondary link in case of any malfunction in
the primary fiber route. In the event of failure of our primary
playout site we have alternative facilities available. The
restoration of services would not be immediate and plans are now
being implemented to improve this situation, including investing
in further facilities to provide back up, which will be funded
out of internally generated cash flows and existing external
financing.

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

In the last fiscal year, we have completed the
construction of a second uplink facility at Fair Oak,
approximately 10 miles east of Chilworth. 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.

Emerging Technologies

We are currently evaluating possible means of
distributing our services other than by DTH, cable and DTT, such
as by DSL, Digital Audio Broadband, Internet, GPRS and third
generation cellular telephone networks (3G). Since 1999, we have
made certain of our channels available for redistribution on the
DSL network operated by Kingston Communications in and around
Hull, England, on a commercial trial basis. On November 1,
2002, a new commercial trial arrangement came into effect under
which we retail certain of our channels and a number of other
channels owned by third parties to subscribers via that DSL
network (currently around 5,000).

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

Minority Equity Investments

In November 1999, we formed Sky New Media
Ventures Limited (formerly Sky New Media Ventures plc) to
invest in online ventures. In fiscal 2000, we made several
investments in interactive and other Internet businesses.
Following the completion of our purchase of 100% of BiB in June
2001, several investments made by BiB became part of the Group.

We have minority interests in the parent
companies of three football teams (two of which are competing in
the English Premier League this season): Leeds United,
Manchester City and Sunderland. We are the exclusive commercial
and media agent for certain commercial and audiovisual rights
available for exploitation by these clubs (which excludes those
rights required to be negotiated collectively), as well as with
Chelsea Football Club and Chelsea Digital Media. In addition,
the joint venture we formed with Chelsea Village plc, Chelsea
Digital Media Limited (of which we own a 20% equity interest),
carries on certain media, e-commerce, telecommunication and
internet related activities of Chelsea Village plc, including
the operation of the Chelsea TV channel. In July 2003, we
sold our 9.9% equity interest in Chelsea Village plc, the parent
company of Chelsea Football Club. In October 2003, we sold our
9.9% equity interest in Manchester United PLC, with whom
(together with Granada Media Group Limited) we are interested in
the MUTV Limited joint venture.

In April 2000, we acquired a minority equity
interest in KirchPayTV. KirchPayTV became insolvent in fiscal
2002 (see Item 5  Operating and Financial Review
and Prospects).

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Other Investments

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

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 Community. 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 will introduce
reforms of the broadcasting and telecommunications regulatory
regimes in the UK. It will establish a new framework under the
jurisdiction of a new single unified regulator, the Office of
Communications (Ofcom), which will replace five
existing regulatory bodies responsible for these sectors,
including Oftel and the ITC. Part 2 of the Communications
Act, which implements the package of EC Directives
concerning the electronic communications sector (the New
Directives), was brought into force on July 25, 2003.
The remainder of the Communications Act will come into force on
December 29, 2003.

The Communications Act will also enable 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 will include a voluntary charging
mechanism for spectrum reserved for satellite downlinks and, in
the longer term, spectrum trading. This system will be subject
to public consultation by Ofcom prior to implementation; a
consultation document was published in November 2003, with
a deadline for comments in February 2004.

Our Television Services
Licenses

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

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

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

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A new licensing regime will apply to satellite
and cable delivered services under the Communications Act 2003,
with effect from December 29, 2003 (see above). Draft new
licenses were recently subject to public consultation by Ofcom,
and are due to be published in December 2003.

ITC Powers

In common with all television licenses issued by
the ITC, our licenses impose on us an obligation to comply with
the Codes and Directions issued by the ITC from time to time.
The Codes include requirements as to impartiality and accuracy
of news programming, requirements as to taste and decency and
the portrayal of sex and violence, and restrictions on the
quantity and content of advertisements.

These requirements will continue and will be
administered by Ofcom from December 29, 2003 when the
Communications Act comes into force.

The ITC may revoke a license in order to enforce
the restrictions contained in the Broadcasting Acts (as amended
by the Communications Act 2003) on the ownership of media
companies or in the event that the characteristics of the
licensee change so that it would not be granted a new license.
In addition, the amended Broadcasting Acts prohibit
disqualified persons from holding certain licenses.
Disqualified persons include any bodies whose objects are wholly
or mainly of a political or religious nature and advertising
agencies. Ofcom has recently published a consultation document
on the application of these disqualification principles to
religious bodies.

Audience Share

Television companies (other than the BBC as the
state-owned public service broadcaster) are not currently
entitled to expand their activities so as to exceed 15% of total
television audience share in the UK. If this audience share were
exceeded, then the Broadcasting Acts empower the ITC to take
steps to reduce this audience share to below 15%. The ITCs
ultimate sanction is license revocation. We are currently well
within the 15% limit. These provisions will be repealed in full
by the Communications Act 2003, on December 29, 2003.

Media Ownership

The UKs rules in respect of media
ownership, which are contained in the Broadcasting Acts,
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 the
principal UK commercial public service licenses (which include
Channel 3 regional licenses or the five
(Channel Five) license) or in certain radio businesses. The
restrictions on UK media ownership will be lifted by the
Communications Act 2003 (as of December 29, 2003), save in
relation to ownership of Channel 3 licenses. Certain
restrictions on the ownership of multiple radio multiplex
licenses will also remain. However, the Communications Act also
introduces a plurality test for media mergers (see
Enterprise Act 2002  Additional Reforms
below).

Digital Terrestrial Television

The Broadcasting Act 1996 established a framework
for digital terrestrial television (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 licenses to the
BBC and Crown Castle for an initial 12 year term. As part
of an agreement with Crown Castle, BSkyB has agreed initially to
supply versions of three channels, namely Sky News, Sky Sports
News and Sky Travel, unencrypted free-to-air via the DTT
platform.

Listed Events  Limits on Exclusive
Distribution Rights

The Broadcasting Act 1996 provides that no
UK broadcaster may undertake the exclusive live broadcast
of certain sporting or other events of national interest
designated by the Secretary of State from time to time
(listed events), whether on a free-to-air or
subscription basis, without the previous consent

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of the ITC. The effect of these rules is that
many leading sports events cannot be shown exclusively live on
pay TV. In addition, each of our STS licenses forbids the
showing of listed events on a pay-per-view basis.


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. This legislation may affect our ability to broadcast
exclusively designated events in Ireland.

Our Telecommunications
Licenses

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

European Community

The Television Without Frontiers
Directive

The EC Television Without Frontiers
(TWF) Directive 1989, as revised in 1997, sets forth
basic principles for the regulation of broadcasting activity in
the European Community. 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 properly to implement the TWF
Directive. The European Commission is reviewing the provisions
of the TWF Directive through a work program, in consultation
with all interested parties.

Program 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 option of the Member State, 10% of their
programming budget, for European works created by producers who
are independent of broadcasters (an adequate proportion of the
relevant works should be works produced within the five years
preceding their transmission). The term where practicable
and by appropriate means has not been defined in the TWF
Directive and is left for the interpretation of each Member
State. In applying this rule, broadcast time covering news,
games, advertisements, sports events, teletext and teleshopping
services are excluded.

We comply with our obligations under the
UKs application of the TWF Directive. Sky News, Sky Sports
News and Sky Sports 1, 2 and 3 currently devote a majority
of relevant transmission time to works of European origin. The
majority of programming on Sky One is not currently of European
origin. Our movie channels consist largely of English language
box office movies, supplied principally by US film studios.

Other than in respect of our movie channels, we
believe that we are capable, without material adverse effect, of
meeting any requirements as to independently produced works
which may be imposed on us pursuant to these provisions of the
TWF Directive.

Advanced Television Standards
Directive

The use of standards for the transmission of
television signals was, up until July 25, 2003, governed by
the Advanced Television Standards Directive (ATS
Directive), which required Member States to impose
transmission standards on broadcasters of television services;
to implement rules governing the provision of conditional access
services to broadcasters wishing to provide encrypted digital
television services; and to regulate the licensing of
conditional access technology to manufacturers of digital
decoders. The ATS Directive was repealed by the EC Framework
Directive on July 25, 2003. The requirements on technical
standards will continue to be administered by the ITC (and, in
due course,

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Ofcom) under The Advanced Television Services
Regulations 2003, which replicate the obligations under the ATS
Directive, and which came into force on July 25, 2003. The
obligations in relation to conditional access for digital
television and radio services under the ATS Directive were
replaced by an obligation under the EC Access Directive
requiring Member States to ensure that only specified conditions
relating to the provision of conditional access services apply.
These conditions mirror those implemented by the ATS Directive.
As discussed below, the EC Framework and Access Directives were
implemented in the UK, by the Communications Act 2003, on
July 25, 2003.


Conditional Access Services and
Technology

The Advanced Television Services
Regulations 1996 implemented the conditional access aspects
of the ATS Directive in the UK. Since July 25, 2003,
the regulation of conditional access for digital television
services is carried out under the Communications Act 2003. The
conditions laid down under the Communications Act 2003
effectively replicate the regime established under the
ATS Directive.

The principal requirements of the Communications
Act 2003 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 at
    cable head-ends; and                                  
|
| |  | that, where conditional access technology is
    licensed to manufacturers of digital decoders, such licenses
    should be on fair, reasonable and non-discriminatory terms.

In May 2002, the Office of Telecommunications
(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, which replaced guidelines issued in May 1999.
These Guidelines continue to be applied by Oftel (and, in due
course, Ofcom).

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, Sky Subscribers Services Limited
(SSSL) is currently designated a regulated supplier
in respect of its activities in providing access control
services to third parties on the digital satellite platform and
it is, among other things, subject to the obligation to provide
such access control services on fair, reasonable and
non-discriminatory terms and not to favor related companies.
This designation will remain in place for as long as SSSL is
considered to have significant market power. Oftel commenced in
November 2003 a review under the Communications Act 2003 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 is
in January 2004. If Oftels successor, Ofcom, were to
determine that no provider possessed significant market power,
it would be precluded by the Communications Act 2003 from
applying conditions to any provider of such access control
services.

Regulation of Electronic Program
Guides

Pursuant to the ITCs 1997 Code of Conduct
on Electronic Program Guides, BSkyB is required to offer
listings on its EPG on a fair, reasonable and non-discriminatory
basis and to give analog terrestrial channels due prominence.
Under the Communications Act 2003, Ofcom will have the ability
to issue a revised code on EPGs, which we expect it to do in
2003 or early 2004.

In future, under the Communications Act, public
service channels (which currently comprise all BBC digital
television channels, ITV1, Channel 4, five and
S4C in digital form and the digital public teletext service)
must be given such degree of prominence in EPGs as Ofcom
considers appropriate. Ofcom is

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required by the Communications Act to give
guidance in its revised code on the degree of prominence it
considers appropriate for the listing or promotion of public
service channels.


EC Electronic Communications
Directives

The EC brought into force the New Directives in
April 2002. Their provisions were implemented in the UK under
the Communications Act 2003 on July 25, 2003. The ATS
Directive is one of a number of existing EC Directives which
have been repealed by the New Directives. As explained above,
the New Directives do not, however, materially change the rules
in the UK on conditional access and access control services, as
the existing fair, reasonable and non-discriminatory
regime is carried across into the new regulatory regime.

BSkyB is currently not regulated by the Irish
national communications regulatory authority, the Commission for
Communications Regulation (ComReg), as the services
offered by BSkyB fall under the jurisdiction of Oftel and the
ITC (and Ofcom in the future) in the UK. The New Directives were
also implemented in Ireland on July 25, 2003. During the
consultations concerning the implementation of the New
Directives in Ireland, ComReg indicated that it would be seeking
to regulate BSkyBs and/or SSSLs Irish operations. In
June 2003, ComReg clarified, however, 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 New Directives.

Under the terms of the EC Framework Directive,
the European Commission must review progress towards
facilitating access for content providers to multiple platforms
by July 2004. If it concludes that such progress is insufficient
the European Commission may mandate the use of technical
standards for the delivery of interactive services listed in the
Official Journal. The only standard listed currently is
incompatible with our digital set-top boxes.

Regulation of Competition
(Anti-Trust)

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

UK Competition Law Regime

The Competition Act 1998

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

Anti-competitive Agreements

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

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

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Abuse of a Dominant Position

The Chapter II prohibition of the
Competition Act 1998 prohibits abusive behavior by dominant
firms. Infringement of Chapter I or Chapter II may
result in significant consequences.

Effect on Our Affairs

In December 2000, the Office of Fair Trading
(OFT) announced that it was to conduct a Competition
Act inquiry into BSkyBs activities, in particular the
wholesale supply of its premium channels to third party
distributors in the UK.

In December 2002, following the submission by
BSkyB of written and oral representations, the OFT announced
that BSkyB had been found not to be in breach of the Competition
Act 1998. Both ntl and the liquidator of ITV Digital requested,
under the Competition Act 1998, the OFT to vary or withdraw its
decision concerning BSkyB. On July 29, 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 Appeals
Tribunal has now expired, without any appeal having been made.

In November 2001, the arrangements relating to
the attheraces joint venture (made between Arena Leisure plc,
the Group, Channel Four Television Corporation and The
Racecourse Association Limited) were notified to the OFT seeking
either a clearance or exemption under Chapter I of the
Competition Act 1998. On April 4, 2003, the OFT issued a
Rule 14 Notice to the notifying parties
(including the Group), in which it proposed to find that the
Chapter I prohibition of the Competition Act 1998 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 attheraces. The OFT also stated that it
did not envisage the imposition of a penalty on the notifying
parties. If the OFT were to issue a decision that the
Chapter I prohibition had been infringed, it has proposed
to issue a direction to the notifying parties requiring the
media rights agreement, to the extent that it embodies
collective selling of the 49 racecourses media
rights, to be terminated. The OFT is currently considering
responses to the Rule 14 Notice.

Enterprise Act 2002

Market investigations

Since June 20, 2003, the market
investigation provisions of the Enterprise Act 2002 have
replaced the monopoly inquiry regime of the Fair Trading Act
1973. These 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. From December 29,
2003, under the Communications Act 2003, Ofcom will have 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.

Additional reforms

Since June 20, 2003 the Enterprise Act 2002
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 will operate alongside the
    existing civil regime under the Competition Act 1998.
    Investigations will be carried out

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| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | by the OFT and the Serious Fraud Office. The
    maximum penalty for infringement will be up to five years
    imprisonment (for those individuals found to have committed the
    offence) or a fine, or both;
|
| |  | provisions enabling company directors to be
    disqualified for involvement in (or failure to take steps to
    prevent) a breach of UK or EC competition law have been
    introduced.                        

A number of changes have also been made to the UK
merger control regime: in particular, the decision-making role
of the Secretary of State in the merger control process was
removed in the majority of cases, which will be decided by the
OFT and, if relevant, the CC, solely on the basis of a
competition-based test.

The Communications Act 2003 has amended the
Enterprise Act 2002 merger control provisions to introduce a
plurality test for mergers between broadcasters (or
involving broadcasters and newspaper enterprises). Under the
plurality test, which will come into force on December 29,
2003, the Secretary of State will be 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 has indicated, however, that it
intends the plurality test only to be invoked in relation to
mergers involving broadcasters to whom ownership restrictions
currently apply under the Broadcasting Acts, save in
exceptional circumstances. The Government has
committed to publishing guidance on the intended application of
the plurality test.

Effect on our Affairs

Our operations are subject to both the Enterprise
Act 2002 and the Communications Act 2003. To date, there have
been no market investigation references made to the CC.

ITC Competition jurisdiction

Broadcasting Act 1990

The ITC has duties to ensure fair and effective
competition in the provision of television services and those
connected with them. Ofcom will assume the functions of the ITC
in December 2003; it will operate under a similar duty to
promote competition.

There have been no rulings by the ITC that have
had a material adverse effect on our business since
June 30, 2002.

Irish Competition Law Regime

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

European Community 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 EU
collectively). An agreement may infringe Article 81 only if
it is likely to have an appreciable restrictive effect on
competition. Article 81(2) makes offending provisions (and,
in some cases, the entire agreement) void. Article 81(3)
allows for exemption from the provisions of Articles 81(1)
and 81(2) for agreements whose beneficial effects in improving
production or distribution or promoting technical or economic
progress outweigh their restrictive effects, provided that
consumers receive a fair share of the benefit, the competition
will not be substantially eliminated and that no unnecessary
restrictions are accepted by the parties.

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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 the 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

The European Commission has commenced
investigations into a number of agreements, decisions or
practices leading to the acquisition of broadcasting rights to
football events within the EEA, including the sale of exclusive
broadcast rights to Premier League football by the FAPL. On
June 21, 2002, BSkyB Limited and the FAPL notified BSkyB
Limiteds current arrangements for the broadcast of FAPL
football matches to the European Commission seeking either a
clearance or an exemption from Article 81 of the EC Treaty.
The FAPL has also notified the rules of the FAPL to the European
Commission. On December 20, 2002, the European Commission
issued a Statement of Objections to the FAPL outlining certain
concerns in respect of the FAPLs joint selling of
broadcast rights to Premier League football. BSkyB has received
several requests for information from the European Commission
concerning the bidding process undertaken by the FAPL in
relation to the sale of Premier League football rights in
respect of the three year period 20042007. Whilst this EC
investigation remains ongoing, the FAPL has announced that BSkyB
has been awarded (subject to contract) all four packages of
exclusive live UK rights to FAPL football, two near
live packages of UK rights to FAPL football (both on a
delayed basis), four of the five packages of live rights in
Ireland and two near live packages of rights in
Ireland from the beginning of the 2004/05 season to the end of
the 2006/07 season. BSkyB is currently unable to assess whether
this EC investigation will have a material effect on the Group
and its financial results.

The European Commission is investigating the
terms on which movies produced by major US movie studios
are supplied to distributors, including pay TV operators,
throughout the European Union. BSkyB is co-operating with this
investigation. At this stage, BSkyB is unable to determine
whether it will have a material effect on the Group and its
financial results.

PROPERTY, PLANT AND EQUIPMENT

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

The principal properties of the Group are as
follows:

|                                      |                                                                         |           |  |                      |         |               |                                     |             |           |             |  |  |         |  | 
|------------------------------------- | ----------------------------------------------------------------------- | --------- |  | -------------------- | ------- | ------------- | ----------------------------------- | ----------- | --------- | ----------- |  |  | ------- |  | 
|                                      |                                                                         |           |  |                      |         |               |                                     | Current     |           |            
|                                      |                                                                         |           |  |                      |         |               |                                     | annual rent |           | Approximate
|                                      |                                                                         |           |  |                      |         |               |                                     | or          |           | square foot
|Location                              |                                                                         | Tenure    |  | Use                  |         | Term          |                                     | license fee |           | area       
|                                      |                                                                         |           |  |                      |         |               |                                     |             |           |            
|Athena Court, 2, 5, 6 and 7 Grant Way |                                                                         | Leasehold |  | Offices, studios and |         | Leases expire |                                     | £           | 2,532,590 |             |  |  | 206,234 | 
|                                      | and Cromwell Centre,
    Centaurs Business Park,
    Isleworth, England |           |  |                      | storage |               | between
    June 2008 and July 2015 |             |           |             |  |  |         |  | 
|                                     
|1 Grant Way,                          |                                                                         | Freehold  |  | Offices and          |         | n/a           |                                     |             | n/a       |             |  |  | 55,000  | 
|                                      | Centaurs Business Park, Isleworth, England                              |           |  |                      | studio  |               |                                     |             |           |             |  |  |         |  | 

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|                               |                                            |           |  |                       |                      |               |                                                                  |             |           |             |  |  |         |  | 
|------------------------------ | ------------------------------------------ | --------- |  | --------------------- | -------------------- | ------------- | ---------------------------------------------------------------- | ----------- | --------- | ----------- |  |  | ------- |  | 
|                               |                                            |           |  |                       |                      |               |                                                                  | Current     |           |            
|                               |                                            |           |  |                       |                      |               |                                                                  | annual rent |           | Approximate
|                               |                                            |           |  |                       |                      |               |                                                                  | or          |           | square foot
|Location                       |                                            | Tenure    |  | Use                   |                      | Term          |                                                                  | license fee |           | area       
|                               |                                            |           |  |                       |                      |               |                                                                  |             |           |            
|                              
|3a/3b Grant Way,               |                                            | Freehold  |  | Offices,              |                      | n/a           |                                                                  |             | n/a       |             |  |  | 38,739  | 
|                               | Centaurs Business Park, Isleworth, England |           |  |                       | storage and workshop |               |                                                                  |             |           |             |  |  |         |  | 
|                              
|4 Grant Way,                   |                                            | Freehold  |  | Offices and           |                      | n/a           |                                                                  |             | n/a       |             |  |  | 46,377  | 
|                               | Centaurs Business Park, Isleworth, England |           |  |                       | technology           |               |                                                                  |             |           |             |  |  |         |  | 
|                              
|New Horizons Court,            |                                            | Leasehold |  | Offices               |                      | Lease expires |                                                                  | £           | 468,995   |             |  |  | 17,000  | 
|                               | Brentford, England                         |           |  |                       |                      |               | June 25, 2007                                                    |             |           |             |  |  |         |  | 
|                              
|West Cross House,              |                                            | Leasehold |  | Offices               |                      | Lease expires |                                                                  | £           | 1,349,296 |             |  |  | 88,400  | 
|                               | Brentford, England                         |           |  |                       |                      |               | March 26, 2019                                                   |             |           |             |  |  |         |  | 
|                              
|The Chilworth Research Centre, |                                            | Leasehold |  | Satellite uplink      |                      | Lease expires |                                                                  | £           | 1         |             |  |  | 18,850  | 
|                               | Southampton, England                       |           |  |                       |                      |               | February 25, 2087                                                |             |           |             |  |  |         |  | 
|                              
|Knowle Lane, Fairoak,          |                                            | 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                            |           |  |                       |                      |               | March 31, 2017 with an option to terminate
    at March 24, 2012 |             |           |             |  |  |         |  | 
|                              
|Marcopolo House and Arches,    |                                            | Leasehold |  | Sub-let               |                      | Lease expires |                                                                  | £           | 2,406,847 |             |  |  | 85,509  | 
|                               | Queenstown Road, London                    |           |  |                       |                      |               | December 24, 2013                                                |             |           |             |  |  |         |  | 
|                              
|1, 2, 4 and 5 Macintosh Road,  |                                            | Freehold  |  | Customer call centers |                      | n/a           |                                                                  |             | n/a       |             |  |  | 120,280 | 
|                               | Kirkton Campus, Livingston, Scotland       |           |  |                       |                      |               |                                                                  |             |           |             |  |  |         |  | 
|                              
|Carnegie Campus,               |                                            | Leasehold |  | Customer call center  |                      | Lease expires |                                                                  | £           | 500,000   |             |  |  | 75,431  | 
|                               | Dunfermline, Scotland                      |           |  |                       |                      |               | September 29, 2020                                               |             |           |             |  |  |         |  | 
|                              
|Centrex Campus,                |                                            | Licensed  |  | Serviced offices      |                      | Lease expires |                                                                  | £           | 486,924   |             |  |  | 15,965  | 
|                               | Hardie Road, Livingston, Scotland          |           |  |                       |                      |               | June 30, 2004                                                    |             |           |             |  |  |         |  | 
|                              
|New Logic House,               |                                            | Leasehold |  | Offices               |                      | Lease expires |                                                                  | £           | 222,000   |             |  |  | 13,900  | 
|                               | Kirkton South, Livingston, Scotland        |           |  |                       |                      |               | October 3, 2017                                                  |             |           |             |  |  |         |  | 

In addition we own or lease a number of other
properties throughout England and Ireland.




ITEM 5.  OPERATING AND FINANCIAL
REVIEW AND PROSPECTS

INTRODUCTION

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

We have continued to consolidate our position as
a leading pay TV service, operating principally in the UK and
Ireland. As the pay TV business has developed in the UK, we have
continued to expand our total subscriber base, develop new
products and acquire and develop programming.

OPERATING RESULTS

Revenues

Our principal revenues result from DTH
subscribers, cable subscribers, advertising, and interactive.

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

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Our wholesale revenues, which are revenues 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 TV programming to cable operators in the
UK 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 an individual watching
one thirty-second commercial on a Sky Channel, the quality of
impacts delivered, and the overall advertising market trends.

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

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

Operating expenses

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

Programming represents our largest single
component of costs. Programming costs include payment for:
(i) licenses of television rights from certain US and
European film licensors; (ii) the rights to televise
certain sporting events; (iii) other programming acquired
from third party licensors; (iv) the production and
commissioning of original programming; and (v) the rights
to retail the Sky Distributed Channels and the Music Choice and
Music Choice Extra audio services to DTH viewers.

Under our Pay TV agreements with the US major
movie studios, we generally pay a US dollar license fee per
movie calculated on a per movie subscriber basis, subject to a
minimum guarantee, which was exceeded some time ago. We
currently manage this US dollar/ pound sterling exchange risk
primarily by the purchase of forward foreign exchange agreements
for up to 18 months ahead. Although these financial
instruments can mitigate the effect of short-term fluctuations
in exchange rates, there can be no effective or complete hedge
against long-term currency fluctuations. See
Item 5  Liquidity and Capital
Resources. Offering multiplexed versions of our movie
channels on the digital DTH platform and on digital cable incurs
no additional 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 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, and comprised 53% of transmission and related
functions costs in the year (2002: 55%).

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 customers. In addition,
marketing costs include the cost of providing free digital
satellite equipment to new customers and the installation cost
in excess of the relevant amount actually received from the
customer. A significant part of marketing expenditure is subject
to the discretion of management. The

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costs of subscriber satellite reception equipment
are expensed directly to the profit and loss account on
installation of the equipment. Other subscriber acquisition
costs are also expensed as they are incurred. It remains our
current intention to continue the practice of providing free
digital satellite equipment without a requirement to subscribe
to one of our services, and subsidizing installation to new
subscribers. Marketing costs, as a percentage of revenues,
continue to fall, allowing us to absorb such costs more readily
from operating cash flow. Therefore, it is anticipated that
there will be no significant adverse effect on the liquidity of
the Group arising from the continuation of this practice.


Subscriber management costs include subscriber
handling costs, smart card costs, DTH subscriber bad debt costs,
costs relating to our satellite reception equipment installation
and the installation cost of Sky+ and Extra Digibox sold to
subscribers, all of which are largely dependent on DTH
subscriber levels. Subscriber management costs exclude both the
cost of free digital satellite equipment and the installation
cost to us in excess of the amount actually received from the
customer for such installation. These costs are included within
marketing costs.

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

Betting costs mainly comprise the cost of payouts
for winning bets placed through our wholly-owned bookmaker,
Hestview Limited, which operates a telephone betting service
(under the brand name Surrey Sports) and an interactive betting
service (under the name SkyBet).

2003 FISCAL YEAR COMPARED TO 2002 FISCAL
YEAR

Total revenue for fiscal 2003 of
£3,186.0 million exceeded £3 billion for the
first time, an increase of 15% over fiscal 2002. Total operating
costs before goodwill and exceptional items increased by 9% to
£2,815.3 million, generating an operating profit
margin before goodwill and exceptional items of 12%, compared to
7% in fiscal 2002. Total operating costs after goodwill and
exceptional items increased by 8% to £2,932.0 million.
Goodwill and exceptional items are discussed separately below.

Total UK and Ireland subscribers to Skys
channels increased by 524,000 from 10,192,000 in fiscal 2002 to
10,716,000 in fiscal 2003. DTH subscribers increased from
6,101,000 at June 30, 2002 to 6,845,000 at June 30,
2003.

Revenues

Revenues increased to £3,186.0 million
in fiscal 2003 from £2,776.1 million in fiscal 2002,
representing growth of 15% in fiscal 2003.

The Groups revenues can be analyzed as
follows:

|                             |  |          |         |      |  |    |       |   |  |  |         |  |  |  |       | 
|---------------------------- |  | -------- | ------- | ---- |  | -- | ----- | - |  |  | ------- |  |  |  | ----- | 
|                             |  |         
|                             |  | Revenues
|                             |  |         
|                             |  |          |         |     
|                             |  | 2002     |         | 2003
|                             |  |          |         |     
|                             |  | £m       |         | %    |  | £m |       | %
|DTH subscribers              |  |          | 1,929.2 |      |  |    | 69.5  |   |  |  | 2,341.2 |  |  |  | 73.5  | 
|Cable and DTT subscribers(1) |  |          | 279.4   |      |  |    | 10.1  |   |  |  | 202.2   |  |  |  | 6.3   | 
|Advertising                  |  |          | 250.7   |      |  |    | 9.0   |   |  |  | 283.6   |  |  |  | 8.9   | 
|Interactive                  |  |          | 186.0   |      |  |    | 6.7   |   |  |  | 218.3   |  |  |  | 6.9   | 
|Other                        |  |          | 130.8   |      |  |    | 4.7   |   |  |  | 140.7   |  |  |  | 4.4   | 
|                             |  |          |         |      |  |    |       |   |  |  |         |  |  |  |       | 
|                             |  |          | 2,776.1 |      |  |    | 100.0 |   |  |  | 3,186.0 |  |  |  | 100.0 | 
|                             |  |          |         |      |  |    |       |   |  |  |         |  |  |  |       | 






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

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

DTH subscription revenues are our largest single
source of revenues and increased to £2,341.2 million
in fiscal 2003 from £1,929.2 million in fiscal 2002.
The improvement of 21% in fiscal 2003 was largely driven by a
14% increase in the average number of DTH subscribers, in
addition to a 7% increase in average DTH subscription revenue
per subscriber, from £323 at June 30, 2002 to
£344 at June 30, 2003.

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

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
analog churn up to September 27, 2001 and the effect of the
termination of the analog service on September 27, 2001).



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

Cable and DTT subscription revenues, also
referred to as wholesale revenues, decreased by 28% to
£202.2 million in fiscal 2003 from
£279.4 million in fiscal 2002. This was mainly due to
a £51.8 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 £202.2 million from £227.6 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. On June 23, 2003 we
announced that we had concluded a new agreement with ntl for the
supply of nine Sky Basic Channels (including multiplex
versions), effective until the end of 2006.

At June 30, 2003, 3,871,000 (fiscal 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 Sky
Premium Channels, dependent upon the number of Sky Premium
Channels to which the cable customer subscribed. In addition,
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 38% of total
subscribers (fiscal 2002: 40% including DTT subscribers),
although cable subscription revenues accounted for only 8%
(fiscal 2002: 13% including DTT subscription revenues) of total
subscription revenues.

For further details on our major cable customers,
ntl and Telewest, see Item 4 
Distribution  Cable Distribution.



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

Advertising revenues increased to
£283.6 million in fiscal 2003 from
£250.7 million in fiscal 2002. 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 increased the levels of sales of
advertising on third party channels. Our share for fiscal 2003
was 11% (2002: 9%). The other main determinant of advertising
revenue levels is overall television advertising revenue growth.
We anticipate that UK television advertising revenue will
decline marginally over the

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remainder of calendar year 2003, with year on
year growth of around 3% anticipated for calendar year 2004.




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

Total interactive revenues, including both Sky
Active and gross betting revenues, increased to
£218.3 million from £186.0 million in fiscal
2002.

Sky Active revenues continued to grow in the
period and increased by 11% from £91.1 million in
fiscal 2002 to £101.4 million in fiscal 2003. This
increase was principally driven by interactive advertising,
retail services, increased usage of games and revenues from
third party channels using interactive applications. Revenue
from retail services increased from £4.8 million in
fiscal 2002 to £11.3 million in fiscal 2003, primarily
driven by the launch of Sky Buy, a retail service offering
electrical goods and entertainment and sports merchandise.
Interactive advertising has demonstrated increased popularity
with revenue increasing from £2.9 million in fiscal
2002 to £4.4 million in fiscal 2003.

Gross betting revenue increased by 23% from
£94.9 million in fiscal 2002 to
£116.9 million in fiscal 2003. 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% from
£130.8 million in fiscal 2002 to
£140.7 million in fiscal 2003, primarily due to new
product revenue (from Sky+ and Extra Digiboxes), increased
service call revenues due to a larger subscriber base and
increased extended warranty revenues.

Operating expenses, net

Total operating expenses after goodwill and
exceptional items increased by 8% to £2,932.0 million
in fiscal 2003, from £2,721.1 million in fiscal 2002.



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

Programming costs, which represent the largest
single element of our cost structure, constituted 55% of
operating expenses in fiscal 2003 (fiscal 2002: 53%). These
costs increased by 11% to £1,603.9 million in fiscal
2003 from £1,439.3 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
£12.0 million (fiscal 2002: £15.3 million).

Sports channels programming costs increased
by 9% to £722.9 million in fiscal 2003 from
£663.0 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 £397.4 million in fiscal 2003 from
£360.5 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.

Our costs in relation to the distribution
agreements for the Sky Distributed Channels increased by 18% to
£351.5 million in fiscal 2003 from
£297.4 million in fiscal 2002. This increase is
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.

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Entertainment programming costs increased by 10%
to £93.5 million in fiscal 2003 from
£84.8 million in fiscal 2002, principally due to the
scheduling of newly acquired programming and the launch of four
new Sky Channels during the year (Sky One Mix, Flaunt, The Amp
and Scuzz).

News programming costs increased by 15% to
£38.6 million in fiscal 2003 from
£33.6 million in fiscal 2002, principally due to the
cost of covering the conflict in Iraq.



| |                                       
| | --------------------------------------
| | 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
£25.5 million in fiscal 2003 (fiscal 2002:
£23.7 million)) increased to £142.8 million
in fiscal 2003 from £142.5 million in fiscal 2002.
This is as a result of the £4.1 million release of the
analog termination provision in fiscal 2002 that reduced the
prior year expense, and a reduction of fiscal 2003 costs, mainly
due to reductions in technical operations costs through
transponder cost efficiency savings.

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



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

Marketing costs have continued to be significant,
comprising the second largest element of our cost base,
primarily as a result of the continued free digital satellite
equipment offer to new customers. The impact in fiscal 2003 of
these costs was £217.2 million (2002:
£261.4 million).

Marketing costs decreased by 4% to
£400.5 million in fiscal 2003 from
£416.6 million in fiscal 2002 mainly due to reduced
hardware costs, an increase in install revenues and a greater
proportion of direct customer acquisitions.



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

Subscriber management costs increased by 11% to
£324.4 million in fiscal 2003 from
£291.1 million in fiscal 2002. Subscriber management
costs comprise two main activities: customer relationship
management (CRM) costs associated with managing the
existing subscriber base; and supply chain costs relating to
systems and infrastructure and the hardware costs of new
products purchased by subscribers such as Sky+ and Extra
Digiboxes. CRM costs per subscriber have decreased by 15% from
fiscal 2002, leading to an overall reduction in CRM costs of 4%
over fiscal 2002 to £147.9 million from
£153.3 million, as a result of call center
efficiencies and lower call volumes leading to a lower head
count in the call center. Supply chain costs increased by 28% to
£176.5 million in fiscal 2003 from
£137.8 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 stringent on-going
anti-piracy measures. The corresponding revenue associated with
the sale of hardware products is included in other
revenues.



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

Administration costs, including goodwill
amortization and exceptional items, increased by 3% to
£352.8 million in fiscal 2003 from
£343.8 million in fiscal 2002. This is a result of an
increase in goodwill amortization from £118.3 million
in fiscal 2002 to £121.5 million in fiscal 2003, a
provision against ITV Digital programming debtors of
£22.3 million made in fiscal 2002,
£4.8 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.

Goodwill amortization of £121.5 million
in fiscal 2003 (2002: £118.3 million), which is
included in administration costs, above operating profit, mainly
comprises the amortization of goodwill for the
£272.4 million, £542.1 million and
£5.2 million of goodwill arising, respectively, on the
acquisitions of Sports Internet Group, BiB and WAPTV, over seven
years from the date of acquisition on a straight-line basis. In

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addition, we have made a provision of
£5.2 million, included within amortization, against
goodwill which originally arose on the acquisition of Opta Index
Limited (Opta) (a sports media and information
company, a subsidiary of Sports Internet Group, which provides
statistics on the sports industry). 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 has been reduced to
nil. In September 2003 an agreement to sell certain assets and
lease other assets of Opta for nominal consideration was reached.


On March 27, 2002, ITV Digital, a 50:50
joint venture between Carlton Communications plc and Granada
plc, which provided pay television program services via the UK
DTT platform, was placed into administration. As of
March 27, 2002, we had balances owing to us and unprovided
for, in respect of programming licensed to ITV Digital, of
£22.3 million. On April 30, 2002, the joint
administrators of ITV Digital announced the closure of 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
£4.8 million from ITV Digitals administrators
and released £4.8 million of the operating exceptional
provision accordingly. This operating exceptional credit has
been included within administration costs.



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

Betting costs increased to
£107.6 million from £87.8 million in fiscal
2002 directly as a result of the growth in betting revenues.

Operating profit, gross margin and operating
margin

Operating profit after goodwill amortization and
exceptional items increased by £199.0 million to
£254.0 million in fiscal 2003 from
£55.0 million in fiscal 2002. This increase was driven
by the increase in revenues, which was primarily due to the
increase in DTH subscription revenues. This increase in revenues
was partly offset by the increase in operating expenses,
primarily due to the increase in programming costs.

Gross margin (based on total revenues less
programming costs) for fiscal 2003 was 50%, up from 48% in
fiscal 2002. This was the result of a 15% increase in total
revenues which was principally due to the 14% increase in the
average number of DTH subscribers. In contrast, programming
costs increased by only 11% due to decisions made not to renew
certain sports rights agreements, savings in movies programming
due to the weakness of the US dollar in fiscal 2003, and by
savings generated by the renewal, on improved terms, of
contracts for certain Sky Distributed Channels.

Operating margin (based on total revenues less
all operating expenses before goodwill amortization and
exceptional items) for fiscal 2003 was 12%, up from 7% in fiscal
2002. The most significant contributors to this increase were
programming costs, which increased by 11% compared to the 15%
increase in revenues; marketing costs, which fell by 4% due to
reduced hardware costs, an increase in install revenues and a
greater proportion of direct customer acquisitions; and
transmission and related functions costs which decreased by 3%
due to reductions in technical operations costs through
transponder cost efficiency savings.

Goodwill

Goodwill amortization and impairment within
operating profit increased by £3.2 million to
£121.5 million in fiscal 2003 from
£118.3 million in fiscal 2002. This increase was
primarily a result of the £5.2 million provision
against Opta made in the current year.

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Non-operating exceptional items (except
taxation)

2003

Amounts written off fixed asset
investments

At December 31, 2002, we made a further
provision against our minority equity investments in football
clubs, reflecting the accounting treatment of these investments
required by UK GAAP, leading to a non-cash exceptional charge of
£21.0 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 June 30, 2003 we
reduced our provision against our investment in Chelsea Village
plc by £3.2 million, following the agreement to sell
our minority interest in July 2003.

At December 31, 2002, we reduced our
deferred revenue balance by £5.1 million relating to
minority investments in new media companies, and reduced both
our investment and provision against our investment by
£5.1 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 December 31, 2002, we made a provision
against our investment in Open TV, leading to a non-cash
exceptional charge of £2.9 million due to a permanent
diminution in value of this investment. This brought the
carrying value of our investment in Open TV to
£0.3 million. Between February 12, 2003 and
March 24, 2003 we disposed of our entire investment in Open
TV shares, leading to a loss on disposal of
£0.1 million.

In March 2003, we disposed of our investment in
Streetsonline for total consideration of £0.6 million,
which had been held at a cost of £6.0 million less
provision of £6.0 million. These amounts were written
back upon disposal of our investment in Streetsonline, leading
to an exceptional credit of £0.6 million.

2002

Amounts written off fixed asset
investments

At December 31, 2001,
£60.0 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 October 16, 2001, we jointly announced
with Ladbrokes, the betting and gaming division of Hilton Group
plc, that we had agreed not to pursue the proposed joint venture
to offer a fixed-odds betting service on Sky Sports channels and
other media. As a result, the provision for loss on disposal of
subsidiary of £10.0 million, taken in fiscal 2001, was
written back in fiscal 2002 as a non-cash exceptional credit,
below operating profit. We continue to operate and develop
interactive TV betting services through our wholly-owned
bookmaker, SkyBet (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, realizing a profit
on disposal of £2.3 million.

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

Joint ventures

Our share of the operating results from joint
ventures improved from a £76.7 million net loss in
fiscal 2002 to a £3.4 million net profit in fiscal
2003. This was mainly due to the non-recognition of KirchPayTV
losses from February 8, 2002, down from
£70.0 million in fiscal 2002 to nil in fiscal 2003.
The remaining improvement of £10.1 million was due to
the improved performance of certain programming joint ventures,

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including Nickelodeon, The History Channel,
Paramount and National Geographic Channel. We continue to invest
in programming joint ventures managed by our wholly-owned
subsidiary, Sky Ventures Limited.


Joint
ventures goodwill amortization, net

As at December 31, 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 amortization of
£984.9 million. Joint ventures goodwill
amortization also included goodwill amortization of
£98.5 million for the prior year. To match our share
of KirchPayTVs losses for the period from January 1,
2002 to February 8, 2002, we released an amount of
£13.5 million from the impairment provision made at
December 31, 2001.

Our investment in KirchPayTV was treated as a
joint venture until February 8, 2002, by which date we
considered that we were no longer able to exercise significant
influence over KirchPayTV. Accordingly, on February 8,
2002, the investment was transferred within fixed asset
investments to Other investments at a net book value
of nil. On August 1, 2002, formal insolvency proceedings
were opened for KirchPayTV. We do not expect to receive any
funds from these proceedings. On May 13, 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 September 13, 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 16% to
£114.5 million in fiscal 2003 from
£136.9 million in fiscal 2002. This was primarily a
result of a reduction in average gross debt from
£1,853.9 million for fiscal 2002 to
£1,461.0 million for fiscal 2003, 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 £113.1 million compared to
£202.7 million for fiscal 2002. Net interest costs are
expected to decline in fiscal 2004, reflecting an expected
continued reduction in average levels of net debt.

Taxation

The net tax credit for fiscal 2003 includes a
current pre-exceptional tax charge of £85.0 million
and a deferred tax credit of £3.0 million (which is
included within the total £28.4 million
non-exceptional deferred tax credit) due to the Group generating
profits chargeable to corporation tax in this fiscal year.
Before the effect of goodwill, joint ventures and exceptional
items, this results in an underlying effective rate of 31%,
slightly higher than the UK statutory rate due to a number of
standard disallowable items. A reconciliation of the
Groups current tax charge to the UK statutory rate is
given in Note 9 within Item 18.

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
recognized 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 capitalized.

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 December 31, 2002, the Group recognized a
£40.4 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
utilization of tax losses within the Group, and as a consequence
of a planned reorganization of certain assets within the Group,
the Directors have been able to conclude that the required FRS
19 conditions have also now been satisfied, in respect of other
tax losses in the Group, permitting the Group to recognize a
further deferred tax asset of £122.6 million, which

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has been treated as an exceptional tax credit due
to its size. This brings the total deferred tax asset recognized
within the year to £151.0 million, net of utilization
and an adjustment arising from the prior period. Following this
recognition, the Group has no further significant unrecognized
UK losses, and therefore over the long-term, the Groups
ongoing UK tax charge in the profit and loss account is expected
to continue at a rate of around 31%.


After the £85.0 million current
pre-exceptional tax charge for fiscal 2003, the
£151.0 million deferred tax credit, the tax charge on
exceptional items of £1.4 million and our share of
joint ventures tax charge of £2.1 million, the
net tax credit for fiscal 2003 was £62.5 million.

In fiscal 2002, the tax charge of
£106.4 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
£83.3 million; utilization of the existing deferred
tax asset of £27.3 million; an exceptional tax charge
on the release of the remaining analog termination provision of
£1.2 million; and our share of our joint
ventures tax charges of £1.3 million. This was
partly offset by an exceptional tax credit arising on the
provision made against unprovided for ITV Digital debtors of
£6.7 million. There was no current tax charge in
fiscal 2002.

Following the impairment charge made in respect
of our investment in KirchPayTV at December 31, 2001, there
was insufficient evidence to support the recognition of a
deferred tax asset arising on losses incurred by certain UK
companies. Accordingly, the deferred tax asset of
£95.6 million was written off in full as at
December 31, 2001. Subsequent to this date,
£12.3 million of this amount was written back due to
the utilization of tax losses.

Profit after taxation

In fiscal 2003, the profit for the financial year
was £190.3 million compared to a loss of
£1,382.6 million in fiscal 2002, mainly as a result of
the impairment of KirchPayTV goodwill by
£971.4 million in fiscal 2002, a tax credit of
£62.5 million in fiscal 2003 compared to a tax charge
of £106.4 million in fiscal 2002 and an increase in
operating profit after goodwill and exceptional items of
£199.0 million. Furthermore, we ceased to account for
our share of KirchPayTVs losses after February 8,
2002 (fiscal 2002: loss of £70.0 million), and,
following the impairment charge against KirchPayTV goodwill in
fiscal 2002, there was no amortization charge for KirchPayTV
goodwill in fiscal 2003 (fiscal 2002: charge of
£98.5 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 £62.5 million is mainly due
to the recognition of a deferred tax credit of
£163.3 million relating to deferred tax assets not
previously recognized. The increase in operating profit is the
result of revenues increasing by £409.9 million,
partly offset by an increase in operating expenses of
£210.9 million.

Earnings (loss) per share

Basic earnings per share after goodwill and
exceptional items increased by 83.2p to earnings per share of
9.9p in fiscal 2003 from a loss per share of 73.3p in fiscal
2002, primarily due to the movement in profit after taxation
described above. Similarly, diluted earnings per share after
goodwill and exceptional items increased to earnings per share
of 9.8p in fiscal 2003 from a loss per share of 73.3p in fiscal
2002.

2002 FISCAL YEAR COMPARED TO 2001 FISCAL
YEAR

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

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

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Revenues

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

The Groups revenues can be analyzed as
follows:

|                          |  |          |         |   |  |      |       |   |  |  |         |  |  |  |       | 
|------------------------- |  | -------- | ------- | - |  | ---- | ----- | - |  |  | ------- |  |  |  | ----- | 
|                          |  |         
|                          |  | Revenues
|                          |  |         
|                          |  | £m       |         | % |  | £m   |       | %
|                          |  | 2001     |         |   |  | 2002 |       |  
|                          |  |          |         |   |  |      |       |  
|DTH subscribers           |  |          | 1,536.7 |   |  |      | 66.6  |   |  |  | 1,929.2 |  |  |  | 69.5  | 
|Cable and DTT subscribers |  |          | 299.1   |   |  |      | 13.0  |   |  |  | 279.4   |  |  |  | 10.1  | 
|Advertising               |  |          | 270.5   |   |  |      | 11.8  |   |  |  | 250.7   |  |  |  | 9.0   | 
|Interactive               |  |          | 93.0    |   |  |      | 4.0   |   |  |  | 186.0   |  |  |  | 6.7   | 
|Other                     |  |          | 106.7   |   |  |      | 4.6   |   |  |  | 130.8   |  |  |  | 4.7   | 
|                          |  |          |         |   |  |      |       |   |  |  |         |  |  |  |       | 
|                          |  |          | 2,306.0 |   |  |      | 100.0 |   |  |  | 2,776.1 |  |  |  | 100.0 | 
|                          |  |          |         |   |  |      |       |   |  |  |         |  |  |  |       | 



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

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

Average DTH subscription revenue per subscriber
increased by 10%, from £293 at June 30, 2001 to
£323 at June 30, 2002. The increase in average DTH
subscription revenue per subscriber reflected the change in our
UK retail prices which was effective from January 1, 2002,
along with increased subscription revenues from products such as
Sky+ and the Extra Digibox.

The total number of DTH subscribers increased by
648,000 (12%) in fiscal 2002, primarily due to the significant
growth in new digital subscribers, partly offset by digital
churn and the closure of our analog service in September 2001.

Annualized net digital churn for the year to date
was 10.5% at June 30, 2002 (excluding the effect of analog
churn up to September 27, 2001 and the effect of the
termination of the analog service on September 27, 2001)
and 10.0% at June 30, 2001.



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

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

At June 30, 2002, 4,091,000 (June 30,
2001: 4,591,000 cable and DTT subscribers) UK and Ireland cable
subscribers (including broadband, narrowband and SMATV
subscribers) received our programming.

In fiscal 2002, we charged UK cable operators
between £9.97 and £18.35 per subscriber for Sky
Premium Channels, dependent upon the number of Sky Premium
Channels to which the cable customer subscribed. In addition,
the percentage of cable and DTT subscribers who subscribed to
Sky Premium Channels is far lower than that for DTH subscribers.
As a result, on average, in fiscal 2002, cable (including

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Ireland) and DTT subscribers accounted for 40%
(fiscal 2001: 46%) of total subscribers, although cable and DTT
wholesale revenues accounted for only 13% (fiscal 2001: 16%) of
total subscription revenues.




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

Advertising revenues decreased to
£250.7 million in fiscal 2002 from
£270.5 million in fiscal 2001. The decrease in
advertising revenues of 7% was driven by a downturn in UK
television advertising revenue, partly offset by the growth in
viewing share of Sky Channels, according to BARB estimates of
viewing of commercial channels, from 9.4% to 10.4%, and
increased advertising revenue from Ireland.



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

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



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

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

Operating expenses, net

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



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

Programming costs, which represented the largest
single element of our cost structure, constituted 53% of
operating expenses in fiscal 2002 (fiscal 2001: 51%), and
increased to £1,439.3 million in fiscal 2002 from
£1,133.8 million in fiscal 2001. Programming costs are
stated net of amounts receivable from the disposal of
programming rights not acquired for use by the Group of
£15.3 million (fiscal 2001: £55.1 million).

Sports channels programming costs increased 59%
to £663.0 million in fiscal 2002, from
£416.5 million in fiscal 2001, driven by an increase
of £192.3 million in football costs (mainly due to the
existing FAPL agreement that commenced in fiscal 2002 and the
introduction of FAPL pay-per-view matches in fiscal 2002)
together with the increased costs of rugby union and cricket
internationals.

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

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

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



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

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

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



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

Marketing costs continued to be significant in
fiscal 2002, comprising the second largest element of our cost
structure, primarily as a result of the continued free digital
satellite equipment offer to new customers.

Marketing costs after exceptional items increased
to £416.6 million in fiscal 2002, from
£378.1 million in fiscal 2001. The increase of
£38.5 million was mainly due to the consolidation for
the full year of BiBs subsidy of the set-top box
(resulting in an increase of £48.7 million over fiscal
2001) and an increase in discounted installation offers. This
was partly offset by reductions in above-the-line advertising
spend and commissions paid, as more sales were made directly to
subscribers rather than through retail outlets.



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

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



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

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

On March 27, 2002, ITV Digital, a 50:50
joint venture between Carlton Communications plc and Granada
plc, which provided pay television program services via the UK
DTT platform, was placed into administration. Partners of
Deloitte & Touche were appointed as administrators. As of
March 27, 2002, we had balances owing to us and unprovided
for, in respect of programming licensed to ITV Digital, of
£22.3 million. On April 30, 2002, the joint
administrators of ITV Digital announced the closure of 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.

In fiscal 2001, an exceptional operating item of
£23.1 million comprised a reorganization provision
relating to the costs of reorganization within the Sky
Interactive division. This division brought together BiB
with our other interactive properties including the Sports
Internet Group (SIG). The costs of

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reorganization within Sky Interactive were
estimated at £23.1 million and principally comprised
the cost of termination of certain contracts, the closure of
duplicate sites and a reduction in headcount. The reduction in
headcount related to 123 employees principally employed within
the technology function of Sky Interactive.




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

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

Operating profit, gross margin and operating
margin

Operating profit after goodwill amortization and
exceptional items decreased by £37.8 million to
£55.0 million in fiscal 2002 from
£92.8 million in fiscal 2001. This decrease was driven
by the inclusion of a full years amortization charge for
goodwill arising on the acquisition of BiB and an operating
exceptional provision of £22.3 million against
balances owed by ITV Digital. These expenses were offset by an
increase in revenues, which was primarily due to an increase in
DTH subscription revenues. This increase in revenues was partly
offset by an increase in operating expenses, primarily due to an
increase in programming costs.

Gross margin (based on total revenues less
programming costs) for fiscal 2002 was 48%, down from 51% in
fiscal 2001. The decrease in margin was driven by the fact that
programming costs rose proportionally more than total revenues.
The 20% increase in total revenues was principally due to the
14% increase in the average number of DTH subscribers. In
contrast, programming costs increased by 27% due to a 59%
increase in sports programming costs due to a new FAPL agreement
beginning in fiscal 2002 and increased costs of rugby union and
cricket internationals, a 7% increase in movies programming
costs due to an increase in the number of subscribers and an
increase in the number of mega-hit titles, and a 16%
increase in costs for Sky Distributed Channels due to the
increased number of subscribers and contracted per subscriber
fee increases.

Operating margin (based on total revenues less
all operating expenses before goodwill amortization and
exceptional items) for fiscal 2002 was 7%, remaining constant
compared to fiscal 2001.

Goodwill

Goodwill amortization included within operating
profit increased by £74.1 million to
£118.3 million in fiscal 2002, as a result of the
inclusion of a full years amortization charge for goodwill
arising on the acquisition of BiB. Joint ventures goodwill
amortization of £1,070 million shown below operating
profit relates to the amortization and subsequent impairment of
the goodwill arising upon the acquisition of KirchPayTV.

Non-operating exceptional items



| |     
| | ----
| | 2002

Amounts written off fixed asset
investments

At December 31, 2001,
£60.0 million was provided against our minority
investments in football clubs. 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 October 16, 2001, we jointly announced
with Ladbrokes, the betting and gaming division of Hilton Group
plc, that we had agreed not to pursue the proposed joint venture
to offer a fixed-odds betting

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service on Sky Sports channels and other media.
As a result, the provision for loss on disposal of subsidiary of
£10.0 million, taken in fiscal 2001, was written back
in fiscal 2002 as a non-cash exceptional credit, below operating
profit. We continue to operate and develop interactive TV
betting services through our wholly-owned bookmaker, SkyBet
(formerly known as Surrey Sports).


Write down of deferred tax asset

Following the impairment charge made in respect
of our investment in KirchPayTV at December 31, 2001, there
was insufficient evidence to support the recognition of a
deferred tax asset arising on losses incurred by certain UK
companies. Accordingly, the deferred tax asset of
£95.6 million was written off in full as at
December 31, 2001. Subsequent to this date,
£12.3 million of this amount was written back due to
the utilization of tax losses.

Profit on sale of fixed asset
investments

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



| |     
| | ----
| | 2001

Share of joint ventures operating
exceptional item

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

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

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

Amounts written off fixed asset
investments

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

Provision for loss on disposal of
subsidiary

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

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

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Joint ventures

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

KirchPayTV

As a result of an impairment review as at
December 31, 2001, we wrote down the carrying value of our
investment in KirchPayTV to nil. This resulted in an exceptional
charge of £984.9 million to joint ventures
goodwill amortization.

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

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

On May 8, 2002, KirchPayTV filed for
insolvency and on August 1, 2002, formal insolvency
proceedings were opened for KirchPayTV. The purpose of formal
insolvency proceedings under German law is to satisfy the
creditors by realizing the assets of the insolvent company and
distributing the proceeds to creditors. The method of
realization (asset sale or sale as a going concern) is
determined by the insolvency trustee who reports and consults
with the creditors. The entitys shareholders do not have a
formal position in the insolvency proceedings. On May 13,
2002, we exercised 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
September 13, 2002. We do not expect to receive a
significant amount, if any, from the exercise of our put option.

Further details regarding our investment in
KirchPayTV can be found within the KirchPayTV section of
Item 4 and in notes 28(i) and 31 of Item 18 of
our 2002 Annual Report on Form 20-F.

BiB

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

Other

We continue to invest in programming joint
ventures managed by our wholly-owned subsidiary, Sky Ventures
Limited. Our share of losses in joint ventures owned by Sky
Ventures Limited increased to £6.7 million in fiscal
2002, from £4.3 million in fiscal 2001, mainly due to
the completion in July 2001 of the attheraces joint venture, in
which we have a 33.3% stake (see Item 4 
The Competition Act 1998).

Amortization of joint ventures goodwill
relates to goodwill arising on the acquisition of our stake in
KirchPayTV. In the second half of fiscal 2001, we revised the
useful economic life of KirchPayTV goodwill from 20 years
to seven years, although we only accounted for approximately
seven months worth of

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amortization in fiscal 2002, before the carrying
value of the investment in KirchPayTV was written down to nil
which resulted in an increase in goodwill amortization from
£97.2 million in fiscal 2001 to
£98.5 million in fiscal 2002. The goodwill
amortization charge in fiscal 2002 ceased following the full
impairment of the investment in KirchPayTV at December 31,
2001 (see above).


Interest

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

Taxation

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

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

Loss after taxation

In fiscal 2002, the loss for the financial year
was £1,382.6 million compared to a loss of
£538.6 million in fiscal 2001. The increased loss was
mainly as a result of the impairment of KirchPayTV goodwill by
£971.4 million, an increase in the tax charge of
£82.3 million and an increase in subsidiary goodwill
amortization of £74.0 million. This was offset by a
decrease of £179.0 million in our share of the
operating losses from joint ventures, mainly due to the decrease
in our share of BiBs operating losses (following the
consolidation of BiB as a subsidiary from May 9, 2001) and
the non-recognition of the losses of KirchPayTV from
February 8, 2002, an increase in operating profit before
goodwill and exceptional items of £31.3 million due to
an improved operating performance of the core business, and an
exceptional charge of £69.5 million in fiscal 2001
relating to our share of KirchPayTVs loss on disposal of
BSkyB shares.

The loss relating to KirchPayTV followed an
impairment review of the carrying value of the investment in
KirchPayTV, which resulted in a carrying value of nil. The
increase in the tax charge was mainly due to an exceptional
deferred tax charge of £83.3 million incurred in
fiscal 2002, following the impairment of KirchPayTV. The
increase in subsidiary goodwill amortization is the result of
the first full year of amortization being charged on the
goodwill relating to the acquisitions of BiB and SIG.

Loss per share

Basic loss per share, after goodwill and
exceptional items, increased by 44.1p from 29.2p for fiscal 2001
to 73.3p for fiscal 2002, primarily due to the movement in loss
after taxation described above.

2003 BALANCE SHEET COMPARED TO 2002 BALANCE
SHEET

Intangible assets decreased by
£121.5 million, from £657.4 million at
June 30, 2002 to £535.9 million at June 30,
2003, due to amortization of goodwill and the provision against
Opta goodwill. Intangible

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assets mainly comprise the goodwill that arose on
the acquisitions of BiB, Sports Internet Group and WAPTV.


Tangible fixed assets increased in the period by
£3.2 million, mainly due to £101.4 million
of additions, including investment in customer-facing
technology, improvement in web-based technology and improved
back-up facilities, partly offset by depreciation of
£97.9 million. Fixed asset investments decreased by
£20.0 million, mainly due to the further provision
against our minority investments in football clubs of
£21.0 million made at December 31, 2002.
Subsequently, we reduced our provision against our investment in
Chelsea Village plc at June 30, 2003 by
£3.2 million, following the agreement to sell our
minority investment in July 2003.

Net current assets decreased by
£88.4 million, principally caused by an increase in
creditor balances, mainly due to the increase in deferred
subscription revenues resulting from an increased subscriber
base; a decrease in debtors due to the amortization of the FAPL
contract prepayment; and a decrease in non-programming stock due
to the utilization of set-top box stocks outweighing purchases
in the period.

Equity shareholders deficit

Total equity shareholders deficit decreased
from a deficit of £300.7 million at June 30, 2002
to a deficit of £105.7 million at June 30, 2003.
This was due to a net profit in the current year of
£190.3 million and the issue of shares, net of share
issue costs, of £4.7 million.

In November 2002, we issued 43.2 million
shares with a fair value of £253.1 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.
This consideration was previously classified as shares to
be issued within shareholders funds. The share
premium arising on the issue of the deferred consideration to BT
of £111.5 million was credited to the merger reserve.
The remaining £120.0 million was credited to share
premium. Amounts held in the merger reserve are transferred to
the profit and loss reserve over the same useful economic life
as the goodwill that arose on the acquisition. Further details
on the merger reserve are given in Note 28(i) within
Item 18.

Reserves

At June 30, 2003, the Company had a deficit
of £1,120.4 million on its company-only profit and
loss reserve. In order to improve the presentation of the
Companys balance sheet, and give the Company greater
flexibility in any future distribution policy, the Directors
proposed a special resolution at the Annual General Meeting held
on November 14, 2003 to eliminate the deficit at
June 30, 2003 by reducing the Companys share premium
account. At that meeting shareholders approved this special
resolution. In addition to such approval of the reduction by
shareholders, the Company requires the approval of the High
Court, for which it has applied. Whilst it is not possible to
state with any certainty when this will occur, it is currently
anticipated that the reduction will become effective by the end
of the current calendar year.

FOREIGN EXCHANGE

For details of the impact of foreign currency
fluctuations on our results of operations, see
Item 11  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,
QVC, and National Geographic Channel UK. The Directors do not
expect any material loss to arise from the above contingent
liabilities.

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SEASONALITY

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

LIQUIDITY AND CAPITAL RESOURCES

The Groups principal sources of liquidity
are operating cash flow, combined with access to aggregate of
£800 million (2002: £1,050 million) in
revolving credit facilities, reducing to £600 million
from June 29, 2004. Long-term funding comes primarily from
US dollar and sterling-denominated public bond debt. For details
of our facilities and long-term funding see Note 20 within
Item 18. Further details of our funding and treasury
policies, and the manner in which they are controlled, are
provided in Item 11.

We 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 and our approved capital expenditure requirements.

Our liquidity and working capital may be affected
by a material decrease in cash flow from operations due to
factors such as infringement of intellectual property and
proprietary rights, increased competition, failure to obtain
required regulatory approvals, loss of wholesale revenues and
failure of technology. See Item 3  Risk
Factors. Our revolving credit facilities contain certain
covenants (see Note 20 within Item 18). These include
undertakings relating to certain financial ratios. The
obligation to comply with such financial undertakings may
restrict access to the facilities from time to time. A breach of
certain of our undertakings, including our financial
undertakings, may also have the effect of accelerating repayment
of all outstanding advances under our debt facilities. However,
the facilities do not contain any ratings-related triggers that
would reduce the availability of funding in the event of a
ratings downgrade.

Dividends cannot be paid between Group companies
other than out of profits available for distribution under the
provisions of the statutes and as such these may restrict the
ability of Group companies to transfer funds within the Group.

Contractual obligations and commercial
commitments

A summary of our contractual obligations and
commercial commitments at June 30, 2003 is shown below:

|                                      |  |       |       |                        |  |           |       |           |  |           |     |  |  |  |     |  |  |  |       | 
|------------------------------------- |  | ----- | ----- | ---------------------- |  | --------- | ----- | --------- |  | --------- | --- |  |  |  | --- |  |  |  | ----- | 
|                                      |  |       |       |                       
|                                      |  |       |       | Payments due by period
|                                      |  |       |       |                       
|                                      |  |       |       | Less than              |  | Between   |       | Between   |  | More than
|                                      |  | Total |       | 1 year                 |  | 1-3 years |       | 4-5 years |  | 5 years  
|                                      |  |       |       |                        |  |           |       |           |  |          
|                                      |  | £m    |       | £m                     |  | £m        |       | £m        |  | £m       
|Obligation or commitment              |  |       |       |                        |  |           |       |           |  |           |     |  |  |  |     |  |  |  |       | 
|Purchase obligations:                 |  |       |       |                        |  |           |       |           |  |           |     |  |  |  |     |  |  |  |       | 
| Television program rights           |  |       | 1,618 |                        |  |           | 898   |           |  |           | 532 |  |  |  | 144 |  |  |  | 44    | 
| Set-top boxes and related equipment |  |       | 106   |                        |  |           | 106   |           |  |           |    |  |  |  |    |  |  |  |      | 
| Third party payments                |  |       | 46    |                        |  |           | 17    |           |  |           | 25  |  |  |  | 4   |  |  |  |      | 
| Other                               |  |       | 10    |                        |  |           | 8     |           |  |           | 2   |  |  |  |    |  |  |  |      | 
|Long-term debt                        |  |       | 1,144 |                        |  |           |      |           |  |           |    |  |  |  | 264 |  |  |  | 880   | 
|Operating lease obligations           |  |       | 495   |                        |  |           | 76    |           |  |           | 157 |  |  |  | 128 |  |  |  | 134   | 
|Capital lease obligations             |  |       | 8     |                        |  |           |      |           |  |           | 1   |  |  |  | 1   |  |  |  | 6     | 
|                                      |  |       |       |                        |  |           |       |           |  |           |     |  |  |  |     |  |  |  |       | 
|Total cash obligations                |  |       | 3,427 |                        |  |           | 1,105 |           |  |           | 717 |  |  |  | 541 |  |  |  | 1,064 | 
|                                      |  |       |       |                        |  |           |       |           |  |           |     |  |  |  |     |  |  |  |       | 

Purchase obligations  Television
program rights

At June 30, 2003, we had minimum TV
programming commitments of £1,618 million (fiscal
2002: £2,166 million), of which £692 million
(fiscal 2002: £1,005 million) related to commitments
payable in

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US dollars for periods of up to ten years
(fiscal 2002: seven years), and £136 million (fiscal
2002: nil) related to commitments payable in Swiss francs for
periods of up to three years. An additional
£213 million (US$351 million) of commitments
(fiscal 2002: £251 million (US$386 million))
would also be payable in US dollars, assuming that movie
subscriber numbers remained unchanged from current levels. At
June 30, 2003, the US dollar commitments have been
translated at the year end rate of US$1.6497: £1
(2002: US$1.5347: £1), except for US$566 million
(fiscal 2002: US$585 million) covered by forward rate
contracts where the average forward rate of
US$1.4925: £1 (fiscal 2002: US$1.3856: £1)
has been used. The Swiss francs commitments have been translated
at the year end rate of CHF2.2288: £1, except for
CHF99 million covered by forward rate contracts where the
average forward rate of CHF2.1068: £1 has been used.


Of the total decrease in our minimum TV
programming commitments of £548 million compared to
June 30, 2002, £345 million is due to the fact
that we now only have one year of commitments, compared to two
years, remaining on the FAPL rights contract and the remaining
£203 million is principally due to a decreased average
period remaining on our commitments for other sports
channels and movie channels programming.

Purchase obligations  Set-top
boxes and related equipment

At June 30, 2003, we had made commitments to
manufacturers, in relation to the supply of set-top boxes, up to
a maximum of £106 million (fiscal 2002:
£127 million). The decrease compared to the prior
period is due to a reduction in the price charged per box by
manufacturers.

Purchase obligations  Third
party payments

At June 30, 2003, we had minimum third party
payment commitments in respect of distribution agreements for
the Sky Distributed Channels of £46 million (fiscal
2002: £58 million). An additional
£799 million (fiscal 2002: £885 million) of
commitments is also payable for periods of up to six years
(fiscal 2002: six years), assuming that DTH subscribers remained
unchanged from current levels.

Long-term debt

Further information concerning long-term debt is
given in Note 20 within Item 18.

Operating lease obligations

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

Capital lease obligations

Obligations under finance leases represent
amounts drawn down in connection with the Customer Relationship
Management Center in Dunfermline, Scotland. Repayments of
£0.7 million (2002: £0.8 million) were made
against the Customer Relationship Management Center lease and
repayments of £1.5 million (2002:
£2.4 million) were made against the IT asset leases,
which were fully repaid in the current year. A proportion of
these payments has been allocated to any capital amount
outstanding. The Customer Relationship Management Center lease
bears interest of 8.5% and expires in September 2020.

Cash flows

During fiscal 2003 there was an operating cash
inflow of £663.6 million, compared with an operating
cash inflow of £249.7 million in fiscal 2002. This
represented the conversion of 179% of operating profit before
goodwill amortization and exceptional items to cash inflow.

The operating cash inflow was driven primarily by
improved operating results and a positive working capital
movement of £191.4 million. The movement in working
capital this year was due to a combination of one-off factors
(for example the unwinding of prepayments of certain sports
rights) and factors which will

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continue to apply as the business continues to
grow. The latter includes our subscription collection cycle, and
the payment in arrears for certain programming costs, such as
those incurred in respect of the carriage of third party
channels. Other recurring components of the positive working
capital movement include the reversal, over time, of prepayments
made for our long-term satellite transponder leases, and the
accounting treatment for certain share-based employee
remuneration schemes which result in charges to the profit and
loss account, despite being non-cash in nature.


After capital expenditure of
£98.4 million, net interest payments of
£124.6 million, net funding to joint ventures of
£10.1 million, corporation tax paid of
£17.6 million and other net inflows of
£9.8 million, net debt decreased by
£422.7 million to £1,105.4 million.

During the year, our capital expenditure was
£98.4 million, compared with £100.8 million
in fiscal 2002. A significant part of this expenditure related
to investment in upgrades to customer-facing technology based in
Scotland and a second up-linking facility. In addition, we
continue to invest in computer systems, contingency planning,
studio and transmission facilities and building refurbishment as
the Isleworth site near London continues to expand.

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

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

At June 30, 2003, our net debt was
£1,105.4 million compared to net debt of
£1,528.1 million at June 30, 2002 and net debt of
£1,546.5 million at June 30, 2001. Net debt is
defined as all short-term, medium-term and long-term borrowing,
less all cash and liquid resources. Liquid resources comprise
short-term deposits of less than one year and investments that
are readily realizable and held on a short-term basis.
Short-term, medium-term and long-term borrowing amounted to
£1,151.8 million at June 30, 2003 compared to
£1,578.4 million at June 30, 2002 and
£1,770.1 million at June 30, 2001. At
June 30, 2003, cash and liquid resources were
£46.4 million compared to £50.3 million at
June 30, 2002 and £223.6 million at June 30,
2001.

Major non-cash transactions

During fiscal 2001, we acquired 67.5% of BiB,
47.6% on May 9, 2001, and 19.9% on June 28, 2001,
increasing our interest to 100% (2000: 32.5%). The consideration
was satisfied by the issue to HSBC, Matsushita and BT of
39.7 million new BSkyB shares, with a fair value of
£290.9 million and deferred consideration of new BSkyB
shares or loan notes, with a fair value of
£253.1 million. On November 11, 2002, we issued
43.2 million shares to HSBC, Matsushita and BT in respect
of this deferred consideration.

Effective December 31, 2001, we wrote down
the carrying value of our investment in KirchPayTV to nil. The
write-down resulted in a non-cash exceptional net charge to the
profit and loss account of £985 million under UK GAAP.
Subsequently, an amount of £13.5 million was released from
the provision matching our share of losses for the period from
January 1, 2002 to February 8, 2002.

In May 2001, we acquired the remaining 5%
minority interest in WAPTV Limited. The consideration was
satisfied by the issue of 169,375 new BSkyB shares, with a fair
value of £1.3 million and contingent consideration of
508,130 new BSkyB shares with a fair value of
£3.7 million. In June 2002, we issued

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169,375 new shares, and a further 338,755 new
shares were issued in September 2003 to satisfy this contingent
consideration.


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

OFF-BALANCE SHEET ARRANGEMENTS

At June 30, 2003, the Company did not have
any undisclosed off-balance sheet arrangements that required
disclosure as defined by Securities and Exchange Commission
Release No. 33-8182.

TREND INFORMATION

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

We achieved our target of 7,000,000
DTH subscribers in September 2003, and we expect that the
trend of digital DTH subscriber growth will continue at a run
rate of net additions consistent with achieving our target of
8,000,000 DTH subscribers by the end of calendar year 2005. The
emphasis in fiscal 2004 remains on acquiring and retaining
higher value subscribers, the latter being of greater importance
now that 81% of all DTH subscribers are no longer within their
initial minimum 12 month contract period (2002: 75%).
Although 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 declined in the
current fiscal year, and is currently expected to continue to
decline marginally, average DTH subscription revenue per
subscriber has continued to grow in this period, and we expect
the growth to continue.

During the year ended June 30, 2003, the
number of cable subscribers receiving Sky Channels in the UK and
Ireland decreased by 220,000 to 3,871,000. We expect the rate at
which cable subscribers take Sky Premium Channels will continue
to decline in the future. We currently have agreements with ntl
and Telewest for the supply of certain Sky Basic Channels until
2006 (see Item 4  Programming).

We anticipate that over the remainder of calendar
year 2003, UK television advertising revenue will decline
marginally, with year on year growth of around 3% anticipated
for calendar year 2004. We expect that our share of total
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 will
enable us to attract a greater proportion of total UK television
advertising expenditure and will have a positive impact on
advertising revenues.

Interactive revenues are expected to grow in the
next few years as the range of interactive services available on
the digital satellite platform develops. The core growth areas
are expected to be interactive betting via television, games,
interactive programming, interactive advertising, and set-top
box subsidy recovery revenues from conditional access and access
control customers.

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 renewed. We expect that
programming costs will increase at a slower rate than our
subscriber revenues.

Included within marketing costs, are the costs of
providing free digital satellite equipment and the installation
cost in excess of the relevant amount actually received from
customers. It remains our current intention to continue the
practice of providing free digital satellite equipment and
subsidizing installation to new subscribers, however, we expect
marketing costs as a percentage of revenues to continue to fall.

We expect that the increase in subscriber
management costs will continue in fiscal 2004 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
customer relationship management (CRM) costs will be
higher in fiscal 2004 than in fiscal 2003 due to the incremental
costs of

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migrating to a new CRM system; thereafter
however, we expect that these costs per subscriber will begin to
decline as the benefits of the new system are realized.


We expect the increase in operating margin to
continue towards our target of 30%, last achieved prior to the
launch of our digital DTH service in October 1998.

RESEARCH AND DEVELOPMENT

The Group did not incur significant research and
development expenditure in fiscal 2003, 2002 or 2001.

US GAAP RECONCILIATION

Net profit after tax under UK GAAP in fiscal 2003
was £190.3 million (fiscal 2002: loss of
£1,382.6 million; fiscal 2001: loss of
£538.6 million). Under US GAAP net profit after tax
was £286.0 million (fiscal 2002: loss of
£1,047.3 million; fiscal 2001: loss of
£624.6 million).

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

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

CRITICAL ACCOUNTING POLICIES

The application of UK GAAP often requires our
judgment 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,
judgment is required in respect of items where the choice of
specific policy to be followed can materially affect our
reported results or net asset position, in particular through
estimating the lives of recoverability of particular assets, or
in the timing of when a transaction is recognized. 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:

Goodwill

Where the cost of acquisition exceeds the fair
values attributable to the net assets acquired, the difference
is treated as purchased goodwill and capitalized on our balance
sheet in the year of acquisition. Determining the fair value of
assets acquired and liabilities assumed requires
managements judgment and often involves the use of
significant estimates and assumptions, including assumptions
with respect to future cash flows, discount rates and asset
lives, among other items. Purchased goodwill arising on
acquisitions from July 1, 1998 is capitalized. Prior to
July 1, 1998, goodwill arising on acquisitions was
eliminated against reserves. As permitted by Financial Reporting
Standard No. 10, Goodwill and Intangible Assets
(FRS 10), this goodwill has not been restated on our
balance sheet. As at June 30, 2003, the total value of
goodwill written off directly to reserves was
£523.8 million (2002: £523.8 million)
principally relating to the merger of Sky Television and British
Satellite Broadcasting in 1990.

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

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At June 30, 2003, the carrying value of
goodwill amounted to £535.7 million (2002:
£657.2 million) and represented 26% (2002: 30%) of our
total assets. As a result, the choice of amortization period is
critical to our results. Applying the lives referred to in the
previous paragraph has resulted in this years charge for
amortization amounting to £116.3 million (2002:
£216.8 million, including £98.5 million of KirchPayTV
goodwill amortization).

Goodwill impairment reviews are also an area
requiring our judgment, requiring assessment as to whether the
carrying value of goodwill can be supported by the net present
value of future cash flows derived from assets using cash flow
projections, and discounting using an appropriate rate. We have
completed two significant acquisitions in the past three years.
These were the acquisitions of the 67.5% of BiB not previously
owned by us and 100% of Sports Internet Group. 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 Sports Internet
Group goodwill balances at the end of the first full financial
year after acquisition, as at June 30, 2002. These reviews
showed that no impairment was identified in either case.
Consistent with our strategy, the business plans on which these
reviews were based reflected significant projected increases in
betting and other interactive revenues over the next five years.
As neither business operates in a mature industry, there has
been limited historical data available against which to assess
these projections and, as such, actual results could differ
materially from the projections used. As at June 30, 2003,
the performance of these operations was broadly in line with the
forecasts in the business plan used for these reviews, and no
indications of impairment had arisen. Changing the assumptions
selected by us to determine the level, if any, of impairment,
including the discount rate or the growth rate assumptions in
the cash flow projections, could significantly affect our
results.

During the year ended June 30, 2003 we made
a provision of £5.2 million, included within
amortization, against goodwill which originally arose on the
acquisition of Opta Index Limited (Opta) (a sports
media and information company, a subsidiary of Sports Internet
Group, which provides statistics on the sports industry). 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 has been reduced to nil.

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

Revenues

The main source of our revenue is revenue from
subscribers. Revenues from the provision of DTH subscription
services are charged to contract customers on a monthly basis.
Revenues are invoiced and recorded as part of a periodic billing
cycle, and are recognized as the services are provided. Pay per
view revenue is recognized when the event, movie or football
match is viewed. Cable revenue is recognized as the services are
provided to cable companies and is based on the number of
subscribers taking Sky Channels as reported to us by the cable
companies and the applicable rate card. The overriding principle
followed is to match revenues with the provision of service, and
accordingly, this leaves little scope for subjectivity. In
fiscal 2003, subscription revenues from DTH subscribers and
cable companies comprised 80% of total turnover (2002: 80%,
(including revenues from DTT subscribers)).

The remaining 20% of turnover (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. Betting revenues, which are included in interactive
revenues, represent amounts receivable in respect of bets placed
on events which occur in the year.

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
within Item 18 for further details).

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A further aspect of revenue recognition concerns
the installation fees, set-top boxes and related equipment
revenues received by us (net of any discount given) when a
set-top box is installed and a subscriber is connected to the
Sky digital service. Under UK GAAP, these revenues are
recognized on the successful completion of the installation of
the set-top box, together with any associated costs such as
set-top box costs, smartcard costs and installer costs. The
treatment of installation fees under US GAAP differs from that
under UK GAAP (see Note 28 within Item 18 for further
details).

Tangible fixed assets

Tangible fixed assets represent 17% of our total
assets (2002: 16%). 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 within Item 18. We
estimate the useful life of these assets based on their periods
of expected use and this estimation is judgmental. We review the
period of expected use on a regular basis. Tangible fixed asset
impairment reviews are also an area requiring our judgment and
requiring assessment as to whether the carrying value of our
tangible fixed assets can be supported by the net present value
of future cash flows derived from that tangible fixed asset
using cash flow projections, and discounting using an
appropriate rate. We perform impairment reviews if events or
circumstances indicate that the carrying value of tangible fixed
assets may not be recoverable. There have been no significant
impairments in the current year.

FRS 15 specifies criteria for the
recognition of tangible fixed assets, including a detailed
definition of costs that are capitalized in relation to
self-constructed assets. As at June 30, 2003, £120.7
million (2002: £79 million) of costs associated with
our customer relationship management project had been
capitalized on the balance sheet, some of which continue to be
under construction. If these costs had not been capitalized they
would have been expensed immediately. Capitalized costs include
technology hardware and software assets, site preparation and
development costs, and associated consultancy expenditures. The
majority of capitalized costs are associated with the customer
relationship management systems (approximately 90%). These costs
are being depreciated over approximately three years for
software and approximately four years for hardware. The only US
GAAP difference from UK GAAP relates to the capitalization of
interest costs on funds invested in the construction of major
capital assets (see Note 28 within Item 18 for further
details).

Amortization of program stock

A significant proportion of programming costs
relates to the amortization of television program rights.
Programming costs constituted 55% of operating expenses in the
period (2002: 53%). Our investments in television program rights
are amortized over the planned number of showings according to
the type of program right, with the exception of movie rights
and certain sports rights, which are discussed below. The
amortization methods used are based on program genre, for
example, general entertainment programs, and have been based on
the repeatability and value to us of showing the program. This
basis is regularly reviewed. The principle followed is to match
the benefit received from the showing of the program to the cost
of the program rights. Acquired movie rights are amortized on a
straight-line basis over the period of the transmission rights,
although where acquired movie rights provide for a second
availability window, 10% of the cost is allocated to that
window. Our own in-house movie productions are amortized in line
with anticipated revenue over a maximum of five years. Where
contracts for sports rights provide for multiple seasons or
competitions, the amortization of each contract is based on
anticipated revenue. Provisions are made for any program rights
which are surplus to our requirements or will not be shown for
any other reason. There is no difference in the Groups
treatment of amortization between UK GAAP and US GAAP.

Deferred tax

We recognize deferred tax assets and liabilities
in respect of timing differences that have originated but not
reversed at the balance sheet date, where transactions or events
that result in an obligation to pay more tax in the future, or a
right to pay less tax in the future, have occurred at the
balance sheet date. Deferred tax liabilities existing at the
balance sheet date are provided for in full at expected future
tax rates.

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Deferred tax assets are recognized when, on the
basis of all available evidence, it is regarded as more likely
than not that there will be suitable taxable profits against
which to recover carried forward tax losses and from which the
future reversal of underlying timing differences can be deducted.


We regularly review our deferred tax assets for
recoverability and the expected reversals of existing timing
differences. If 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 reverse the existing
provision against the 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
recognized at June 30, 2003 is £145.7 million
(2002: £11.7 million), relating to carried forward tax
losses. Following a review of the forecast utilization of tax
losses within the Group, and as a consequence of a planned
reorganization of certain assets within the Group, the Directors
consider that at June 30, 2003 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
utilized. The treatment of deferred tax under US GAAP differs
from that under UK GAAP (see Note 28 within Item 18
for further details).

ADOPTION OF NEW ACCOUNTING STANDARDS

No new UK GAAP accounting standards have been
issued during fiscal 2003 or fiscal 2002. In fiscal 2001, the
following standards came into force and were adopted by us:

FRS 17  Retirement
benefits

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

FRS 18  Accounting
policies

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

FRS 19  Deferred tax

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

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

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ITEM
6.     DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

Our Directors are as follows:

|                        |  |     |    |                           |  |                                                                    
|----------------------- |  | --- | -- | ------------------------- |  | -------------------------------------------------------------------
|Name                    |  | Age |    | Position with the Company
|                        |  |     |    |                          
|Chase Carey             |  |     | 50 |                           |  | *Director                                                          
|David DeVoe             |  |     | 56 |                           |  | *Director                                                          
|David Evans             |  |     | 63 |                           |  | **Director                                                         
|Allan Leighton          |  |     | 50 |                           |  | **Director (Chairman of the Audit Committee)****                   
|James Murdoch           |  |     | 30 |                           |  | Director, Chief Executive Officer***                               
|Rupert Murdoch          |  |     | 72 |                           |  | *Chairman                                                          
|Jacques Nasser          |  |     | 55 |                           |  | **Director                                                         
|Gail Rebuck             |  |     | 51 |                           |  | **Director                                                         
|Lord Rothschild         |  |     | 67 |                           |  | **Director (Deputy Chairman & Senior
    Independent Director)*****
|Arthur Siskind          |  |     | 65 |                           |  | *Director                                                          
|Lord St John of Fawsley |  |     | 74 |                           |  | **Director                                                         
|Martin Stewart          |  |     | 40 |                           |  | Director, Chief Financial Officer                                  
|John Thornton           |  |     | 49 |                           |  | **Director (Chairman of Remuneration Committee)                    
|Lord Wilson of Dinton   |  |     | 61 |                           |  | **Director                                                         






|      |                                                                                                                                                                                                              
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*     | Non-Executive                                                                                                                                                                                                
|     
|**    | Independent Non-Executive                                                                                                                                                                                    
|     
|***   | James Murdoch was appointed Chief Executive
    Officer of the Company with effect from November 4, 2003,
    following Tony Balls agreed resignation from the Board of
    the Company on November 4, 2003.
|     
|****  | Allan Leighton was appointed Chairman of the
    Audit Committee on November 14, 2003 following the
    retirement of Philip Bowman from the Board of the Company on
    November 14, 2003.                  
|     
|***** | Lord Rothschild was appointed as a Director of
    the Company and Deputy Chairman and Senior Independent Director
    on November 17, 2003.                                                                 

Our 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                               
|Deanna Bates*         |  |     | 41 |                           |  | Head of Legal and Business Affairs                            
|Julian Eccles*        |  |     | 45 |                           |  | Director of Corporate Communications and
    Corporate Affairs
|Jon Florsheim*        |  |     | 43 |                           |  | Managing Director, Sales, Marketing and
    Interactive       
|Richard Freudenstein* |  |     | 38 |                           |  | Chief Operating Officer                                       
|David Gormley*        |  |     | 40 |                           |  | Company Secretary                                             
|Simon Post*           |  |     | 38 |                           |  | Group IT and Strategy Director                                
|Vic Wakeling*         |  |     | 60 |                           |  | Managing Director, Sky Sports                                 
|Alun Webber*          |  |     | 37 |                           |  | Group Director of Engineering and Platform
    Technology     






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

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

Board of Directors

Chase Careywas
appointed a Director on February 13, 2003. He has been a
Non-Executive Director of News Corporation since 2002 and was an
Executive Director from 1996 until 2002. He has been named
President and Chief Executive Officer of Hughes Electronics
Corporation (Hughes) pending the

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completion of News Corporations acquisition
of a 34% interest in Hughes 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 Chief Executive Officer of Fox Television, Director
of Star Group Limited (STAR), Director of NDS Group
plc (NDS) and Director of Gemstar-TV Guide
International, Inc. (Gemstar).


David DeVoehas been
a Director since December 1994. Mr. DeVoe has been an
Executive Director of News Corporation since October 1990;
Senior Executive Vice-President of News Corporation since
January 1996; Chief Financial Officer and Finance Director of
News Corporation since October 1990 and Deputy Finance Director
from May 1985 to September 1990. Mr. DeVoe has been a
Director of News America Incorporated (NAI) since
January 1991; and a Director of STAR since July 1993. He has
also been a Director of FEG since 1991 and a Senior Executive
Vice-President and Chief Financial Officer since August 1998.
Mr. DeVoe has been a Director of NDS since 1996 and a
Director of Gemstar since 2001.

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

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

James Murdochwas
appointed a Director on February 13, 2003 and Chief
Executive Officer with effect from November 4, 2003. Until
his appointment as Chief Executive Officer he was Chairman and
Chief Executive Officer of STAR since May 2000. With effect from
November 4, 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 the YankeeNets and the Board of Trustees of the Harvard
Lampoon. Mr. Murdoch attended Harvard University.

Rupert Murdochhas
been a Director since 1990 when he founded British Sky
Broadcasting, and was appointed Chairman in June 1999.
Mr. Murdoch has been a Director of News Limited in
Australia since 1953; a Director of News International plc in
the UK since 1969; a Director of NAI since 1973; and Executive
Director, Managing Director and Chief Executive of News
Corporation since 1979. Mr. Murdoch has also served as a
Director of FEG and its predecessor companies since 1985,
Chairman since 1992 and Chief Executive Officer since 1995. He
has also been a Director of STAR since 1993 and Gemstar since
2001.

Jacques Nasserwas
appointed a Director on November 8, 2002 and is Senior
Partner of One Equity Partners, the private equity business of
Bank One Corporation. In addition he is Chairman of Polaroid
Corporation, and he serves on the International Board of Allianz
AG. He served as a Member of the Board of Directors, and as
President and Chief Executive Officer of Ford Motor Company from
1998 to 2001. He has received an honorary Doctorate of
Technology and graduated in Business from the Royal Institute of
Melbourne. Because of his significant contributions to the
well-being of humanity and to the country of Lebanon, he has
received the Order of the Cedar. In recognition of his work for
Australian industry, as an adviser to government, and for
education in the areas of technology, he was awarded an Order of
Australia and a Centenary Medal.

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Gail Rebuckwas
appointed a Director on November 8, 2002. She is Chairman
and Chief Executive of The Random House Group Ltd, the UKs
largest trade publishing company. In 1982 she became a founder
director of Century Publishing. 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 Random House UK. She has been a Trustee of
the Institute for Public Policy Research since 1993 and was for
three years a member of the Governments Creative
Industries Task Force. She is on the Board of The Work
Foundation, a member of the Court of the University of Sussex
and a member of the Council of the Royal College of Art.
Ms. Rebuck was awarded a Commander of the British Empire in
the 2000 New Years Honours List.

Lord Rothschildwas
appointed a Director, Non-Executive Deputy Chairman and Senior
Independent Director of the Company with effect from
November 17, 2003. He is Chairman of RIT Capital
Partners Inc and Five Arrows Limited and founded
J Rothchild Assurance which is now part of St James
Place Capital. From university he 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 Siskindhas
been a Director since June 1992. Mr. Siskind has been a
Senior Executive Vice-President of News Corporation since
January 1996; an Executive Director and Group General Counsel of
News Corporation since 1991 and an Executive Vice-President of
News Corporation from February 1991 until January 1996.
Mr. Siskind has also been a Director of NAI since 1991, a
Director of NDS since 1996 and a Director of STAR since 1993.
Mr. Siskind has also been Senior Executive Vice-President,
General Counsel and a Director of FEG since August 1998. He has
been a Member of the Bar of the State of New York since 1962.

Lord St John of
Fawsleyhas been a Director since
1991. He is a Director of Blue Lion Limited and until August
2003, was the Non-Executive Chairman of Blackfriars Investments
of which he was previously Chairman. He 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. He 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. He has also been Master of Emmanuel College,
Cambridge. He has edited the works of Walter Bagehot for The
Economist and is a regular commentator on television and radio.

Martin Stewartwas
appointed as Chief Financial Officer and a Director in May 1998.
He previously served as Head of Commercial Finance from March
1996. From 1991 to 1996, Mr. Stewart was employed at
Polygram, latterly at Polygram Filmed Entertainment where he was
Finance Director for two years. From February 2001 to October
2003, Mr. Stewart was a Non-Executive Director of Michael
Page International plc.

John Thorntonhas
been a Director since 1994. He is Professor and Director of
Global Leadership at Tsinghua University in Beijing and a
Director of the Ford Motor Company, Intel Corporation and the
Pacific Century Group, Inc. Mr. Thornton is Chairman of the
Brookings Institution and a Director or Trustee of several
educational and philanthropic organizations. With effect from
July 1, 2003, Mr. Thornton retired as President and
Co-Chief Operating Officer of the Goldman Sachs Group, Inc. and
as a member of its Board of Directors. Mr. Thornton
attended Harvard College, Oxford University and the Yale School
of Management.

Lord Wilson of
Dintonwas appointed a Director on
February 13, 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.
He subsequently served in a number of departments including
12 years in the Department of Energy where his
responsibilities included nuclear power policy, the
privatization of Britoil, personnel and finance. He headed the
Economic Secretariat in the Cabinet Office under
Mrs. Thatcher

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from 1987 to 1990 and after two years in the
Treasury was appointed Permanent Secretary of the Department of
the Environment in 1992. He 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 he has been Master of Emmanuel College,
Cambridge. He was appointed to the House of Lords 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 us signed by the Director making or revoking the
appointment. An Alternate Director shall not be entitled to fees
for his service as an Alternate Director.

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

Deanna Bateshas
served as our Head of Legal and Business Affairs since November
1989. She has decided to assume a new role within the Legal and
Business Affairs department from January 1, 2004, pursuant
to which she will continue to provide legal counsel to the Group
on a part-time basis. Also as of January 1, 2004, James
Conyers, who joined us in April 1993 and is Deputy Head of Legal
and Business Affairs, will be appointed Head of Legal and
Business Affairs.

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

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

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

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.

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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.

EMPLOYEES

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

|                                   |  |        |       |        |  |        |       |  |  |  |       | 
|---------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- |  |  |  | ----- | 
|                                   |  | 2001   |       | 2002   |  | 2003  
|                                   |  |        |       |        |  |       
|                                   |  | Number |       | Number |  | Number
|Programming                        |  |        | 1,134 |        |  |        | 1,131 |  |  |  | 1,106 | 
|Transmission and related functions |  |        | 1,071 |        |  |        | 1,274 |  |  |  | 1,383 | 
|Marketing                          |  |        | 173   |        |  |        | 193   |  |  |  | 199   | 
|Subscriber management              |  |        | 6,472 |        |  |        | 5,432 |  |  |  | 5,381 | 
|Administration                     |  |        | 872   |        |  |        | 965   |  |  |  | 954   | 
|Betting                            |  |        | 226   |        |  |        | 88    |  |  |  | 109   | 
|                                   |  |        |       |        |  |        |       |  |  |  |       | 
|                                   |  |        | 9,948 |        |  |        | 9,083 |  |  |  | 9,132 | 
|                                   |  |        |       |        |  |        |       |  |  |  |       | 

There has been no significant movement in the
number of full time equivalent persons employed by us during the
year.

There are approximately 1,115 temporary staff
included within the average number of full time equivalent
people employed by the group.

CORPORATE GOVERNANCE

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

The roles of the Chairman and Chief Executive
Officer are separate and have been so since the Company obtained
its listing in 1994. In prior years the Board did not deem it
necessary to appoint a Senior Independent Director and as such
was not compliant with the Code. However, last year the Board
confirmed its commitment to make an appointment and on
November 7, 2002, Lord St John of Fawsley was
appointed as the Senior Independent Director of the Company.
Following the appointment of Lord Rothschild as a Director and
Deputy Chairman of the Company on November 17, 2003, it was
announced that he would assume the role of Senior Independent
Director.

The Board currently comprises 14 Directors,
made up of two Executive Directors and 12 Non-Executive
Directors, eight of whom are Independent Non-Executive
Directors. In the previous year the Board noted that there was
not a majority of Independent Non-Executive Directors as
required by the Code. Following the appointments of Gail Rebuck
and Jacques Nasser at the November 2002 Annual General Meeting,
the Company was compliant with the Code.

In previous years the Articles of Association of
the Company permitted News Corporation or a subsidiary of News
Corporation to appoint a number of Directors dependent on their
shareholding in the Company. BSkyB Holdco Inc.
(Holdco) a subsidiary of News Corporation had the
right to appoint five Directors to the Board. The Directors so
appointed were not subject to election by shareholders, nor did
they have to retire by rotation as required by the Code.

At the Companys November 2002 Annual
General Meeting a resolution was put to the shareholders of the
Company whereby new Articles of Association would be adopted,
canceling News Corporations special right to appoint
Directors to the Board and the five Directors so appointed by
News Corporation would be put forward for appointment by
shareholders. These Directors would then be subject to the
normal retirement by rotation provisions that are applicable to
all other Directors. These resolutions were also conditional on
another three Independent Non-Executive Directors being
appointed to the Board. The

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resolutions were passed by the shareholders of
the Company and became effective on February 13, 2003, when
Lord Wilson of Dinton was appointed as the eighth Independent
Non-Executive Director of the Company. Following the resignation
of Philip Bowman as an Independent Non-Executive Director of the
Company on November 14, 2003, the Board has initiated a
search for a new Independent Non-Executive Director.


On November 14, 2003 the Company announced
that the Board had established an ad-hoc committee to be chaired
by Lord Wilson of Dinton to review all applicable corporate
governance requirements, codes and guidelines with a view to
making recommendations to the Board as to Board processes and
the composition of its committees.

All the Directors of the Company now comply with
the Code requirement for Directors to retire and offer
themselves for re-election at least once every three years.

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

BOARD PRACTICES

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

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

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

Board Committees

The Articles of Association formerly contained
certain rights for Holdco, dependent on its shareholding in the
Company, to appoint and remove members of any standing Committee
established by the Board. Holdco had the right to appoint two
members to any such Committee. These rights were also canceled
upon the adoption of the new Articles of Association by a
Special Resolution of the Company at the Annual General Meeting
which was effective from February 13, 2003.

Remuneration Committee

The Remuneration Committee, on behalf of the
Board, is responsible for recommending to the Board the
framework and policy for Executive Directors remuneration
and remuneration for any Executive of our Company earning a base
salary in excess of £250,000 per annum. The Remuneration
Committee meets not less than once a year and takes advice from
the Chief Executive Officer and independent consultants as
appropriate in carrying out its work.

The Committee is chaired by John Thornton, an
Independent Non-Executive Director and its members are David
Evans, an Independent Non-Executive Director,
Jacques Nasser, an Independent Non-Executive Director,
Rupert Murdoch, a Non-Executive Director and David DeVoe, a
Non-Executive Director. The Company notes that the composition
of the Remuneration Committee does not comply with the Code. The
Board considers that Messrs Murdoch and DeVoe, along with the
other members of the Committee, have provided a valuable
contribution to the Remuneration Committee, and believes that
they will continue to do

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so in the future. Accordingly, the Company does
not propose to alter the current membership of the Remuneration
Committee.


Audit Committee

The Audit Committee consists exclusively of
Non-Executive Directors. The Audit Committee is chaired by
Allan Leighton, and its members are Gail Rebuck,
David DeVoe and Arthur Siskind. It meets not less than
four times a year to review all significant judgments made in
the preparation of the quarterly, half yearly and annual
financial results before they are submitted to the Board. The
Audit Committee reviews all related party transactions with a
cumulative value of £100,000 and above. It reviews with the
external auditors the nature, scope and cost of their work,
discusses with them the results thereof, and reviews the audit
plans and findings of our internal audit function, together with
any related party transactions entered into by us. The Audit
Committee has the power to seek external advice as and when
required. Following Philip Bowmans resignation at the
Annual General Meeting on November 14, 2003, the
composition of the Audit Committee no longer complies with the
Code in that there is no longer a majority of Independent
Directors on the committee.

The US Securities and Exchange Commission has
recently adopted final rules implementing the provisions of the
US Sarbanes-Oxley Act of 2002 relating to the composition and
authority of audit committees of listed companies. Among other
things, the rules require that all members of the audit
committee be independent. Listed foreign private issuers, such
as the Company, are not required to be in compliance with the
rules until July 31, 2005. The SEC rules provide certain
exemptions applicable to audit committees of foreign private
issuers, including an exemption permitting such audit committees
to include representatives of affiliates as non-voting
observers. The Company intends to review the composition of its
audit committee in order to be in compliance with the SEC rules
prior to July 31, 2005.

Nomination Committee

On September 17, 2002, the Company
established a Nomination Committee of the Board following the
Boards confirmation in the previous years Annual
Report that it intended to establish a Nomination Committee. On
September 17, 2002, the Company appointed Lord St John
of Fawsley and John Thornton as the initial Committee members,
and Allan Leighton and Gail Rebuck were appointed to the
Committee on September 22, 2003 in relation to the
appointment by the Company of a new Chief Executive Officer (the
post that was subsequently taken by James Murdoch). Lord
St John acts as Chairman of the Committee. During the year,
Jacques Nasser, Gail Rebuck, Lord Wilson of Dinton, James
Murdoch and Chase Carey were all nominated by the Nomination
Committee for appointment to the Board, and Lord Rothschild was
nominated in November 2003. The Company has from time to
time engaged executive search consultants to assist with the
recruitment of Non-Executive Directors.

COMPENSATION

Remuneration for Executive Directors and senior
executives consists of basic salary, performance-related
bonuses, share incentive schemes and benefits including pension,
life assurance, medical insurance and, where appropriate,
company cars or company car allowances. 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
the senior executives is aligned with our performance,
generating a strong alignment of managements interests
with those of shareholders.

Basic salary

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

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Senior management bonus scheme

Executive Directors and senior executives
participate in a bonus scheme under which awards are made to
participants at the discretion of the Remuneration Committee.
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.

Pension benefits

We provide pensions to eligible employees through
the BSkyB Pension Plan, which is a defined contribution plan.
Employees contribute 4% of pensionable salary into the Plan each
year and the Group contributes up to a maximum of 8% of
pensionable salary. Contributions into the approved Plan are
subject to Inland Revenue limits. We do not currently operate a
Supplementary Pension Scheme in excess of the Inland Revenue
earnings cap.

During the relevant financial year we reviewed
the operation of our pension arrangements for Executive
Directors and senior executives whose Pension Plan contributions
are restricted due to Inland Revenue limits. For these
executives, in the first instance, employee contributions are
reduced and where the Groups contributions need to be
restricted, a cash supplement is paid to the individual equal to
the shortfall in the 8% Group contribution rate.

During the year Tony Ball (who was Chief
Executive Officer & Managing Director until November 4,
2003) received a one-off payment of £113,883 and a further
payment of £10,421 in relation to a shortfall in his
pension arrangements that resulted from historical differences
between employer contributions, as capped by Inland Revenue
limits, and 8% of his pensionable salary. Employer contributions
of £31,863 were paid into the BSkyB Pension Plan.

Martin Stewart received a further payment of
£4,213 in relation to a shortfall in his pension
arrangements, as described above. Employer contributions of
£27,473 were paid into the BSkyB Pension Plan.

Long Term Incentive Plan

We operate a Long Term Incentive Plan
(LTIP) for Executive Directors and senior
executives. An award under the LTIP in previous years comprised
a retention element Core Award (which makes up 5% of the award)
and a Performance Award (which makes up 95% of the award). The
Core Award vests dependent on continued service with the Group
for a specified period and is not subject to the performance
conditions. It is intended that no future Core Awards will be
made under the LTIP. The Performance Award vests, in full or in
part, dependent on the satisfaction of specified performance
targets. Awards are not transferable or pensionable and are made
over a number of our shares determined by the Remuneration
Committee. Awards 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 would have the same value to the
participant.

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

Awards may be made to any employee or full time
Director of the Group at the discretion of the Remuneration
Committee. During the year, awards under the LTIP were made to
Tony Ball and Martin Stewart and other key senior executives.
All previous awards made under the LTIP take the form of a
market value option 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. 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.

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2002 awards

Performance measures for the 2002 LTIP focus on
rewarding performance which results in maximized returns to
shareholders. For the award made in 2002, the Remuneration
Committee determined that the performance targets should be
based on a comparison of our relative total shareholder return
(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 has been selected as the
target as it is a clear indicator of the value created for
shareholders, and is a widely accepted measure of performance.

Of the awards made in 2002, up to half of the
award may vest two years after grant, subject to the achievement
of the performance conditions at that date, with the remaining
50% and any unvested portion becoming eligible for vesting after
three years, subject to the achievement of the performance
conditions at that date. In the 2002 fiscal year Tony Ball and
Martin Stewart were awarded rights over 477,155 and 238,576
shares respectively. For further details of the awards made
during the year see the LTIP table on page 75.

Tony Ball has agreed to waive his unvested
entitlements under the 2002 LTIP as discussed further under the
section headed Service contracts.

2001 awards

50% of the award granted in November 2001 vested
in full on June 30, 2003 as to 400,000 shares (Tony Ball)
and 200,000 shares (Martin Stewart). The additional options
which were granted in respect of the National Insurance
enhancement, 54,000 (Tony Ball) and 27,000 (Martin Stewart),
fell away on exercise on August 12, 2003 as the market
price was below the exercise price at that date. The above
vesting of the award is as a result of our Company being placed
second against the media comparator group in terms of TSR for
the period November 2001 to June 2003, and for the achievement
of the commercial targets at June 30, 2003 using a number
of key business performance measures. The vesting date for this
award was amended during the year from an original vesting date
of July 31, 2003 to June 30, 2003, in order to align
the vesting date with our financial year. The amendment to the
vesting date did not affect the proportion of the award that
vested during the year. Other than for Tony Ball, the unvested
portion of the award made in 2001 will vest on June 30,
2004 subject to the achievement of key business performance
measures together with a comparison of our Companys
relative TSR performance against the international media and
telecommunications sector. The awards only vest in full for
outstanding performance against both performance measures. For
details of awards made during the year see the LTIP table on
page 75.

Tony Ball has agreed to waive his unvested
entitlements under the 2001 LTIP as discussed further under the
section headed Service contracts.

2000 awards

50% of the awards granted in November 2000 vested
in full on November 3, 2002 as to 400,000 shares (Tony
Ball) and 200,000 shares (Martin Stewart). The additional
options which were granted in respect of the National Insurance
enhancement, 54,000 (Tony Ball) and 27,000 (Martin Stewart),
fell away on exercise on August 12, 2003 as the market
price was below the exercise price at that date. The above
vesting of the award is as a result of the Company being placed
first against the media comparator group in terms of TSR for the
period November 2000 to November 2002, and for the achievement
of the commercial targets at November 3, 2002 using a
number of key business performance measures.

The balance of the awards granted in November
2000 vested in full on June 30, 2003 as to 400,000 shares
(Tony Ball) and 200,000 shares (Martin Stewart). The additional
options which were granted in respect of the National Insurance
enhancement, 54,000 (Tony Ball) and 27,000 (Martin Stewart),
fell away on exercise on August 12, 2003 as the market
price was below the exercise price at that date. The above
vesting of the award is as a result of our Company being placed
first against the media comparator group

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in terms of TSR for the period November 2000 to
June 2003, and for the achievement of the commercial targets at
June 30, 2003 using a number of key business performance
measures. The vesting date for this award was amended during the
year from an original vesting date of November 3, 2003 to
June 30, 2003, in order to align the vesting date with our
financial year. The amendment to the vesting date did not affect
the proportion of the award that vested during the year.


Other broadly similar arrangements are operated
for certain senior management not participating in the LTIP
under the terms of a Key Contributor Plan (KCP).
Shares used to satisfy KCP awards are acquired by the Employee
Share Ownership Plan (ESOP) in the market.

On August 12, 2003, Tony Ball and Martin
Stewart exercised those vested 2000 and 2001 awards described
above and subsequently disposed of the ordinary shares received,
being 1,200,000 and 600,000 ordinary shares respectively, at a
share price of 710.5 pence per ordinary share.

Equity Bonus Plan

We operate an Equity Bonus Plan (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 were first made under the EBP in 2002 in
the form of BSkyB shares, subject to performance achieved in the
financial year. For the 2002 EBP, other than for Tony Ball, the
awards of these shares are deferred in equal amounts for a
further one and two years, subject to continuing employment. EBP
awards may be made to any employee or full time Director of the
Group at the discretion of the Remuneration Committee. Shares
used to satisfy these awards are acquired by the ESOP in the
market.

At June 30, 2003, the commercial measures
for the awards made over 104,000 shares for Tony Ball and 52,000
shares for Martin Stewart in August 2002 were achieved in full.
The award granted to Martin Stewart will vest in equal amounts
subject to him remaining in continued employment with the Group
at July 31, 2004 and July 31, 2005. For details of
awards made during the year see the Equity Bonus Plan table on
page 76.

Tony Ball as agreed to waive his unvested
entitlement under the award made in August 2002 as
discussed further under the section headed Service
contracts.

Share awards were made under the LTIP and the EBP
on August 13, 2003, at a nil cost per ordinary share. The
maximum number of shares that may be acquired under these awards
are as follows: Tony Ball 400,000 shares (LTIP), 100,000 shares
(EBP); Martin Stewart 220,000 shares (LTIP), 55,000 (EBP). These
awards made to Martin Stewart will vest in full in July 2006,
provided that certain performance criteria are satisfied. Since
these awards were made Tony Ball has agreed to waive his
unvested entitlements under the LTIP and EBP as discussed
further under the section headed Service contracts.

Additional Executive Bonus Scheme

We operate an Additional Executive Bonus Scheme
in which beneficiaries who participate have the right to receive
the growth in value on a number of notional shares. No awards
have been made under this scheme since 1999 when awards were
made to Tony Ball on his commencement of employment as Chief
Executive Officer. These vested during the year and will lapse
if not exercised within seven years from the date of grant. On
exercise, we will pay a cash sum equal to accrued gains on the
notional shares, subject to deduction of any tax. Accrued gains
will be calculated by reference to the difference between the
middle market price of the shares at the date of exercise and
the price at which the notional shares were granted.
Alternatively, we may elect to transfer to the holders shares of
equal value to the accrued gains, in satisfaction of our
obligation to pay any accrued gains.

Tony Ball had rights over 600,000 notional shares
which were exercised on August 12, 2003, resulting in a
gain of £288,000.

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Share option schemes

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

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 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
under the Executive Schemes during the financial year.

We follow a policy of granting options to
employees linked to salary. This is 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 of over four times
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 our Company, including subscriber growth measures, profit
before tax and earnings per share (EPS) targets.

For awards made during the year ended
June 30, 2003, the performance target was based on EPS. 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 Retail Price Index plus 3% per annum in order for
awards to vest. Given that EPS was negative at the date of
grant, growth is to be measured from the actual EPS achieved for
the year to June 30, 2003.

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

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
contract. The Company has agreed that these options will remain
capable of exercise to the fullest extent applicable under the
rules of the Executive Schemes.

Following approval by shareholders at the 2000
Annual General Meeting, 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 during the year ended June 30, 2003 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.

In accordance with an agreement with the Inland
Revenue, we can, with the consent of the employee, pass on to
the employee the cost of employers National Insurance
Contributions on the exercise of share options granted to UK
employees under the Unapproved Executive Share Option Scheme. In
order to compensate employees for this extra cost, additional
options can be 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.

In addition to the awards set out above, in
December 2000, we made a Millennium award over 500
shares to all employees who had not been granted options or
awards under the LTIP or the Executive Schemes in that year.
These awards were made under the Approved Executive Share Option
Scheme and become exercisable three years from the date of
grant. There are no performance conditions attached to this
award.

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On August 12, 2003, Tony Ball exercised an
option under the Executive Schemes as to 5,145 ordinary shares
under the Approved Executive Share Option Scheme at an exercise
price of £5.83 per share and 594,855 ordinary shares under
the Unapproved Executive Share Option Scheme at an exercise
price of £5.83 per share. These shares were subsequently
sold on August 12, 2003, at a price of 710.5 pence per
ordinary share.

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

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 our Company,
exceed such number as represents five percent of the ordinary
share capital of our 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, which
will be satisfied by ESOP shares do not fall within these
headroom limits.

Service contracts

James Murdochs service contract with the
Company is currently being negotiated with the Remuneration
Committee. Once negotiated his service contract will be
retrospective from November 4, 2003.

Martin Stewart has an employment contract with
our Company, which was deemed to commence on December 1,
1998, and shall continue unless, or until, terminated by either
party giving to the other not less than 12 months
notice in writing. Martin Stewarts remuneration consists
of a base salary of £400,000 per annum and an annual
discretionary bonus to be agreed by the Remuneration Committee.
He is also entitled to other benefits, namely pension benefits,
company car, life assurance equal to four times base salary and
medical insurance. He also participates in the LTIP and EBP.

Mr. Ball was employed as Chief Executive
Officer pursuant to an employment contract with our Company
until November 4, 2003. Mr. Balls remuneration
under the contract consisted of a base salary of £762,134,
plus an annual cost of living provision and an annual bonus
based on performance criteria agreed by the Remuneration
Committee but to be no less than £500,000 annually.
Mr. Ball was also entitled to other benefits, namely
pension benefits, company car, life assurance equal to four
times base salary and medical insurance. He also participated in
the LTIP, EBP, Additional Executive Bonus Scheme and Executive
Schemes.

The Company will pay Mr. Ball
£10.7 million on or before May 31, 2004 in return
for Mr. Ball agreeing with the Company a two-year
non-compete restriction from June 1, 2004 in respect of
free and pay television services in the UK and waiving all of
his unvested entitlements under the LTIP and EBP. Mr. Ball
has also agreed to forgo the contractual entitlement within his
service contract of a one-year payment of salary, bonus and
benefits that would have been paid had his contract not been
extended on expiry on May 31, 2004. The Company has agreed
that the Executive share options granted to Mr. Ball will
remain capable of exercise following the expiry of his service
contract to the fullest extent applicable under the rules of the
Executive Share Option Scheme. Mr. Ball has agreed to
remain available to give advice and assistance to the Company
under his service agreement until the end of May 2004.
Mr. Ball also resigned his position as director of the
Company, effective November 4, 2003.

Non-Executive Directors

The basic fees payable to the Non-Executive
Directors are set by the Board and were £36,750 each during
the year. This amount may be increased on an annual basis by 5%
or Retail Price Index, whichever

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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 Nomination
Committee. The Chairman of the Board, the Chairman of the Audit
Committee, the Chairman of the Remuneration Committee and the
Chairman of the Nomination Committee each receive an additional
£5,000 per annum. Each Non-Executive Director is engaged by
us for an initial term of three years at which time the
individual and the Board will both review whether or not the
Non-Executive Director should continue in this position. Prior
to the November 2002 Annual General Meeting only those Directors
who were not appointed by Holdco received fees.


Directors emoluments

The emoluments of the Directors for the year
ended June 30, 2003 are shown below:

|                           |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |         |  |  |  |           | 
|-------------------------- |  | ---------- | --------- | ---------- |  | -------- | --------- | ------- |  | -------- | --------- | ---------- |  | -------- | --------- | ---------- |  |  | ------ |  |  |  | --------- |  |  |  | ------- |  |  |  | --------- | 
|                           |  | Total      |           | Total      |  |          |           |         |  |          |           |            |  |          |           | Total     
|                           |  | emoluments |           | emoluments |  |          |           |         |  |          |           | Total      |  |          |           | emoluments
|                           |  | including  |           | including  |  |          |           |         |  |          |           | emoluments |  |          |           | including 
|                           |  | pensions   |           | pensions   |  | Salary   |           | Bonus   |  |          |           | before     |  |          |           | pensions  
|                           |  | 2001       |           | 2002       |  | and fees |           | schemes |  | Benefits |           | pensions   |  | Pensions |           | 2003      
|                           |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |           
|                           |  | £          |           | £          |  | £        |           | £       |  | £        |           | £          |  | £        |           | £         
|Executive                  |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |         |  |  |  |           | 
|Tony Ball(i)               |  |            | 1,964,383 |            |  |          | 2,049,343 |         |  |          | 762,134   |            |  |          | 1,500,000 |            |  |  | 41,436 |  |  |  | 2,303,570 |  |  |  | 156,167 |  |  |  | 2,459,737 | 
|Martin Stewart             |  |            | 821,451   |            |  |          | 713,517   |         |  |          | 400,000   |            |  |          | 500,000   |            |  |  | 24,750 |  |  |  | 924,750   |  |  |  | 31,686  |  |  |  | 956,436   | 
|Non-Executive              |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |         |  |  |  |           | 
|Rupert Murdoch             |  |            |          |            |  |          |          |         |  |          | 17,741    |            |  |          |          |            |  |  |       |  |  |  | 17,741    |  |  |  |        |  |  |  | 17,741    | 
|Philip Bowman(ii)          |  |            | 30,750    |            |  |          | 45,000    |         |  |          | 46,750    |            |  |          |          |            |  |  |       |  |  |  | 46,750    |  |  |  |        |  |  |  | 46,750    | 
|Chase Carey(iii)           |  |            |          |            |  |          |          |         |  |          | 13,946    |            |  |          |          |            |  |  |       |  |  |  | 13,946    |  |  |  |        |  |  |  | 13,946    | 
|David DeVoe                |  |            |          |            |  |          |          |         |  |          | 17,741    |            |  |          |          |            |  |  |       |  |  |  | 17,741    |  |  |  |        |  |  |  | 17,741    | 
|David Evans                |  |            |          |            |  |          | 27,057    |         |  |          | 39,994    |            |  |          |          |            |  |  |       |  |  |  | 39,994    |  |  |  |        |  |  |  | 39,994    | 
|Allan Leighton             |  |            | 25,500    |            |  |          | 39,698    |         |  |          | 41,750    |            |  |          |          |            |  |  |       |  |  |  | 41,750    |  |  |  |        |  |  |  | 41,750    | 
|James Murdoch(iv)          |  |            |          |            |  |          |          |         |  |          | 13,946    |            |  |          |          |            |  |  |       |  |  |  | 13,946    |  |  |  |        |  |  |  | 13,946    | 
|Jacques Nasser(v)          |  |            |          |            |  |          |          |         |  |          | 26,923    |            |  |          |          |            |  |  |       |  |  |  | 26,923    |  |  |  |        |  |  |  | 26,923    | 
|Gail Rebuck(vi)            |  |            |          |            |  |          |          |         |  |          | 25,596    |            |  |          |          |            |  |  |       |  |  |  | 25,596    |  |  |  |        |  |  |  | 25,596    | 
|Arthur Siskind             |  |            |          |            |  |          |          |         |  |          | 15,843    |            |  |          |          |            |  |  |       |  |  |  | 15,843    |  |  |  |        |  |  |  | 15,843    | 
|Lord St John of Fawsley    |  |            | 25,500    |            |  |          | 35,000    |         |  |          | 40,673    |            |  |          |          |            |  |  |       |  |  |  | 40,673    |  |  |  |        |  |  |  | 40,673    | 
|John Thornton              |  |            | 28,125    |            |  |          | 49,522    |         |  |          | 53,744    |            |  |          |          |            |  |  |       |  |  |  | 53,744    |  |  |  |        |  |  |  | 53,744    | 
|Lord Wilson of Dinton(vii) |  |            |          |            |  |          |          |         |  |          | 13,946    |            |  |          |          |            |  |  |       |  |  |  | 13,946    |  |  |  |        |  |  |  | 13,946    | 
|Leslie Hinton(viii)        |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |        |  |  |  |          | 
|Martin Pompadur(ix)        |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |        |  |  |  |          | 
|Former directors           |  |            | 120,268   |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |        |  |  |  |          | 
|Total emoluments           |  |            | 3,015,977 |            |  |          | 2,959,137 |         |  |          | 1,530,727 |            |  |          | 2,000,000 |            |  |  | 66,186 |  |  |  | 3,596,913 |  |  |  | 187,853 |  |  |  | 3,784,766 | 






|       |                                                                                        
|------ | ---------------------------------------------------------------------------------------
|(i)    | Tony Ball resigned as a Director of the Company
    on November 4, 2003.               
|      
|(ii)   | Philip Bowman resigned as a Director of the
    Company on November 14, 2003.          
|      
|(iii)  | Chase Carey was appointed a Director of the
    Company on February 13, 2003.          
|      
|(iv)   | James Murdoch was appointed a Director of the
    Company on February 13, 2003.        
|      
|(v)    | Jacques Nasser was appointed a Director of the
    Company on November 8, 2002.        
|      
|(vi)   | Gail Rebuck was appointed a Director of the
    Company on November 8, 2002.           
|      
|(vii)  | Lord Wilson of Dinton was appointed a Director of
    the Company on February 13, 2003.
|      
|(viii) | Leslie Hinton resigned as a Director of the
    Company on February 13, 2003.          
|      
|(ix)   | Martin Pompadur resigned as a Director of the
    Company on February 13, 2003.        

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Executive bonuses

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

|               |  |            |   |            |  |       |           |  |  |  |           | 
|-------------- |  | ---------- | - | ---------- |  | ----- | --------- |  |  |  | --------- | 
|               |  | Additional |   | Senior     |  |      
|               |  | Executive  |   | Management |  |      
|               |  | Bonus      |   | Bonus      |  |      
|               |  | Scheme(i)  |   | Scheme(ii) |  | Total
|               |  |            |   |            |  |      
|               |  | £          |   | £          |  | £    
|Executive      |  |            |   |            |  |       |           |  |  |  |           | 
|Tony Ball      |  |            |  |            |  |       | 1,500,000 |  |  |  | 1,500,000 | 
|Martin Stewart |  |            |  |            |  |       | 500,000   |  |  |  | 500,000   | 






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

Tony Ball has rights over 600,000 notional shares
which became exercisable during the year. The notional shares
have an exercise price of
        £5.35 but the gain on exercise is
limited to a maximum of 48 pence per notional share. These
rights were subsequently exercised by
        Tony Ball on
August 12, 2003, resulting in a gain of £288,000.


During the year to June 30, 2003 no shares
(notional or actual) were awarded or exercised under this scheme.



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

The amounts shown above are those which have been
approved by the Remuneration Committee for the year ended
June 30, 2003.


SHARE OWNERSHIP

LTIP

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

|                  |  |                              |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |       |  |  |  |     |  |  |  |          |  |  |  |          | 
|----------------- |  | ---------------------------- | ------- | -------- |  | --------- | ------- | -------- |  | -------- | - | -------- |  | ----------- | ------- | ------ |  | - | ----- |  |  |  | --- |  |  |  | -------- |  |  |  | -------- | 
|                  |  |                              |         |          |  |           |         |          |  |         
|                  |  | Number of shares under award |         |          |  |           |         |          |  |         
|                  |  |                              |         |          |  | Market    |         |          |  |         
|                  |  | At                           |         | Granted  |  | Exercised |         | At       |  |          |   | price at |  | Date from   |         |       
|                  |  | June 30,                     |         | during   |  | during    |         | June 30, |  | Exercise |   | date of  |  | which       |         | Expiry
|                  |  | 2002                         |         | the year |  | the year  |         | 2003     |  | price    |   | exercise |  | exercisable |         | date  
|                  |  |                              |         |          |  |           |         |          |  |          |   |          |  |             |         |       
|Name of Directors |  |                              |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |       |  |  |  |     |  |  |  |          |  |  |  |          | 
|Tony Ball         |  |                              | 454,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 03.11.02 |  |  |  | 03.11.10 | 
|                  |  |                              | 454,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 03.11.10 | 
|                  |  |                              | 454,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 21.11.11 | 
|                  |  |                              | 454,000 | (iv)     |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | N/A(iv)  |  |  |  | N/A (iv) | 
|                  |  |                              |        |          |  |           | 227,110 | (iv)     |  |          |  |          |  |             | 227,110 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | N/A(iv)  |  |  |  | N/A (iv) | 
|                  |  |                              |        |          |  |           | 227,110 | (iv)     |  |          |  |          |  |             | 227,110 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | N/A(iv)  |  |  |  | N/A (iv) | 
|                  |  |                              |        |          |  |           | 11,466  | (iv)     |  |          |  |          |  |             | 11,466  |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | N/A(iv)  |  |  |  | N/A (iv) | 
|                  |  |                              |        |          |  |           | 11,466  | (iv)     |  |          |  |          |  |             | 11,466  |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | N/A(iv)  |  |  |  | N/A (iv) | 
|                 
|Martin Stewart    |  |                              | 227,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 03.11.02 |  |  |  | 03.11.10 | 
|                  |  |                              | 227,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 03.11.10 | 
|                  |  |                              | 227,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 21.11.11 | 
|                  |  |                              | 227,000 | (ii)     |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.04 |  |  |  | 21.11.11 | 
|                  |  |                              |        |          |  |           | 113,555 | (iii)    |  |          |  |          |  |             | 113,555 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 113,555 | (iii)    |  |          |  |          |  |             | 113,555 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 5,733   | (iii)    |  |          |  |          |  |             | 5,733   |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 5,733   | (iii)    |  |          |  |          |  |             | 5,733   |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 




Awards under the LTIP take the form of a market
value option 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.

There were no gains made by the Directors under
the LTIP during the year (2002: £7,777,500), gains made by
the Directors between July 1, 2003 and November 27,
2003 are detailed in note (v) below.

75



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##### Table of Contents



Notes:



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | These awards vested during the year.                                                                                                                                                                                                                                                                                                                                                                                                            
|     
|(ii)  | These awards will vest subject to meeting
    performance conditions on June 30, 2004. The vesting date
    for this award was amended during the year from an original
    vesting date of July 31, 2004, in order to align the
    vesting date with the Companys financial year.                                                                                                                                                            
|     
|(iii) | In August 2002, awards were granted over
    performance periods ending in July 2004 and July 2005.                                                                                                                                                                                                                                                                                                                                             
|     
|(iv)  | Tony Ball has agreed to waive his unvested
    entitlements under the LTIP as discussed further under the
    section headed Service contracts.                                                                                                                                                                                                                                                                                               
|     
|(v)   | On August 12, 2003, Tony Ball and Martin
    Stewart exercised those vested awards described above and
    subsequently disposed of the ordinary shares received, being
    1,200,000 and 600,000 ordinary shares respectively, at a share
    price of 710.5 pence per ordinary share.                                                                                                                                                         
|     
|(vi)  | On August 13, 2003, Tony Ball was awarded
    400,000 shares under the LTIP and Martin Stewart was
    awarded 220,000 shares at a nil cost per share. The awards made
    to Martin Stewart will vest in full in 2006, provided that
    certain performance criteria are satisfied. Tony Ball has agreed
    to waive his unvested entitlements under the 2003 LTIP as
    discussed further under the section headed Service
    contracts.

Equity Bonus Plan

|                  |  |                              |   |          |  |           |        |          |  |          |   |          |  |                 |        |        |  |  |     |  |  |  |     |  |  |  |          |  |  |  |           | 
|----------------- |  | ---------------------------- | - | -------- |  | --------- | ------ | -------- |  | -------- | - | -------- |  | --------------- | ------ | ------ |  |  | --- |  |  |  | --- |  |  |  | -------- |  |  |  | --------- | 
|                  |  |                              |   |          |  |           |        |          |  |         
|                  |  | Number of shares under award |   |          |  |           |        |          |  |         
|                  |  |                              |   |          |  | Market    |        |          |  |         
|                  |  | At                           |   | Granted  |  | Exercised |        | At       |  |          |   | price at |  | Date from       |        |       
|                  |  | June 30,                     |   | during   |  | during    |        | June 30, |  | Exercise |   | date of  |  | which           |        | Expiry
|                  |  | 2002                         |   | the year |  | the year  |        | 2003     |  | price(i) |   | exercise |  | exercisable(ii) |        | date  
|                  |  |                              |   |          |  |           |        |          |  |          |   |          |  |                 |        |       
|Name of Directors |  |                              |   |          |  |           |        |          |  |          |   |          |  |                 |        |        |  |  |     |  |  |  |     |  |  |  |          |  |  |  |           | 
|Tony Ball         |  |                              |  |          |  |           | 52,000 | (iii)    |  |          |  |          |  |                 | 52,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | N/A(iii) |  |  |  | N/A (iii) | 
|                  |  |                              |  |          |  |           | 52,000 | (iii)    |  |          |  |          |  |                 | 52,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | N/A(iii) |  |  |  | N/A (iii) | 
|                 
|Martin Stewart    |  |                              |  |          |  |           | 26,000 |          |  |          |  |          |  |                 | 26,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12  | 
|                  |  |                              |  |          |  |           | 26,000 |          |  |          |  |          |  |                 | 26,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12  | 




Note:



|      |                                                                                                                                                                                                                                                                                        
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Awards under the EBP take the form of a
    contingent right to acquire existing BSkyB shares at the vesting
    date, for nil consideration.                                                                                                                                          
|     
|(ii)  | At June 30, 2003, the commercial measures
    for the awards made in August 2002 were achieved in full. The
    awards granted to Martin Stewart will vest in equal amounts
    subject to him remaining in continued employment with the Group
    at July 31, 2004 and July 31, 2005.
|     
|(iii) | Tony Ball has agreed to waive his unvested
    entitlements under the EBP as discussed further under the
    section headed Service contracts.                                                                                                                                       

On August 13, 2003 Tony Ball was awarded
100,000 shares under the EBP and Martin Stewart was awarded
55,000 shares. The award made to Martin Stewart will vest in
full in July 2006, provided that certain performance criteria
are satisfied. Tony Ball has agreed to waive his unvested
entitlements under the 2003 EBP as discussed further under the
section headed Service contracts.

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##### Table of Contents



Executive share options

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

|                  |  |                   |         |          |  |           |   |          |  |          |       |          |  |             |         |        |  |  |       |  |  |  |       |  |  |  |          |     |  |  |          | 
|----------------- |  | ----------------- | ------- | -------- |  | --------- | - | -------- |  | -------- | ----- | -------- |  | ----------- | ------- | ------ |  |  | ----- |  |  |  | ----- |  |  |  | -------- | --- |  |  | -------- | 
|                  |  |                   |         |          |  |           |   |          |  |         
|                  |  | Number of options |         |          |  |           |   |          |  |         
|                  |  |                   |         |          |  | Market    |   |          |  |         
|                  |  | At                |         | Granted  |  | Exercised |   | At       |  |          |       | price at |  | Date from   |         |       
|                  |  | June 30,          |         | during   |  | during    |   | June 30, |  | Exercise |       | date of  |  | which       |         | Expiry
|                  |  | 2002              |         | the year |  | the year  |   | 2003     |  | price    |       | exercise |  | exercisable |         | date  
|                  |  |                   |         |          |  |           |   |          |  |          |       |          |  |             |         |       
|Name of Directors |  |                   |         |          |  |           |   |          |  |          |       |          |  |             |         |        |  |  |       |  |  |  |       |  |  |  |          |     |  |  |          | 
|Tony Ball         |  |                   | 5,145   | (i)(iii) |  |           |  |          |  |          |      |          |  |             | 5,145   |        |  |  | £5.83 |  |  |  | N/A   |  |  |  | 12.08.02 |     |  |  | 12.08.09 | 
|                  |  |                   | 594,855 | (i)(iii) |  |           |  |          |  |          |      |          |  |             | 594,855 |        |  |  | £5.83 |  |  |  | N/A   |  |  |  | 12.08.02 |     |  |  | 12.08.06 | 
|                  |  |                   | 600,000 | (iv)     |  |           |  |          |  |          |      |          |  |             | 600,000 |        |  |  | £7.35 |  |  |  | N/A   |  |  |  | 31.05.04 | (v) |  |  | 12.02.07 | 
|                 
|Martin Stewart    |  |                   | 2,096   | (ii)     |  |           |  |          |  |          | 2,096 |          |  |             |        |        |  |  | £4.62 |  |  |  | £6.62 |  |  |  |         |     |  |  |         | 




Note:



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | The options, granted to Tony Ball on
    August 12, 1999, became exercisable during the year.                                                                                                                                                                                                                                                                                                                                                               
|     
|(ii)  | These options were granted under the
    Companys Sharesave Scheme and were exercised on
    May 22, 2003 following their maturity. Options under the
    Companys Sharesave Scheme are not subject to performance
    conditions.                                                                                                                                                                                                                        
|     
|(iii) | On August 12, 2003, Tony Ball exercised an
    option under the Executive Schemes as to 5,145 ordinary shares
    under the Approved Executive Share Option Scheme at an exercise
    price of £5.83 per share and 594,855 ordinary shares under
    the Unapproved Executive Share Option Scheme at an exercise
    price of £5.83 per share; these shares were subsequently
    sold on August 12, 2003, at a price of 710.5 pence per
    ordinary share.
|     
|(iv)  | The Company has agreed that these options will
    remain capable of exercise to the fullest extent applicable
    under the rules of the Executive Schemes.                                                                                                                                                                                                                                                                                                
|     
|(v)   | On or before May 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                  

Share interests

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

|                        |  |          |       |          |  |  |       | 
|----------------------- |  | -------- | ----- | -------- |  |  | ----- | 
|                        |  | At       |       | At      
|                        |  | June 30, |       | June 30,
|                        |  | 2003     |       | 2002    
|                        |  |          |       |         
|Lord St John of Fawsley |  |          | 2,000 |          |  |  | 2,000 | 
|Lord Wilson of Dinton   |  |          | 486   |          |  |  |      | 
|Martin Stewart          |  |          | 2,096 |          |  |  |      | 

Except as disclosed in this Item, no other
Director held any interest in our share capital, including
options, or in any of our subsidiaries, during the year. David
Evans acquired 2,000 ADSs in the Company on
November 17, 2003 representing 8,000 ordinary shares. All
interests at the date shown are beneficial and except as
disclosed in this Item, there have been no other changes between
July 1, 2003 and November 27, 2003.

As at November 27, 2003 the ESOP was
interested in 1,420,887 of our ordinary shares in which the
Directors who are employees are deemed to be interested.

Approximately 30% of the Ordinary Shares of News
Corporation are owned by either (i) Mr. Murdoch
(ii) Cruden Investment Pty. Limited, a private Australian
investment company owned by Mr. Murdoch, members of his
family, including James Murdoch, his son and Chief Executive
Officer of the Company, and various corporations and trusts, the
beneficiaries of which include Mr. Murdoch, members of his
family and certain charities, or (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.

77



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##### Table of Contents






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
November 27, 2003, the amount and percentage of ordinary
shares owned by each shareholder known to us to own more than 3%
(directly and indirectly) of our ordinary shares and by our
directors and officers as a group.

|                                                                       |  |             |  |          |        | 
|---------------------------------------------------------------------- |  | ----------- |  | -------- | ------ | 
|                                                                       |  | Amount      |  | Percent 
|Identity of Person or Group                                            |  | Owned       |  | of Class
|                                                                       |  |             |  |         
|BSkyB Holdco, Inc.(1)                                                  |  | 686,021,700 |  |          | 35.37% | 
|1300 North Market Street
    Suite 404
    Wilmington DE 19801
    USA |  |             |  |          |        | 






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

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

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

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

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

In April 2000, we acquired a 24% stake in
KirchPayTV, diluted to 22% in fiscal 2001. In return as part of
the consideration payable on acquisition, KirchPayTV acquired a
4.27% stake in our Company. In June and August 2000, KirchPayTV
sold its shares and thereby ceased to have a notifiable interest
in us.

On October 30, 2003, 3,592,010 ADSs were
held of record by 12 holders in the US and 686,046,824 ordinary
shares (of which 686,021,700 were held by Holdco) were held of
record by 51 US persons.

RELATED PARTY TRANSACTIONS

For details of transactions with related parties,
see Note 27 to 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.

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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-86.

Legal proceedings

We are not currently involved in any material
legal proceedings. However, certain regulatory proceedings which
could have material consequences to us are described within
Item 3 and Item 4.

Dividend distributions

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

SIGNIFICANT CHANGES

Other than those events described in other Items
in this Annual Report on Form 20-F, including fluctuations
in borrowings and as set out in Note 31 within
Item 18, there have not been any significant changes to our
financial condition or results of operations since June 30,
2003. Our borrowings fluctuate by season mainly due to the
effect of contractual Football Association Premier League
payments. Since June 30, 2003, we drew down an additional
£160 million on our March 2003 £600 million
revolving credit facility (RCF), and had repaid
£235 million on the same facility by November 27,
2003, reducing our RCF drawings to nil.




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. 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*
|                           |  |         |       |      
|                           |  |         |       |      
|                           |  | (Pence) |       | ($)  
|                           |  |         |       |      
|                           |  | High    |       | Low   |  | High |          | Low
|                           |  |         |       |       |  |      |          |    
|Fiscal year ended June 30, |  |         |       |       |  |      |          |     |  |  |            |  |  |  |            | 
|1999                       |  |         | 621   |       |  |      | 413      |     |  |  | 39  17/100 |  |  |  | 27  37/100 | 
|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 | 

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|                           |  |         |          |       |  |      |         |     |  |  |            |  |  |  |            | 
|-------------------------- |  | ------- | -------- | ----- |  | ---- | ------- | --- |  |  | ---------- |  |  |  | ---------- | 
|                           |  |         |          |      
|                           |  | Shares  |          | ADSs*
|                           |  |         |          |      
|                           |  |         |          |      
|                           |  | (Pence) |          | ($)  
|                           |  |         |          |      
|                           |  | High    |          | Low   |  | High |         | Low
|                           |  |         |          |       |  |      |         |    
|Fiscal year ended June 30, |  |         |          |       |  |      |         |     |  |  |            |  |  |  |            | 
|2002                       |  |         |          |       |  |      |         |     |  |  |            |  |  |  |            | 
|First Quarter              |  |         | 820      |       |  |      | 544     |     |  |  | 47  1/3    |  |  |  | 32  1/100  | 
|Second Quarter             |  |         | 936      |       |  |      | 585     |     |  |  | 53         |  |  |  | 34  2/15   | 
|Third Quarter              |  |         | 832      |       |  |      | 642     |     |  |  | 48  1/3    |  |  |  | 37         | 
|Fourth Quarter             |  |         | 832      |       |  |      | 618     |     |  |  | 48  61/100 |  |  |  | 37  11/25  | 
|2003                       |  |         |          |       |  |      |         |     |  |  |            |  |  |  |            | 
|First Quarter              |  |         | 650      |       |  |      | 488     |     |  |  | 40         |  |  |  | 30  3/20   | 
|Second Quarter             |  |         | 674  1/2 |       |  |      | 458     |     |  |  | 42         |  |  |  | 28  53/100 | 
|Third Quarter              |  |         | 671      |       |  |      | 550     |     |  |  | 44  13/100 |  |  |  | 36  3/10   | 
|Fourth Quarter             |  |         | 706      |       |  |      | 624     |     |  |  | 47  3/25   |  |  |  | 39  22/25  | 
|2004                       |  |         |          |       |  |      |         |     |  |  |            |  |  |  |            | 
|First Quarter              |  |         | 724      |       |  |      | 614 1/2 |     |  |  | 47 6/25    |  |  |  | 40 13/50   | 

|                   |  |         |          |       |  |      |          |     |  |  |           |  |  |  |            | 
|------------------ |  | ------- | -------- | ----- |  | ---- | -------- | --- |  |  | --------- |  |  |  | ---------- | 
|                   |  |         |          |      
|                   |  | Shares  |          | ADSs*
|                   |  |         |          |      
|                   |  |         |          |      
|                   |  | (Pence) |          | ($)  
|                   |  |         |          |      
|                   |  | High    |          | Low   |  | High |          | Low
|                   |  |         |          |       |  |      |          |    
|Month ended        |  |         |          |       |  |      |          |     |  |  |           |  |  |  |            | 
|May 31, 2003       |  |         | 683  1/2 |       |  |      | 641      |     |  |  | 45  12/25 |  |  |  | 41  3/4    | 
|June 30, 2003      |  |         | 706      |       |  |      | 654  1/2 |     |  |  | 47  3/25  |  |  |  | 43  1/5    | 
|July 31, 2003      |  |         | 710      |       |  |      | 655      |     |  |  | 46  19/50 |  |  |  | 44  13/100 | 
|August 31, 2003    |  |         | 724      |       |  |      | 656      |     |  |  | 47  6/25  |  |  |  | 42  3/20   | 
|September 30, 2003 |  |         | 678      |       |  |      | 614  1/2 |     |  |  | 43  1/100 |  |  |  | 40  13/50  | 
|October 31, 2003   |  |         | 644  1/2 |       |  |      | 614      |     |  |  | 44  1/5   |  |  |  | 41  9/100  | 






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




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 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

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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 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;
|
| | (vi)  | any proposal concerning the purchase or
    maintenance of insurance for the benefit of Directors or persons
    who include Directors.                                                                                                                                                                                                                                                                                          

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

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executive office or who serves on any committee
of the Directors, or who otherwise performs services which in
the opinion of the Directors are outside the scope of the
ordinary duties of a Director, may be paid such extra
remuneration by way of bonus, commission or otherwise, as the
Directors may determine.


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

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

Borrowing powers

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

No age disqualification for
Directors

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

No share qualification for
Directors

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

Dividends

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

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

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

Directors appointment and
removal

The 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.

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At each Annual General Meeting, there shall
retire from office by rotation:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | 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                                                                                                                                                                                                                                                
|
| | (b) | 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:



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | the provisions of this paragraph (b) shall
    only apply if the number of Directors retiring under
    paragraph (a) above is less than the Relevant Proportion;
    and                                                                                                                                                                                                                                                                     
|
| | (ii) | subject to the provisions of the Act and to the
    following provisions of these Articles, the Directors to retire
    under this paragraph (b) 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.

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

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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.

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 favor 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 favor 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 license 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 license by the ITC.

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



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | and following consultation with the ITC that,
    inter alia, by reason of the interest of a person in any shares
    of the Company transferred, the ITC may vary, revoke, determine
    or refuse to award, grant, renew or extend a license granted
    under the Broadcasting Acts; or                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (ii) | that any person has an interest in the shares of
    the Company which, inter alia, makes the Company a disqualified
    person under the Broadcasting Acts or which contravenes, or
    would cause a contravention of, the restrictions set out in
    Parts III, IV or V of Schedule 2 to the Broadcasting
    Act 1990 or any order made pursuant to the Broadcasting Acts or
    such other restrictions as may be applied by the ITC from time
    to time to disqualify certain persons or bodies from having
    interests in such a license and 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 12 years, no check for amounts payable in respect
of the share has been cashed and no communication has been
received by the Company from the member or the person entitled
by transmission and at least three dividends have been paid in
relation to such shares during those 12 years and no such
dividend has been claimed and, within a further period of three
months from the date of advertisements giving notice of its
intention to sell such shares placed after the expiry of the
period of 12 years, the Company has not received any
communication from the member or the person entitled by
transmission and notice has been given by the Company to the
London Stock Exchange of its intention to make such sale. The
Company shall be obligated to account to the former member or
person entitled by transmission for the net proceeds of the sale
of such shares but no trust shall be created in respect of the
debt and no interest shall be payable in respect of the same and
the Company shall not be required to account for any money
earned on the net proceeds.

Alteration of share capital

The authorized 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 canceled; or

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| |      |                                                                                                                                                                                            
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 November 14, 2003 shareholders approved a special
resolution, authorizing the Directors to reduce the
Companys share premium account by
£1.120 billion. In addition to the approval of the
reduction by shareholders the Company requires the approval of
the High Court, for which it has applied. Whilst it is not
possible to state with any certainty when this will occur, it is
currently anticipated that the reduction will become effective
by the end of the current calendar year.

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:



| |     |                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | 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
|
| | (b) | as a result, either he obtains, or ceases to have:                                                                                                                                                                              



| |       |                                                                                                                                                 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | a material interest in 3%, or more; or                                                                                                        
|
| | (ii)  | an aggregate interest (whether
    material or not) in 10%, or more of the
    Companys voting capital; or                                   
|
| | (iii) | 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/ recognized 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 12 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.

MATERIAL CONTRACTS

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

Acquisition of British Interactive
Broadcasting Holdings Limited (BiB)

On July 17, 2000, we announced an agreement
with British Telecommunications plc (BT), HSBC Bank
plc (HSBC) and Matsushita Electric Europe
(Headquarters) Limited (Matsushita), to increase our
holding in BiB from 32.5% to 80.1%. Completion of the
transaction was subject, inter alia, to regulatory approval. The
acquisition was completed on May 9, 2001.

Following our agreement to meet BiBs future
funding requirements, BTs holding was diluted from 32.5%
to 19.9%. BT was granted a one-off option to exit, on the same
pro-rata terms (including deferred and contingent consideration)
as those given to HSBC and Matsushita, at any time. We acquired
BTs holding on June 28, 2001, increasing our holding
in BiB from 80.1% to 100%.

Consideration was satisfied by the issue to HSBC,
Matsushita and BT of 39.7 million new BSkyB shares and
deferred consideration estimated at £253 million,
through the issue of new BSkyB shares or loan notes in November
2002. In addition, if the valuation of BiB, based on agreed
criteria, was £3 billion or greater, either at 30 or
36 months from the date of the purchase agreement, an
additional estimated £253 million would be payable to
HSBC and Matsushita through the issue of new BSkyB shares or
loan notes.

On November 11, 2002, we issued
43.2 million shares with a fair value of
£253.1 million to HSBC, Matsushita and BT in respect
of the deferred consideration. We also agreed certain other
terms, including the waiver of the selling shareholders
rights under the earn out provisions.

Revolving Credit Facilities

In March 2003 the Group entered into a new
£600 million RCF and voluntarily cancelled
£100 million of the £300 million March 2001
RCF. These agreements have been included as exhibits as part of
this Annual Report on Form 20-F and are also described in
note 20 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 under Taxation below.

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Under English law (and the Companys
Memorandum and Articles of Association), persons who are neither
residents nor nationals of the UK may freely hold, vote and
transfer ordinary shares in the same manner as UK residents or
nationals.

TAXATION

The discussion summarizes basic UK and US tax
consequences of the acquisition, ownership and disposition of
shares and shares represented by ADSs evidenced by ADRs by a US
Holder. For purposes of this summary, a US Holder is
a beneficial owner of shares or ADSs who is (i) an
individual who is a citizen or resident of the US for US income
tax purposes, (ii) a corporation organized under the laws
of the US or any state thereof or the District of Columbia,
(iii) a domestic partnership, (iv) an estate the
income of which is subject to US federal income taxation
regardless of its source or (v) a trust if a court within
the US is able to exercise primary supervision over the
administration of the trust and one or more US persons have the
authority to control all substantial decisions of the trust.
However, in the case of a partnership, estate or trust, this
discussion applies only to the extent such entitys income
is taxed to the entity or its partners or beneficiaries on a net
income basis under US tax law. This summary is based
(i) upon current UK law, UK Inland Revenue 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 organizations, banks and other financial
institutions, persons subject to the alternative minimum tax,
securities broker-dealers, traders in securities that elect to
mark-to-market, and persons holding their shares or ADSs as 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 tax consequences discussed below apply equally to US
Holders of ADSs and shares.

Taxation of dividends

Under current UK taxation legislation, no tax is
withheld from dividend payments by the Company and generally no
UK tax is payable by Eligible US Holders on dividends declared
on the shares.

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For dividends paid on or after April 6,
1999, Eligible US Holders ceased to be entitled to receive
a UK/US Double Tax Treaty Payment in relation to dividends
declared on the shares because of reductions in the tax credit
attaching to dividends provided for in the Finance (No. 2)
Act 1997.

US Holders who are not resident or ordinarily
resident for tax purposes in the UK with no other source of UK
income are not required to file a UK income tax return.

For US federal income tax purposes, the gross
amount of a dividend will be included in a US Holders
gross income as dividend income when payment is actually or
constructively received by the US Holder in the case of shares
or the Depositary in the case of ADSs, to the extent they are
paid out of the Companys current or accumulated earnings
and profits as calculated for US federal income tax purposes
(subject to the discussion below under United States
passive foreign investment company rules). Dividends paid
by the Company will not give rise to any US dividends received
deduction. Dividends will generally constitute foreign source
passive income for foreign tax credit purposes. See
US tax rate change for the rate of US tax applicable
to qualified dividend income.

Also for US federal income tax purposes, the
amount of any dividend paid in non-US currency will be equal to
the US dollar value of such currency on the date the dividend is
included in income, regardless of whether the payment is in fact
converted into US dollars. A US Holder will generally be
required to recognize 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.

To the extent that any distribution paid exceeds
the Companys current and accumulated earnings and profits
as calculated for US federal income tax purposes, the
distribution will be treated as follows:



| |      |                                                                                                                                                                                                                                                                                                                               
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | first, as a tax-free return of capital, which
    will cause a reduction in the adjusted tax basis of the US
    Holders shares or ADSs. This adjustment will increase the
    amount of gain, or decrease the amount of loss, that such US
    Holder will recognize on a later disposition of those shares or
    ADSs; and
|
| | (ii) | second, the balance of the dividend in excess of
    the adjusted tax basis in a US Holders shares or ADSs will
    be taxed as a capital gain recognized on a sale or exchange.                                                                                                                                             

Taxation of capital gains

US Holders who are not resident or ordinarily
resident for tax purposes in the UK will not be liable for UK
tax on capital gains realized on the disposal of their ADSs or
shares unless such ADSs or shares are used, held or acquired for
the purposes of a trade or professional vocation carried on in
the UK through a branch or agency.

The surrender of ADSs in exchange for shares will
not be a taxable event for the purposes of UK corporation tax or
UK capital gains tax. Accordingly, US Holders will not recognize
any gain or loss for such purposes upon such surrender.

In general, for US federal income tax purposes, a
US Holder will recognize capital gain or loss if such US Holder
sells or exchanges shares or ADSs, provided that such shares or
ADSs are capital assets in the hands of such US Holder (subject
to the discussion below under United States 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. See US tax rate change
for the rate of US tax applicable to long-term capital gains.

US tax rate change

Under recently enacted legislation, which is
generally effective for tax years beginning after
December 31, 2002 through tax years beginning on or before
December 31, 2008, the individual tax rates

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on long-term capital gains and qualified
dividend income have been reduced. A dividend from a
non-US corporation is qualified dividend income only if such
corporation is a qualified foreign corporation. A
non-US corporation is a qualified foreign
corporation if (i) it is eligible for benefits under
a comprehensive US income tax treaty determined to be
satisfactory to the United States Department of the Treasury or
(ii) its stock with respect to which the dividend is paid
is readily tradeable on an established securities market in the
United States. The United States Department of the Treasury and
Internal Revenue Service have determined that the Treaty is
satisfactory for this purpose. In addition, the Conference
Report with respect to this legislation states that a share of a
non-US corporations stock is treated as readily tradeable
on an established securities market in the United States if an
American Depositary Receipt (which would include ADSs of the
Company) backed by such share is so traded.


United States passive foreign investment
company rules

The Company believes that it will not be treated
as a passive foreign investment company (PFIC) for
US federal income tax purposes for the current taxable year or
for future taxable years. However, an actual determination of
PFIC status is factual and cannot be made until the close of the
applicable taxable year. The Company will be a PFIC for any
taxable year in which either:



| |      |                                                                                                                                                                         
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 recognizes on disposition of shares or ADSs may be less
favorable to such US Holder. Accordingly, each person should
consult with his own professional advisor regarding the PFIC
rules.

Inheritance and gift taxes

An individual who is domiciled in the US for the
purposes of the United Kingdom-United States Estate and Gift Tax
Convention (the Estate Tax Treaty) and who is not a
national of the UK for the purposes of the Estate Tax Treaty
will generally not be subject to UK inheritance tax in respect
of the shares or ADSs on the individuals death or on a
gift of the shares or ADSs during the individuals lifetime
provided that any applicable US federal gift or estate tax
liability is paid, unless the shares or ADSs are part of the
business property of a permanent establishment of an enterprise
in the UK or pertain to a fixed base in the UK of an individual
used for the performance of independent personal services. Where
the ADSs or shares have been placed in trust by a settlor who,
at time of settlement, was a US Holder, the ADSs or shares will
generally not be subject to 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 October 1, 1999 will generally be subject to UK ad
valorem stamp duty, normally at the rate of 0.5% rounded up (if
necessary) to the nearest multiple of £5 of the amount or
value of the consideration given for the transfer. Stamp duty is
normally a liability of the purchaser.

An agreement to transfer shares or any interest
therein for money or moneys worth will normally give rise
to a charge to stamp duty reserve tax (SDRT) at the
rate of 0.5% of the amount or value of the consideration for the
shares or interest therein (with no rounding up or down).
However, if a duly stamped

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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 rate of 0.5% rounded up (if necessary) to the
nearest multiple of £5 of the amount or value of the
consideration on a transfer from the Custodian of the Depositary
to a US Holder or registered holder of an ADS. Upon cancellation
of the ADS, however, only a fixed UK stamp duty of £5 per
instrument of transfer will be payable.

United States information reporting and
backup withholding

Dividend payments on the shares or ADSs and
proceeds from the sale, exchange or other disposition of the
shares or ADSs may be subject to information reporting to the
Internal Revenue Service and possible US backup withholding 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.

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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. 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 provides us with a
centralized service for raising finance for the Groups
operations, together with managing foreign exchange, interest
rate and counter-party risks. Treasury operations are conducted
within a framework of policies and guidelines authorized and
reviewed by both the Audit Committee and the Board, who receive
regular updates of treasury activity. A further quarterly review
of Treasury activities and controls is carried out by the
Treasury Committee. Derivative instruments are transacted for
risk management purposes only, and the internal control
environment is reviewed periodically by our internal audit
function. The following discussions address market risk only and
do not present other risks that we face in the normal course of
business, including country risk, credit risk and legal risk.

Our principal market risks are changes in
interest rates and currency exchange rates, which arise both
from our sources of finance and from our operations. Following
evaluation of those positions, we selectively enter into
derivative financial instruments to manage these exposures. We
use interest rate swaps to hedge interest rate risks, forward
foreign exchange agreements to hedge transactional currency
exposures and cross currency swaps to hedge exposures on long
term foreign currency debt.

It is our policy that all hedging is to cover
known risks and that no trading in financial instruments is
undertaken. The amount of cash that can be placed with any one
institution is restricted to ensure counter-party risks are
minimized, and regular and frequent reporting to management is
required for all transactions and exposures.

We have formulated our policies for hedging
without regard to US GAAP requirements on hedge accounting, and
therefore our existing derivative arrangements did not qualify
for hedge accounting under US GAAP during the current
fiscal year.

Interest rate management

We have financial exposures to both sterling and
US dollar interest rates, arising primarily from our bank
borrowings and long-term bonds. We manage our exposures by
borrowing at fixed and variable rates of interest and by using
interest rate swaps and cross-currency swaps to manage exposure
to interest rate fluctuations. Under our interest rate swaps, we
agree with counter-parties to exchange, at specified intervals,
the difference between fixed-rate and variable-rate amounts
calculated by reference to an agreed notional amount of our
sterling borrowings. Under our cross-currency swaps we agree
with counter-parties to exchange, at specified intervals, fixed
amounts of sterling for fixed amounts of US dollars, thereby
fixing the sterling cost of servicing our US dollar-denominated
bonds. Our debt exposure is entirely denominated in sterling
after cross currency swaps are taken into account. At
June 30, 2003, the analysis of aggregate net borrowings in
its core currencies was US dollar 84% and sterling 16%
(June 30, 2002: US dollar 62% and sterling 38%).

At June 30, 2003, 93% of our borrowings were
at fixed rates after taking account of interest rate swaps
(June 30, 2002: 87%). The fair value of both interest rate
and cross-currency swaps held as of June 30, 2003 was
approximately £7.0 million in the Groups favor
(June 30, 2002: £60.2 million in the Groups
favor).

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At June 30, 2003, £75.0 million
was drawn down on the Groups RCFs (June 30, 2002:
£500.0 million). All of the drawings at June 30,
2003 were made under the March 2003 £600 million
facility, discussed in more detail in Note 20 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 LIBOR, depending upon
our Net Debt: EBITDA leverage ratio (as defined in the loan
agreement). Until June 2004 the rate is fixed at 1.125% and
shall not fall below 0.7% per annum above LIBOR prior to March
2006. No funds were drawn on the March 2001
£200 million facility at June 30, 2003
(June 30, 2002: nil).

All of the drawings at June 30, 2002 were
made under the July 1999 £750 million facility,
discussed in more detail in Note 20 within Item 18.
Under this facility, interest accrued at rates between 0.5% and
1.4% per annum above LIBOR dependant upon credit rating. The
July 1999 £750 million facility was voluntarily
cancelled in March 2003.

At June 30, 2003, based upon the total
amount of debt outstanding under the Groups RCF, our
annual interest charge would be unaffected by any change to the
Groups credit rating in either direction. At June 30,
2002, based upon the total amount of debt outstanding under the
Groups RCF, our annual interest charge would have
increased by approximately £2.0 million (40 basis
points) if the Groups credit rating with either
Moodys Investors Services or Standard and Poors
Ratings Services had been downgraded by one credit rating
category below a long-term debt rating of Ba1/BB+. If the
Groups credit rating had been upgraded by one credit
rating category the annual interest charge would have been
reduced by approximately £1.5 million (30 basis
points).

To ensure continuity of funding, our policy is to
ensure that available funding matures over a period of years. At
June 30, 2003, 47% of our available funding was due to
mature in more than five years (2002: 42%).

At June 30, 2003, the Group had outstanding
interest rate swap agreements with notional principal amounts
totaling £1,154.4 million compared to
£1,454.4 million at June 30, 2002.

At June 30, 2003, based upon the total
amount of debt outstanding under the Groups RCF, a one
percentage point increase in interest rates would increase the
Groups annual net interest expense by
£0.8 million (2002: £2.0 million). The
Groups exposure to interest rate fluctuations has reduced
in line with the decrease in net debt during the current year.

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 2003, 15.0%
of operating costs (£423.7 million) were denominated
in US dollars (fiscal 2002: 15.2% (£393.0 million)).
These costs relate mainly to our long-term programming contracts
with US movie licensors.

We currently manage our US dollar/ pound sterling
exchange risk exposure by entering into forward foreign exchange
agreements for up to 18 months ahead, which substantially
hedge our future foreign exchange liabilities in that period. It
is our policy that foreign exchange transactions are limited to
fixed price instruments.

Our primary euro exposure arises as a result of
revenues generated from our subscribers in Ireland, being
approximately 3% of total revenue in fiscal 2003. These
euro-denominated revenues are offset to a certain extent by
euro-denominated costs, relating mainly to certain transponder
rentals, which result in a euro surplus. During the year,
surplus euros were exchanged for sterling on currency spot
markets. In the year to June 30, 2003,
euro 59.0 million (2002: euro 55.0 million) has
been exchanged at spot rates. A further
euro 30.0 million has been retained to meet
obligations under forward foreign exchange contracts for the
purchase of Swiss francs (see below).

During the period, we acquired the pay TV 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 will be

93



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made pursuant to the contract in Swiss francs,
which means that we will be exposed to the Swiss franc/ pounds
sterling exchange rate. In line with our policy of limiting
foreign exchange transactions to fixed price instruments, all of
this exposure for 2003/4 (CHF99.5 million) has been hedged
via the use of forward contracts for the exchange of euros and
Swiss francs. In line with treasury policies, the remaining
commitment of CHF198.9 million will be hedged in advance of
each fiscal year in which the liability crystalizes.


Although these financial instruments and revenue
flows can mitigate the effect of short-term fluctuations in
exchange rates, there can be no effective or complete hedge
against long-term currency fluctuations.

All US dollar-denominated forward foreign
exchange agreements and similar financial instruments entered
into by us are in respect of firm commitments. It is our policy
to hedge in excess of 90% of dollar-denominated expenses for a
period of up to 18 months forward. At June 30, 2003,
we had entered into 129 forward contracts for a total value of
US$902.5 million (2002: US$920.0 million), with a
maturity of up to 18 months, to cover commitments for the
supply of programming. These contracts, which are individually
for less than US$12.5 million (2002: US$12.5 million),
are with a variety of counter-parties.

Some £226.2 million of these forward
contracts are to hedge liabilities in respect of available
programming and hence these liabilities are recorded on the
balance sheet at the hedged rate. The remainder is to hedge
future payments for programs yet to become available and is
therefore disclosed within commitments rather than being
recorded within liabilities (see Note 25 within
Item 18).

Investments in overseas operations are
consolidated or equity accounted for accounting purposes by
translating values into sterling, and therefore fluctuations in
currency exchange rates affect the sterling values recorded in
our financial statements. These investments do not give rise to
any foreign currency cash flows. Exchange differences arising on
translation of the opening net assets and results of the
overseas subsidiaries and joint ventures and on foreign currency
borrowings, to the extent that they hedge the Groups
investment in these operations, are dealt with through reserves.

Since 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 sterling against all currencies in
which the Group has significant transactions is considered to be
negligible for the forthcoming year, which is consistent with
the position at the prior year end.

The accounting policies in respect of market risk
sensitive instruments are disclosed in Notes 1, 21 and 25
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 within Item 18.

The disclosure on market risk included in
Item 11 in the current year has been changed to sensitivity
analysis disclosures from tabular presentation. This has been
done as the Group believes this presentation provides greater
clarity on market risk to users of this Annual Report on
Form 20-F.

94



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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.

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,
summarized 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 June 30, 2003. 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 June 30, 2003 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

Not applicable




ITEM 16B.     CODE OF
ETHICS

On June 19, 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 included as an exhibit as part of this Annual Report
on Form 20-F.

95



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ITEM
16C.     PRINCIPAL ACCOUNTANT FEES AND
SERVICES

Not applicable




ITEM
16D.     EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES

Not applicable




PART III




ITEM
17.     FINANCIAL STATEMENTS

The registrant has responded to Item 18 in
lieu of responding to this Item.




ITEM
18.     FINANCIAL STATEMENTS

The financial statements 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-86 as
follows:

|                                                                                                                  |  |      |     | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                  |  | Page
|                                                                                                                  |  |     
|Report of Independent Auditors, Deloitte &
    Touche LLP                                                         |  |      | F-1 | 
|Consolidated Profit and Loss Accounts for the
    years ended June 30, 2001, 2002 and 2003                        |  |      | F-2 | 
|Consolidated Statements of Total Recognized Gains
    and Losses for the years ended June 30, 2001, 2002 and 2003 |  |      | F-2 | 
|Consolidated Balance Sheets at June 30, 2002
    and 2003                                                         |  |      | F-3 | 
|Consolidated Cash Flow Statements for the years
    ended June 30, 2001, 2002 and 2003                            |  |      | F-4 | 
|Notes to Consolidated Financial Statements                                                                        |  |      | F-7 | 

96



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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    | *           |  | Memorandum and Articles of Association                                                                                                                                                                    |  |  | A   | 
|       | 2    | **          |  | Specimen share certificate                                                                                                                                                                                |  |  | 2   | 
|       | 4.1  | **          |  | Agreement dated March 8, 2001 with respect
    to a £300,000,000 Revolving Credit Facility among British
    Sky Broadcasting Group plc, as borrower, the Toronto-Dominion
    Bank, as agent, and others |  |  | 4.2 | 
|       | 4.2  | ***         |  | Supplemental Agreement dated April 26, 2002
    with respect to 4.1 above                                                                                                                                 |  |  | 4.5 | 
|       | 4.3  |             |  | Notice of cancellation of £100,000,000 of
    availability under the facility referred to in 4.1 above, dated
    March 21, 2003                                                                          |  |  |    | 
|       | 4.4  |             |  | Second Supplement Agreement dated May 15,
    2003 with respect to 4.1 above                                                                                                                              |  |  |    | 
|       | 4.5  |             |  | Agreement dated March 20, 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         |  |  |    | 
|       | 8    |             |  | List of Subsidiaries                                                                                                                                                                                      |  |  |    | 
|       | 11   |             |  | Code of Ethics                                                                                                                                                                                            |  |  |    | 
|       | 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                                                                                                                                                                          |  |  |    | 






| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | 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 August 18,
    2003.



| |    |                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Incorporated by reference to the Annual Report on
    Form 20-F of British Sky Broadcasting Group plc for the
    fiscal year ended June 30, 2001 filed with the Securities
    and Exchange Commission on October 1, 2001.



|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*** | Incorporated by reference to the Annual Report on
    Form 20-F of British Sky Broadcasting Group plc for the
    fiscal year ended June 30, 2002 filed with the Securities
    and Exchange Commission on November 7, 2002.

97



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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 authorized the undersigned to sign this annual
report on its behalf.



| |                                   
| | ----------------------------------
| | BRITISH SKY BROADCASTING GROUP PLC



| |     |               
| | --- | --------------
| | BY: | MARTIN STEWART

| |                        
| | -----------------------
| |                        
| | MARTIN STEWART         
| | Chief Financial Officer

Date: December 5, 2003

98



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FINANCIAL STATEMENTS OF BRITISH SKY
BROADCASTING GROUP PLC






INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


|                                                                                                                  |  |      |     | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                  |  | Page
|                                                                                                                  |  |     
|Report of Independent Auditors, Deloitte &
    Touche LLP                                                         |  |      | F-1 | 
|Consolidated Profit and Loss Accounts for the
    years ended June 30, 2001, 2002 and 2003                        |  |      | F-2 | 
|Consolidated Statements of Total Recognized Gains
    and Losses for the years ended June 30, 2001, 2002 and 2003 |  |      | F-2 | 
|Consolidated Balance Sheets at June 30, 2002
    and 2003                                                         |  |      | F-3 | 
|Consolidated Cash Flow Statements for the years
    ended June 30, 2001, 2002 and 2003                            |  |      | F-4 | 
|Notes to Consolidated Financial Statements                                                                        |  |      | F-7 | 

99



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##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

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
June 30, 2002 and 2003, and the related consolidated profit
and loss accounts, consolidated statements of total recognized
gains and losses, and consolidated cash flow statements for each
of the three years in the period ended June 30, 2003, 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
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Group as at June 30,
2002 and 2003, and the consolidated results of its operations
and its consolidated cash flows for each of the three years in
the period ended June 30, 2003 in conformity with
accounting principles generally accepted in the United Kingdom.

Accounting principles generally accepted in the
United Kingdom vary in significant respects from accounting
principles generally accepted in the United States of America.
The application of the latter would have affected the
determination of consolidated net profit (loss) for each of the
three years in the period ended June 30, 2003 and
determination of consolidated shareholders funds (deficit)
at June 30, 2002 and 2003, to the extent summarized 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. 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 July 1, 2002.

DELOITTE & TOUCHE LLP

London, United Kingdom


August 11, 2003


(October 16, 2003 as to notes 26, 28,
30 and 31)


F-1



---



##### Table of Contents



CONSOLIDATED PROFIT AND LOSS
ACCOUNTS

|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|----------------------------------------------------------------------- |  | ----- | -- | ------------- |  | ------------- | -------- | ------------- |  | ----------- | ------ | ----------- |  | ----- | -------- | ----------- |  | ----------- | -------- | ----- |  |  | -------- | - |  |  | -------- | - |  |  | -------- | - |  |  | ------ | - |  |  | -------- | -
|                                                                        |  |       |    |               |  |               |          |              
|                                                                        |  |       |    | June 30, 2001 |  | June 30, 2002 |          | June 30, 2003
|                                                                        |  |       |    |               |  |               |          |              
|                                                                        |  |       |    | Before        |  |               |          | Before        |  |             |        | Before      |  |      
|                                                                        |  |       |    | goodwill      |  | Goodwill      |          |               |  | goodwill    |        | Goodwill    |  |       |          | goodwill    |  | Goodwill    |          |      
|                                                                        |  |       |    | and           |  | and           |          |               |  | and         |        | and         |  |       |          | and         |  | and         |          |      
|                                                                        |  |       |    | exceptional   |  | exceptional   |          |               |  | exceptional |        | exceptional |  |       |          | exceptional |  | exceptional |          |      
|                                                                        |  | Notes |    | items         |  | items         |          | Total         |  | items       |        | items       |  | Total |          | items       |  | items       |          | Total
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |      
|                                                                        |  |       |    | £m            |  | £m            |          | £m            |  | £m          |        | £m          |  | £m    |          | £m          |  | £m          |          | £m   
|Turnover: Group turnover and share of joint
    ventures turnover      |  |       |    |               |  |               | 2,530.1  |               |  |             |       |             |  |       | 2,530.1  |             |  |             | 2,915.3  |       |  |  |         |   |  |  | 2,915.3  |   |  |  | 3,262.5  |   |  |  |       |   |  |  | 3,262.5  |  
|Less: Share of joint ventures turnover                                 |  |       |    |               |  |               | (224.1   | )             |  |             |       |             |  |       | (224.1   | )           |  |             | (139.2   | )     |  |  |         |   |  |  | (139.2   | ) |  |  | (76.5    | ) |  |  |       |   |  |  | (76.5    | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|Group turnover                                                          |  |       | 2  |               |  |               | 2,306.0  |               |  |             |       |             |  |       | 2,306.0  |             |  |             | 2,776.1  |       |  |  |         |   |  |  | 2,776.1  |   |  |  | 3,186.0  |   |  |  |       |   |  |  | 3,186.0  |  
|Operating expenses, net                                                 |  |       | 3  |               |  |               | (2,145.8 | )             |  |             | (67.4  | )           |  |       | (2,213.2 | )           |  |             | (2,584.6 | )     |  |  | (136.5   | ) |  |  | (2,721.1 | ) |  |  | (2,815.3 | ) |  |  | (116.7 | ) |  |  | (2,932.0 | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|Operating profit (loss)                                                 |  |       |    |               |  |               | 160.2    |               |  |             | (67.4  | )           |  |       | 92.8     |             |  |             | 191.5    |       |  |  | (136.5   | ) |  |  | 55.0     |   |  |  | 370.7    |   |  |  | (116.7 | ) |  |  | 254.0    |  
|Share of operating results of joint ventures                            |  |       | 5  |               |  |               | (239.2   | )             |  |             | (16.5  | )           |  |       | (255.7   | )           |  |             | (76.7    | )     |  |  |         |   |  |  | (76.7    | ) |  |  | 3.4      |   |  |  |       |   |  |  | 3.4      |  
|Joint ventures goodwill amortization, net*                             |  |       | 14 |               |  |               |         |               |  |             | (101.1 | )           |  |       | (101.1   | )           |  |             |         |       |  |  | (1,069.9 | ) |  |  | (1,069.9 | ) |  |  |         |   |  |  |       |   |  |  |         |  
|Profit on sale of fixed asset investments                               |  |       | 4  |               |  |               |         |               |  |             |       |             |  |       |         |             |  |             |         |       |  |  | 2.3      |   |  |  | 2.3      |   |  |  |         |   |  |  |       |   |  |  |         |  
|Share of joint ventures loss on sale of
    fixed asset investment     |  |       | 4  |               |  |               |         |               |  |             | (69.5  | )           |  |       | (69.5    | )           |  |             |         |       |  |  |         |   |  |  |         |   |  |  |         |   |  |  |       |   |  |  |         |  
|Amounts written off fixed asset investments, net                        |  |       | 4  |               |  |               |         |               |  |             | (38.6  | )           |  |       | (38.6    | )           |  |             |         |       |  |  | (60.0    | ) |  |  | (60.0    | ) |  |  |         |   |  |  | (15.1  | ) |  |  | (15.1    | )
|(Provision) release of provision for loss on
    disposal of subsidiary |  |       | 4  |               |  |               |         |               |  |             | (10.0  | )           |  |       | (10.0    | )           |  |             |         |       |  |  | 10.0     |   |  |  | 10.0     |   |  |  |         |   |  |  |       |   |  |  |         |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|(Loss) profit on ordinary activities before
    interest and taxation   |  |       |    |               |  |               | (79.0    | )             |  |             | (303.1 | )           |  |       | (382.1   | )           |  |             | 114.8    |       |  |  | (1,254.1 | ) |  |  | (1,139.3 | ) |  |  | 374.1    |   |  |  | (131.8 | ) |  |  | 242.3    |  
|Interest receivable and similar income                                  |  |       | 6  |               |  |               | 18.2     |               |  |             | 2.7    |             |  |       | 20.9     |             |  |             | 11.1     |       |  |  |         |   |  |  | 11.1     |   |  |  | 3.7      |   |  |  |       |   |  |  | 3.7      |  
|Interest payable and similar charges                                    |  |       | 6  |               |  |               | (153.3   | )             |  |             |       |             |  |       | (153.3   | )           |  |             | (148.0   | )     |  |  |         |   |  |  | (148.0   | ) |  |  | (118.2   | ) |  |  |       |   |  |  | (118.2   | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|(Loss) profit on ordinary activities before
    taxation                |  |       | 7  |               |  |               | (214.1   | )             |  |             | (300.4 | )           |  |       | (514.5   | )           |  |             | (22.1    | )     |  |  | (1,254.1 | ) |  |  | (1,276.2 | ) |  |  | 259.6    |   |  |  | (131.8 | ) |  |  | 127.8    |  
|Tax on (loss) profit on ordinary activities                             |  |       | 9  |               |  |               | (23.3    | )             |  |             | (0.8   | )           |  |       | (24.1    | )           |  |             | (28.6    | )     |  |  | (77.8    | ) |  |  | (106.4   | ) |  |  | (58.7    | ) |  |  | 121.2  |   |  |  | 62.5     |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|(Loss) profit on ordinary activities after
    taxation                 |  |       |    |               |  |               | (237.4   | )             |  |             | (301.2 | )           |  |       | (538.6   | )           |  |             | (50.7    | )     |  |  | (1,331.9 | ) |  |  | (1,382.6 | ) |  |  | 200.9    |   |  |  | (10.6  | ) |  |  | 190.3    |  
|Equity dividends  paid and proposed                                    |  |       | 10 |               |  |               |          |               |  |             |        |             |  |       |         |             |  |             |          |       |  |  |          |   |  |  |         |   |  |  |          |   |  |  |        |   |  |  |         |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|Retained (loss) profit for the financial
    year                       |  |       | 24 |               |  |               |          |               |  |             |        |             |  |       | (538.6   | )           |  |             |          |       |  |  |          |   |  |  | (1,382.6 | ) |  |  |          |   |  |  |        |   |  |  | 190.3    |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|Basic (loss) earnings per share                                         |  |       | 11 |               |  |               |          |               |  |             |        |             |  |       | (29.2p   | )           |  |             |          |       |  |  |          |   |  |  | (73.3p   | ) |  |  |          |   |  |  |        |   |  |  | 9.9p     |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  
|Diluted (loss) earnings per share                                       |  |       | 11 |               |  |               |          |               |  |             |        |             |  |       | (29.2p   | )           |  |             |          |       |  |  |          |   |  |  | (73.3p   | ) |  |  |          |   |  |  |        |   |  |  | 9.8p     |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |          |   |  |  |          |   |  |  |          |   |  |  |        |   |  |  |          |  




Details of movements on reserves are shown in
note 24.

All results relate to continuing operations.



|  |                                                                                                                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included within fiscal 2002 joint ventures
    goodwill amortization of £1,069.9 million for the year
    is £971.4 million in respect of an impairment of
    KirchPayTV GmbH & Co KGaA (KirchPayTV)
    goodwill (see notes 4 and 14).

CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED
GAINS AND LOSSES

|                                                               |  |       |    |          |  |          |        |          |  |  |          |   |  |  |       | 
|-------------------------------------------------------------- |  | ----- | -- | -------- |  | -------- | ------ | -------- |  |  | -------- | - |  |  | ----- | 
|                                                               |  |       |    | June 30, |  | June 30, |        | June 30,
|                                                               |  | Notes |    | 2001     |  | 2002     |        | 2003    
|                                                               |  |       |    |          |  |          |        |         
|                                                               |  |       |    | £m       |  | £m       |        | £m      
|(Loss) profit for the financial year*                          |  |       | 24 |          |  |          | (538.6 | )        |  |  | (1,382.6 | ) |  |  | 190.3 | 
|Net loss on deemed disposals                                   |  |       | 24 |          |  |          | (20.7  | )        |  |  |         |   |  |  |      | 
|Translation differences on foreign currency net
    investment |  |       | 24 |          |  |          | (2.1   | )        |  |  | 1.4      |   |  |  |      | 
|                                                               |  |       |    |          |  |          |        |          |  |  |          |   |  |  |       | 
|Total recognized gains and losses relating to
    the year     |  |       |    |          |  |          | (561.4 | )        |  |  | (1,381.2 | ) |  |  | 190.3 | 
|                                                               |  |       |    |          |  |          |        |          |  |  |          |   |  |  |       | 






|  |                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included within the profit (loss) for the year is
    a £1.5 million profit (2002: £80.9 million
    loss; 2001: £350.0 million loss) in respect of the
    Groups share of the results of joint ventures.

See notes to consolidated financial
statements.

F-2



---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS

|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|---------------------------------------------------------- |  | ----- | -- | -------- |  | ---- | -------- | - |  |  | -------- | -
|                                                           |  |       |    |         
|                                                           |  |       |    | June 30,
|                                                           |  |       |    |         
|                                                           |  | Notes |    | 2002     |  | 2003
|                                                           |  |       |    |          |  |     
|                                                           |  |       |    | £m       |  | £m  
|Fixed assets                                               |  |       |    |          |  |      |          |   |  |  |          |  
|Intangible assets                                          |  |       | 12 |          |  |      | 657.4    |   |  |  | 535.9    |  
|Tangible assets                                            |  |       | 13 |          |  |      | 343.0    |   |  |  | 346.2    |  
|Investments:                                               |  |       |    |          |  |      |          |   |  |  |          |  
|Investments in joint ventures: Share of gross
    assets   |  |       |    |          |  |      | 88.7     |   |  |  | 86.8     |  
|:
    Share of gross liabilities                           |  |       |    |          |  |      | (68.5    | ) |  |  | (59.0    | )
|:
    Transfer to creditors                                |  |       |    |          |  |      | 1.6      |   |  |  | 2.6      |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total investment in joint ventures                         |  |       | 14 |          |  |      | 21.8     |   |  |  | 30.4     |  
|Other fixed asset investments                              |  |       | 15 |          |  |      | 107.1    |   |  |  | 78.5     |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total investments                                          |  |       |    |          |  |      | 128.9    |   |  |  | 108.9    |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | 1,129.3  |   |  |  | 991.0    |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Current assets                                             |  |       |    |          |  |      |          |   |  |  |          |  
|Stocks                                                     |  |       | 16 |          |  |      | 414.2    |   |  |  | 370.4    |  
|Debtors: Amounts falling due within one year               |  |       |    |          |  |      |          |   |  |  |          |  
| deferred tax assets                                      |  |       | 18 |          |  |      | 13.9     |   |  |  | 30.8     |  
| other                                                    |  |       |    |          |  |      | 387.0    |   |  |  | 363.3    |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       | 17 |          |  |      | 400.9    |   |  |  | 394.1    |  
|Debtors: Amounts falling due after more than one
    year  |  |       |    |          |  |      |          |   |  |  |          |  
| deferred tax assets                                      |  |       | 18 |          |  |      | 24.9     |   |  |  | 159.0    |  
| other                                                    |  |       |    |          |  |      | 182.1    |   |  |  | 63.9     |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       | 17 |          |  |      | 207.0    |   |  |  | 222.9    |  
|Cash at bank and in hand                                   |  |       |    |          |  |      | 50.3     |   |  |  | 46.4     |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | 1,072.4  |   |  |  | 1,033.8  |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Creditors:Amounts
    falling due within one year          |  |       |    |          |  |      |          |   |  |  |          |  
| short-term borrowings                                    |  |       | 19 |          |  |      | (1.5     | ) |  |  | (0.2     | )
| other creditors                                          |  |       | 19 |          |  |      | (903.9   | ) |  |  | (955.0   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | (905.4   | ) |  |  | (955.2   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Net current assets                                         |  |       |    |          |  |      | 167.0    |   |  |  | 78.6     |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total assets less current
    liabilities                  |  |       |    |          |  |      | 1,296.3  |   |  |  | 1,069.6  |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Creditors:Amounts
    falling due after more than one year |  |       |    |          |  |      |          |   |  |  |          |  
| long-term borrowings                                     |  |       | 20 |          |  |      | (1,576.9 | ) |  |  | (1,151.6 | )
| other creditors                                          |  |       | 20 |          |  |      | (16.0    | ) |  |  | (20.5    | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | (1,592.9 | ) |  |  | (1,172.1 | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Provisions for liabilities and
    charges                 |  |       | 22 |          |  |      | (4.1     | ) |  |  | (3.2     | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | (300.7   | ) |  |  | (105.7   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Capital and reserves 
    equity                          |  |       |    |          |  |      |          |   |  |  |          |  
|Called-up share capital                                    |  |       | 23 |          |  |      | 946.7    |   |  |  | 968.9    |  
|Share premium                                              |  |       | 24 |          |  |      | 2,409.8  |   |  |  | 2,535.5  |  
|Shares to be issued                                        |  |       | 24 |          |  |      | 255.8    |   |  |  | 2.7      |  
|Merger reserve                                             |  |       | 24 |          |  |      | 266.7    |   |  |  | 299.0    |  
|Profit and loss account                                    |  |       | 24 |          |  |      | (4,179.7 | ) |  |  | (3,911.8 | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total shareholders deficit                                |  |       | 24 |          |  |      | (300.7   | ) |  |  | (105.7   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  

See notes to consolidated financial
statements.

F-3



---



##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS

|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|--------------------------------------------------------------------------------- |  | ----- | - | -------- |  | ---- | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                                                                  |  |       |   |         
|                                                                                  |  |       |   | June 30,
|                                                                                  |  |       |   |         
|                                                                                  |  | Notes |   | 2001     |  | 2002 |        | 2003
|                                                                                  |  |       |   |          |  |      |        |     
|                                                                                  |  |       |   | £m       |  | £m   |        | £m  
|Net cash inflow from operating
    activities                                     |  |       | a |          |  |      | 38.9   |      |  |  | 249.7  |   |  |  | 663.6  |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Dividends received from joint
    ventures                                        |  |       |   |          |  |      |       |      |  |  |       |   |  |  | 4.0    |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Returns on investments and servicing of
    finance                               |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Interest received and similar income                                              |  |       |   |          |  |      | 4.6    |      |  |  | 8.8    |   |  |  | 3.2    |  
|Interest paid and similar charges on external
    financing                       |  |       |   |          |  |      | (118.6 | )    |  |  | (141.0 | ) |  |  | (127.3 | )
|Interest element of finance lease payments                                        |  |       |   |          |  |      | (1.7   | )    |  |  | (0.6   | ) |  |  | (0.5   | )
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Net cash outflow from returns on investments
    and servicing of finance         |  |       |   |          |  |      | (115.7 | )    |  |  | (132.8 | ) |  |  | (124.6 | )
|Taxation                                                                          |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|UK corporation tax paid                                                           |  |       |   |          |  |      |       |      |  |  |       |   |  |  | (17.6  | )
|Consortium relief (paid) received                                                 |  |       |   |          |  |      | (16.2  | )    |  |  | 22.5   |   |  |  | (0.3   | )
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Net cash (outflow) inflow from
    taxation                                       |  |       |   |          |  |      | (16.2  | )    |  |  | 22.5   |   |  |  | (17.9  | )
|Capital expenditure and financial
    investment                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Payments to acquire tangible fixed assets                                         |  |       |   |          |  |      | (133.3 | )    |  |  | (100.8 | ) |  |  | (98.4  | )
|Payments to acquire fixed asset investments                                       |  |       |   |          |  |      | (25.5  | )    |  |  |       |   |  |  |       |  
|Receipts from sales of tangible fixed assets                                      |  |       |   |          |  |      |       |      |  |  |       |   |  |  | 0.6    |  
|Receipts from sales of fixed asset investments                                    |  |       |   |          |  |      |       |      |  |  | 0.4    |   |  |  | 0.8    |  
|Receipts from sales of intangible fixed assets                                    |  |       |   |          |  |      | 0.2    |      |  |  | 0.6    |   |  |  |       |  
|Purchase of own shares for Employee Share
    Ownership Plan (ESOP)             |  |       |   |          |  |      |       |      |  |  | (26.9  | ) |  |  |       |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Net cash outflow from capital expenditure and
    financial investment            |  |       |   |          |  |      | (158.6 | )    |  |  | (126.7 | ) |  |  | (97.0  | )
|Acquisition and disposals                                                         |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Purchase of subsidiary undertakings                                               |  |       |   |          |  |      | (27.3  | )    |  |  |       |   |  |  |       |  
|New cash acquired with subsidiary undertakings                                    |  |       |   |          |  |      | 11.7   |      |  |  |       |   |  |  |       |  
|Funding to joint ventures                                                         |  |       |   |          |  |      | (137.3 | )    |  |  | (11.6  | ) |  |  | (14.6  | )
|Repayments of funding from joint ventures                                         |  |       |   |          |  |      |       |      |  |  | 4.8    |   |  |  | 4.5    |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Net cash outflow from acquisitions and
    disposals                              |  |       |   |          |  |      | (152.9 | )    |  |  | (6.8   | ) |  |  | (10.1  | )
|Net cash (outflow) inflow before management of
    liquid resources and financing |  |       |   |          |  |      | (404.5 | )    |  |  | 5.9    |   |  |  | 418.0  |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Management of liquid resources                                                    |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Decrease in short-term deposits                                                   |  |       | c |          |  |      | 85.0   |      |  |  | 69.5   |   |  |  | 0.5    |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Financing                                                                         |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Proceeds from issue of Ordinary Shares                                            |  |       |   |          |  |      | 6.5    |      |  |  | 14.3   |   |  |  | 4.8    |  
|Payments made on the issue of Ordinary Shares                                     |  |       |   |          |  |      | (3.5   | )    |  |  | (1.8   | ) |  |  | (0.1   | )
|Capital element of finance lease payments                                         |  |       | b |          |  |      | (2.1   | )    |  |  | (1.7   | ) |  |  | (1.6   | )
|Net increase (decrease) in total debt                                             |  |       | b |          |  |      | 359.7  |      |  |  | (190.0 | ) |  |  | (425.0 | )
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|Net cash inflow (outflow) from
    financing                                      |  |       |   |          |  |      | 360.6  |      |  |  | (179.2 | ) |  |  | (421.9 | )
|Increase (decrease) in cash                                                       |  |       | c |          |  |      | 41.1   |      |  |  | (103.8 | ) |  |  | (3.4   | )
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  
|(Increase) decrease in net debt                                                   |  |       | c |          |  |      | (401.5 | )    |  |  | 18.4   |   |  |  | 422.7  |  
|                                                                                  |  |       |   |          |  |      |        |      |  |  |        |   |  |  |        |  

See notes to consolidated financial
statements.

F-4



---



##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS 
(continued)


a)  Reconciliation of operating
profit to operating cash flows

|                                                               |  |             |       |             |  |        |        |             |  |             |        |       |  |             |       |             |  |       |        |   |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|-------------------------------------------------------------- |  | ----------- | ----- | ----------- |  | ------ | ------ | ----------- |  | ----------- | ------ | ----- |  | ----------- | ----- | ----------- |  | ----- | ------ | - |  |  | ----- | - |  |  | ----- | - |  |  | ------ | - |  |  | ----- | -
|                                                               |  |             |       |             |  |       
|                                                               |  | 2001        |       | 2002        |  | 2003  
|                                                               |  |             |       |             |  |       
|                                                               |  | Before      |       |             |  | Before |        |             |  | Before      |        |      
|                                                               |  | goodwill    |       | Goodwill    |  |        |        | goodwill    |  | Goodwill    |        |       |  | goodwill    |       | Goodwill    |  |      
|                                                               |  | and         |       | and         |  |        |        | and         |  | and         |        |       |  | and         |       | and         |  |      
|                                                               |  | exceptional |       | exceptional |  |        |        | exceptional |  | exceptional |        |       |  | exceptional |       | exceptional |  |      
|                                                               |  | items       |       | items       |  | Total  |        | items       |  | items       |        | Total |  | items       |       | items       |  | Total
|                                                               |  |             |       |             |  |        |        |             |  |             |        |       |  |             |       |             |  |      
|                                                               |  | £m          |       | £m          |  | £m     |        | £m          |  | £m          |        | £m    |  | £m          |       | £m          |  | £m   
|Operating profit (loss)                                        |  |             | 160.2 |             |  |        | (67.4  | )           |  |             | 92.8   |       |  |             | 191.5 |             |  |       | (136.5 | ) |  |  | 55.0  |   |  |  | 370.7 |   |  |  | (116.7 | ) |  |  | 254.0 |  
|Depreciation                                                   |  |             | 64.1  |             |  |        | 7.0    |             |  |             | 71.1   |       |  |             | 81.1  |             |  |       |       |   |  |  | 81.1  |   |  |  | 97.9  |   |  |  |       |   |  |  | 97.9  |  
|Amortization of goodwill and other intangible
    fixed assets |  |             |      |             |  |        | 44.3   |             |  |             | 44.3   |       |  |             | 0.1   |             |  |       | 118.3  |   |  |  | 118.4 |   |  |  |      |   |  |  | 121.5  |   |  |  | 121.5 |  
|Profit on sale of fixed assets                                 |  |             |      |             |  |        |       |             |  |             |       |       |  |             |      |             |  |       |       |   |  |  |      |   |  |  | (0.3  | ) |  |  |       |   |  |  | (0.3  | )
|(Increase) decrease in stock                                   |  |             | (43.1 | )           |  |        |       |             |  |             | (43.1  | )     |  |             | 9.9   |             |  |       |       |   |  |  | 9.9   |   |  |  | 43.8  |   |  |  |       |   |  |  | 43.8  |  
|(Increase) decrease in debtors                                 |  |             | (23.4 | )           |  |        |       |             |  |             | (23.4  | )     |  |             | 77.9  |             |  |       | 22.3   |   |  |  | 100.2 |   |  |  | 88.0  |   |  |  |       |   |  |  | 88.0  |  
|Increase (decrease) in creditors                               |  |             | 59.8  |             |  |        |       |             |  |             | 59.8   |       |  |             | (80.5 | )           |  |       |       |   |  |  | (80.5 | ) |  |  | 59.6  |   |  |  |       |   |  |  | 59.6  |  
|Provision provided (utilized), net                             |  |             | 0.3   |             |  |        | (162.9 | )           |  |             | (162.6 | )     |  |             | (0.3  | )           |  |       | (34.1  | ) |  |  | (34.4 | ) |  |  | (0.9  | ) |  |  |       |   |  |  | (0.9  | )
|                                                               |  |             |       |             |  |        |        |             |  |             |        |       |  |             |       |             |  |       |        |   |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|Net cash inflow (outflow) from operating
    activities        |  |             | 217.9 |             |  |        | (179.0 | )           |  |             | 38.9   |       |  |             | 279.7 |             |  |       | (30.0  | ) |  |  | 249.7 |   |  |  | 658.8 |   |  |  | 4.8    |   |  |  | 663.6 |  
|                                                               |  |             |       |             |  |        |        |             |  |             |        |       |  |             |       |             |  |       |        |   |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  

b)  Analysis of changes in net
debt

|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  
|--------------------------------- |  | ------- | -------- | --------- |  | ------- | ------ | --------- |  | -------- | -------- | - |  |  | ----- | - |  |  | -------- | -
|                                  |  | At      |          |           |  | At      |        |           |  | At      
|                                  |  | July 1, |          |           |  | July 1, |        |           |  | June 30,
|                                  |  | 2001    |          | Cash flow |  | 2002    |        | Cash flow |  | 2003    
|                                  |  |         |          |           |  |         |        |           |  |         
|                                  |  | £m      |          | £m        |  | £m      |        | £m        |  | £m      
|Overnight deposits                |  |         | 91.9     |           |  |         | (53.2  | )         |  |          | 38.7     |   |  |  | (6.0  | ) |  |  | 32.7     |  
|Other cash                        |  |         | 61.7     |           |  |         | (50.6  | )         |  |          | 11.1     |   |  |  | 2.6   |   |  |  | 13.7     |  
|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  
|                                  |  |         | 153.6    |           |  |         | (103.8 | )         |  |          | 49.8     |   |  |  | (3.4  | ) |  |  | 46.4     |  
|Short-term deposits               |  |         | 70.0     |           |  |         | (69.5  | )         |  |          | 0.5      |   |  |  | (0.5  | ) |  |  |         |  
|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  
|Cash at bank and in hand          |  |         | 223.6    |           |  |         | (173.3 | )         |  |          | 50.3     |   |  |  | (3.9  | ) |  |  | 46.4     |  
|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  
|Debt due after more than one year |  |         | (1,759.1 | )         |  |         | 190.0  |           |  |          | (1,569.1 | ) |  |  | 425.0 |   |  |  | (1,144.1 | )
|Finance leases                    |  |         | (11.0    | )         |  |         | 1.7    |           |  |          | (9.3     | ) |  |  | 1.6   |   |  |  | (7.7     | )
|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  
|Total debt                        |  |         | (1,770.1 | )         |  |         | 191.7  |           |  |          | (1,578.4 | ) |  |  | 426.6 |   |  |  | (1,151.8 | )
|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  
|Total net debt                    |  |         | (1,546.5 | )         |  |         | 18.4   |           |  |          | (1,528.1 | ) |  |  | 422.7 |   |  |  | (1,105.4 | )
|                                  |  |         |          |           |  |         |        |           |  |          |          |   |  |  |       |   |  |  |          |  

c)  Reconciliation of net cash flow
to movement in net debt

|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  
|---------------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                                         |  | 2001 |          | 2002 |  | 2003
|                                                                                         |  |      |          |      |  |     
|                                                                                         |  | £m   |          | £m   |  | £m  
|Increase (decrease) in cash                                                              |  |      | 41.1     |      |  |      | (103.8   | ) |  |  | (3.4     | )
|Decrease in short-term deposits                                                          |  |      | (85.0    | )    |  |      | (69.5    | ) |  |  | (0.5     | )
|Cash (inflow) outflow resulting from (increase)
    decrease in debt and lease financing |  |      | (357.6   | )    |  |      | 191.7    |   |  |  | 426.6    |  
|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  
|(Increase) decrease in net debt                                                          |  |      | (401.5   | )    |  |      | 18.4     |   |  |  | 422.7    |  
|Net debt at beginning of year                                                            |  |      | (1,145.0 | )    |  |      | (1,546.5 | ) |  |  | (1,528.1 | )
|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  
|Net debt at end of year                                                                  |  |      | (1,546.5 | )    |  |      | (1,528.1 | ) |  |  | (1,105.4 | )
|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  

F-5



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##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS 
(continued)


d)  Major non-cash
transactions

2003

Issue of shares  deferred
consideration for British Interactive Broadcasting Holdings
Limited (BiB)

On November 11, 2002, the Company issued
43.2 million shares with a fair value of
£253.1 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 December 31, 2001, the Group wrote
down the carrying value of its investment in KirchPayTV to nil
(see note 14). The write-down resulted in a net non-cash
exceptional charge to the profit and loss account of
£971.4 million.

2001

Acquisition of 67.5% of BiB

During 2001, the Group acquired a further 67.5%
of BiB, 47.6% on May 9, 2001 and 19.9% on June 28,
2001, increasing the Groups interest to 100%. The
consideration was satisfied by the issue to HSBC, Matsushita and
BT of 39,674,765 new BSkyB shares, with a fair value of
£290.9 million and deferred consideration of new BSkyB
shares or loan notes, with a fair value of
£253.1 million, payable 18 months after the date
of acquisition. Our Board determined that there was no genuine
commercial possibility that loan notes will be issued and
therefore this deferred consideration was included within
Shareholders funds as Shares to be issued.

Acquisition of 100% of Sports Internet Group
(SIG)

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

Acquisition of 5% of WAPTV

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

F-6



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.  Accounting policies

Description of business

British Sky Broadcasting Group plc and its
subsidiaries (collectively, the Group) operate a
leading pay TV service, principally in the 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 recognized
brand, with a reputation for quality and innovation. Sky
operates and distributes 25 wholly-owned channels and retails a
further 91 third party channels to direct-to-home viewers via
its digital service. In addition to this, Sky operates the Sky
Box Office service, which provides pay-per-view services
covering films, sporting events and concerts.

The principal accounting policies are summarized
below. All of these have been applied consistently throughout
the year and the two preceding years.

a)   Basis of
accounting

The financial statements have been prepared under
the historical cost convention, modified to include the
revaluation of certain investments, and in accordance with
applicable UK financial reporting and accounting standards,
which differ in certain significant respects from those
applicable in the US (see note 28).

b)  Basis of consolidation

The Group 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 June 30, in each year.
In fiscal year 2003 this date was June 29, 2003, this being
a 52 week year (2002: June 30, 2002, 52 week
year; 2001: July 1, 2001, 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. Adjustments are also made to bring the accounting
policies into line with those of the Group. Where statutory
merger relief is applicable, the difference between the fair
value of the shares issued as purchase consideration and the
nominal value of the shares issued as purchase consideration is
treated as a merger reserve in the 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.

On disposal or closure of a previously acquired
business, any goodwill previously written off to reserves will
be included in calculating the profit or loss on disposal.

d)  Goodwill and other intangible
assets

Where the cost of acquisition exceeds the fair
values attributable to the net assets acquired, the difference
is treated as purchased goodwill and capitalized on the Group
balance sheet in the year of

F-7



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


acquisition. Purchased goodwill arising on
acquisitions from July 1, 1998 is capitalized. Prior to
July 1, 1998, goodwill arising on acquisitions was
eliminated against reserves. As permitted by FRS 10 
Goodwill and Intangible Assets, this goodwill has not been
restated on the balance sheet.

Other intangible assets, all of which have been
acquired which are controlled through custody or legal rights
and could be sold separately from the rest of the business are
capitalized, where fair value can be reliably measured.

Where capitalized goodwill and intangible assets
are regarded as having a limited useful economic life, the cost
is amortized on a straight-line basis over that life, of up to
20 years. Impairment reviews are carried out to ensure that
goodwill and intangible assets are not carried at above their
recoverable amounts. Any amortization or impairment write-downs
are charged to the profit and loss account.

e)   Interests in joint
ventures

Joint ventures are entities in which the Group
holds a long-term interest and shares control under a
contractual arrangement. These investments are dealt with by the
gross equity method of accounting. Provision is made within
creditors where the Groups share of a joint ventures
losses exceeds the Groups funding to date.

f)   Fixed asset
investments

The Companys shares held by the ESOP are
included in the consolidated balance sheet as fixed asset
investments until such time as the interest in the shares is
transferred unconditionally to the employees. Provision is made
for any permanent diminution in the value of shares held by the
ESOP.

A charge is made in the profit and loss account
in relation to the shares held by the ESOP for awards under the
Long-Term Incentive Plan (LTIP), the Key Contributor
Plan (KCP) and the Equity Bonus Plan
(EBP), based on an assessment of the probability of
the performance criteria under the LTIP, KCP and EBP being met.
The charge is allocated on a straight-line basis over the
vesting periods of the LTIP, KCP and EBP.

The Groups other fixed asset investments
are stated at cost, less any provision for permanent diminution
in value.

g)  Tangible fixed assets

Tangible fixed assets are stated at cost, net of
accumulated depreciation and any provision for impairment. Land
and assets in the course of construction are not depreciated.

Depreciation is provided to write off the cost,
less estimated residual value, of each asset on a straight-line
basis over its estimated useful life. Principal annual rates
used for this purpose are:

|                                  |  |                                           
|--------------------------------- |  | ------------------------------------------
|Freehold buildings                |  | 4%                                        
|Leasehold improvements            |  | Lower of lease period or life of the asset
|Equipment, fixtures and fittings: |  |                                           
| Fixtures and fittings           |  | 10%  20%                                 
| Computer equipment              |  | 20%  33 1/3%                             
| Technical equipment             |  | 10%  20%                                 
| Motor vehicles                  |  | 25%                                       

h)   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

F-8



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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.

i)   Stocks

Television program rights

Program rights are stated at cost (including,
where applicable, estimated escalation payments) less
accumulated amortization. Provisions are made for any program
rights which are surplus to Group requirements or which will not
be shown for any other reason.

Contractual obligations for program rights not
yet available for transmission are not included in the cost of
program rights, but are disclosed as contractual commitments
(see note 25). Payments made upon receipt of commissioned
and acquired programming, but in advance of the legal right to
broadcast the programs, are treated as prepayments.

Acquired and commissioned program rights are
recorded in stock at cost when the programs are available for
transmission.

Amortization is provided to write off the cost of
acquired and commissioned program rights as follows:



|                      |  |                                                                                                                                                                                                                                                                                                                                           
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Sports                |  |   100% on first showing, or where
    contracts provide for sports rights for multiple seasons or
    competitions, the amortization of each contract is based on
    anticipated revenue.                                                                                                                                               
|                     
|Current affairs       |  |   100% on first showing.                                                                                                                                                                                                                                                                                                                 
|                     
|General entertainment |  |   Straight-line basis on each
    transmission at the following rates:                                                                                                                                                                                                                                                                   
|                     
|                      |  |   One showing
    planned  100%                                                                                                                                                                                                                                                                                                         
|                      |  |                                                                                                                                                                                                                                                                                                                                           
|                      |  |  Two showings
    planned  60%; 40%                                                                                                                                                                                                                                                                                                     
|                      |  |  Three showings
    planned  50%; 30%; 20%                                                                                                                                                                                                                                                                                              
|                      |  |  Four showings
    planned  40%; 30%; 20%; 10%                                                                                                                                                                                                                                                                                          
|                     
|Movies                |  |  Acquired movies are amortized on a
    straight-line basis over the period of transmission rights.
    Where acquired movie rights provide for a second availability
    window, 10% of the cost is allocated to that window. Own movie
    productions are amortized in line with anticipated revenue over
    a maximum of five years.

Set-top boxes and related equipment

Set-top boxes and related equipment include
digital set-top boxes, Low Noise Blockers (LNBs) and
mini-dishes. These stocks are valued at the lower of cost and
Net Realizable Value (NRV) (which reflects the value
to the business of the set-top box and the related equipment in
the hands of the customer). Any subsidy is expensed on
enablement, 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.

F-9



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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
rentals

Payments made in advance to secure satellite
capacity have been recorded as prepaid transponder rentals.
These payments are amortized on a straight-line basis to the
profit and loss account from commencement of broadcasting to the
end of the rental period, normally ten years.

k)   Taxation

Corporation tax payable is provided at current
rates on all taxable profits.

l)   Deferred
taxation

Deferred tax is recognized in respect of timing
differences that have originated but not reversed at the balance
sheet date, where transactions or events that result in an
obligation to pay more tax in the future or a right to pay less
tax in the future have occurred at the balance sheet date.

A net deferred tax asset is regarded as
recoverable and therefore recognized only when, on the basis of
all available evidence, it 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 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 limited number of derivative
financial instruments to hedge its exposures to fluctuations in
interest and foreign exchange rates. Instruments accounted for
as hedges are structured so as to reduce the market risk
associated with the underlying transaction being hedged and are
designated as a hedge at the inception of the contract. Receipts
and payments on interest rate instruments are recognized on an
accruals basis, over the life of the instrument. Gains and
losses on instruments used for hedging are not recognized until
the hedged position is recognized.

Cash flows associated with derivative financial
instruments are classified in the cash flow statement in a
manner consistent with those of the underlying transactions
being hedged. If an instrument ceases to be accounted for as a
hedge, for example, by the underlying hedged position being
eliminated, the instrument is marked to market and any resulting
gain or loss is recognized in the profit and loss account.

F-10



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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
recognized as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenues from the provision of direct-to-home
    (DTH) subscription services are recognized as the
    services are provided. Pay-per-view revenue is recognized when
    the event, movie or football match is viewed.                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Cable revenue is recognized as the services are
    provided to the cable wholesalers and is 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 recognized when
    the advertising is broadcast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Interactive turnover includes income from betting
    and gaming, online advertising, internet, e-commerce,
    interconnect, text services and set-top box subsidy recovery
    revenues from conditional access and access control 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 recognized when the goods or services
    are delivered.
|
| |  | Other revenue principally includes income from
    installations (net of any discount), service call revenues,
    warranty revenue, marketing contributions from third party
    channels, conditional access fees and access control fees. Other
    revenues are recognized, net of any discount given, when the
    relevant service has been provided.                                                                                                                                                                                                                                              

p)  Pension costs

The Group provides pensions to eligible employees
through the BSkyB Pension Plan which is a defined contribution
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 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 charged as interest payable over
the period of the lease.

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

F-11



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


2.  Turnover

|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|---------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                                 |  | 2001 |         | 2002 |  | 2003
|                                                                 |  |      |         |      |  |     
|                                                                 |  | £m   |         | £m   |  | £m  
|DTH subscribers                                                  |  |      | 1,536.7 |      |  |      | 1,929.2 |  |  |  | 2,341.2 | 
|Cable and digital terrestrial television
    (DTT) subscribers |  |      | 299.1   |      |  |      | 279.4   |  |  |  | 202.2   | 
|Advertising                                                      |  |      | 270.5   |      |  |      | 250.7   |  |  |  | 283.6   | 
|Interactive                                                      |  |      | 93.0    |      |  |      | 186.0   |  |  |  | 218.3   | 
|Other                                                            |  |      | 106.7   |      |  |      | 130.8   |  |  |  | 140.7   | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|                                                                 |  |      | 2,306.0 |      |  |      | 2,776.1 |  |  |  | 3,186.0 | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 

All Group turnover is derived from the
Groups sole class of business, being television
broadcasting together with certain ancillary functions, and
arises principally within the United Kingdom from activities
conducted from the United Kingdom, with the exception of
£0.4 million of turnover (2002:
£23.0 million; 2001: £65.2 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 analyzed as shown above.

All turnover arises from services provided to the
United Kingdom, with the exception of £92.9 million
(2002: £62.4 million; 2001: £32.6 million)
which arises from services provided to Ireland and
£9.0 million (2002: £7.7 million; 2001:
£5.4 million) which arises from services provided to
the Channel Islands.

The Groups profit before tax and its net
liabilities relate to activities conducted in the United
Kingdom, with the exception of £0.8 million loss
(2002: £0.3 million loss; 2001: £1.2 million
loss) and £0.9 million of net assets (2002:
£0.3 million net assets; 2001: £1.5 million
net liabilities) 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
£1,143.5 million loss (2001: £292.4 million
loss) and nil assets (2001: £1,142.1 million net
assets) which related to activities conducted in Germany.

Long-lived assets outside the United Kingdom
comprise less than 10% of consolidated long-lived assets.

3.  Operating expenses,
net

|                                      |  |             |         |             |  |        |      |             |  |             |         |       |  |             |         |             |  |       |       |   |  |  |         |  |  |  |         |  |  |  |       |  |  |  |         | 
|------------------------------------- |  | ----------- | ------- | ----------- |  | ------ | ---- | ----------- |  | ----------- | ------- | ----- |  | ----------- | ------- | ----------- |  | ----- | ----- | - |  |  | ------- |  |  |  | ------- |  |  |  | ----- |  |  |  | ------- | 
|                                      |  |             |         |             |  |       
|                                      |  | 2001        |         | 2002        |  | 2003  
|                                      |  |             |         |             |  |       
|                                      |  | Before      |         |             |  | Before |      |             |  | Before      |         |      
|                                      |  | goodwill    |         | Goodwill    |  |        |      | goodwill    |  | Goodwill    |         |       |  | goodwill    |         | Goodwill    |  |      
|                                      |  | and         |         | and         |  |        |      | and         |  | and         |         |       |  | and         |         | and         |  |      
|                                      |  | exceptional |         | exceptional |  |        |      | exceptional |  | exceptional |         |       |  | exceptional |         | exceptional |  |      
|                                      |  | items       |         | items       |  | Total  |      | items       |  | items       |         | Total |  | items       |         | items       |  | Total
|                                      |  |             |         |             |  |        |      |             |  |             |         |       |  |             |         |             |  |      
|                                      |  | £m          |         | £m          |  | £m     |      | £m          |  | £m          |         | £m    |  | £m          |         | £m          |  | £m   
|Programming(i)                        |  |             | 1,133.8 |             |  |        |     |             |  |             | 1,133.8 |       |  |             | 1,439.3 |             |  |       |      |   |  |  | 1,439.3 |  |  |  | 1,603.9 |  |  |  |      |  |  |  | 1,603.9 | 
|Transmission and related functions(i) |  |             | 128.6   |             |  |        |     |             |  |             | 128.6   |       |  |             | 146.6   |             |  |       | (4.1  | ) |  |  | 142.5   |  |  |  | 142.8   |  |  |  |      |  |  |  | 142.8   | 
|Marketing                             |  |             | 378.1   |             |  |        |     |             |  |             | 378.1   |       |  |             | 416.6   |             |  |       |      |   |  |  | 416.6   |  |  |  | 400.5   |  |  |  |      |  |  |  | 400.5   | 
|Subscriber management                 |  |             | 243.4   |             |  |        |     |             |  |             | 243.4   |       |  |             | 291.1   |             |  |       |      |   |  |  | 291.1   |  |  |  | 324.4   |  |  |  |      |  |  |  | 324.4   | 
|Administration                        |  |             | 186.6   |             |  |        | 67.4 |             |  |             | 254.0   |       |  |             | 203.2   |             |  |       | 140.6 |   |  |  | 343.8   |  |  |  | 236.1   |  |  |  | 116.7 |  |  |  | 352.8   | 
|Betting                               |  |             | 75.3    |             |  |        |     |             |  |             | 75.3    |       |  |             | 87.8    |             |  |       |      |   |  |  | 87.8    |  |  |  | 107.6   |  |  |  |      |  |  |  | 107.6   | 
|                                      |  |             |         |             |  |        |      |             |  |             |         |       |  |             |         |             |  |       |       |   |  |  |         |  |  |  |         |  |  |  |       |  |  |  |         | 
|                                      |  |             | 2,145.8 |             |  |        | 67.4 |             |  |             | 2,213.2 |       |  |             | 2,584.6 |             |  |       | 136.5 |   |  |  | 2,721.1 |  |  |  | 2,815.3 |  |  |  | 116.7 |  |  |  | 2,932.0 | 
|                                      |  |             |         |             |  |        |      |             |  |             |         |       |  |             |         |             |  |       |       |   |  |  |         |  |  |  |         |  |  |  |       |  |  |  |         | 






|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The amounts shown are net of
    £12.0 million (2002: £15.3 million; 2001:
    £55.1 million) receivable from the disposal of
    programming rights not acquired for use by the Group, and
    £25.5 million (2002: £23.7 million; 2001:
    £53.9 million) in respect of the provision to third
    party broadcasters of spare transponder capacity.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


4.  Exceptional items

|                                                                                     |  |          |       |          |  |          |     |          |  |          |       |          |  |          |         |          |  |       |      |   |  |  |         |   |  |  |      |   |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------------ |  | -------- | ----- | -------- |  | -------- | --- | -------- |  | -------- | ----- | -------- |  | -------- | ------- | -------- |  | ----- | ---- | - |  |  | ------- | - |  |  | ---- | - |  |  | ------ | - |  |  | ------ | -
|                                                                                     |  |          |       |          |  |         
|                                                                                     |  | 2001     |       | 2002     |  | 2003    
|                                                                                     |  |          |       |          |  |         
|                                                                                     |  | Charge   |       |          |  | Charge   |     |          |  | Charge   |       |         
|                                                                                     |  | (credit) |       |          |  | (credit) |     | Taxation |  |          |       | (credit) |  | Taxation |         |         
|                                                                                     |  | before   |       | Taxation |  |          |     | before   |  | (credit) |       |          |  | before   |         | charge   |  |      
|                                                                                     |  | taxation |       | charge   |  | Total    |     | taxation |  | charge   |       | Total    |  | taxation |         | (credit) |  | Total
|                                                                                     |  |          |       |          |  |          |     |          |  |          |       |          |  |          |         |          |  |      
|                                                                                     |  | £m       |       | £m       |  | £m       |     | £m       |  | £m       |       | £m       |  | £m       |         | £m       |  | £m   
|Estimated cost of reorganization of Sky
    Interactive (k)                          |  |          | 23.1  |          |  |          |    |          |  |          | 23.1  |          |  |          |        |          |  |       |     |   |  |  |        |   |  |  |     |   |  |  |       |   |  |  |       |  
|Provision (release of provision) against ITV
    Digital programming debtors (a) (d) |  |          |      |          |  |          |    |          |  |          |      |          |  |          | 22.3    |          |  |       | (6.7 | ) |  |  | 15.6    |   |  |  | (4.8 | ) |  |  | 1.4    |   |  |  | (3.4   | )
|Release of analog termination provision (e)                                          |  |          |      |          |  |          |    |          |  |          |      |          |  |          | (4.1    | )        |  |       | 1.2  |   |  |  | (2.9    | ) |  |  |     |   |  |  |       |   |  |  |       |  
|                                                                                     |  |          |       |          |  |          |     |          |  |          |       |          |  |          |         |          |  |       |      |   |  |  |         |   |  |  |      |   |  |  |        |   |  |  |        |  
|Exceptional operating items                                                          |  |          | 23.1  |          |  |          |    |          |  |          | 23.1  |          |  |          | 18.2    |          |  |       | (5.5 | ) |  |  | 12.7    |   |  |  | (4.8 | ) |  |  | 1.4    |   |  |  | (3.4   | )
|                                                                                     |  |          |       |          |  |          |     |          |  |          |       |          |  |          |         |          |  |       |      |   |  |  |         |   |  |  |      |   |  |  |        |   |  |  |        |  
|Joint ventures goodwill amortization,
    net (f)                                   |  |          |      |          |  |          |    |          |  |          |      |          |  |          | 971.4   |          |  |       |     |   |  |  | 971.4   |   |  |  |     |   |  |  |       |   |  |  |       |  
|Profit on sale of fixed asset investment (g)                                         |  |          |      |          |  |          |    |          |  |          |      |          |  |          | (2.3    | )        |  |       |     |   |  |  | (2.3    | ) |  |  |     |   |  |  |       |   |  |  |       |  
|Share of joint ventures operating
    exceptional item (l)                          |  |          | 16.5  |          |  |          |    |          |  |          | 16.5  |          |  |          |        |          |  |       |     |   |  |  |        |   |  |  |     |   |  |  |       |   |  |  |       |  
|Share of joint ventures loss on sale of
    fixed asset investment (m)              |  |          | 69.5  |          |  |          |    |          |  |          | 69.5  |          |  |          |        |          |  |       |     |   |  |  |        |   |  |  |     |   |  |  |       |   |  |  |       |  
|Amounts written off fixed asset investments, net
    (see note 15) (b) (j) (n)       |  |          | 38.6  |          |  |          |    |          |  |          | 38.6  |          |  |          | 60.0    |          |  |       |     |   |  |  | 60.0    |   |  |  | 15.1 |   |  |  |       |   |  |  | 15.1   |  
|Provision (release of provision) for loss on
    disposal of subsidiary (h) (o)      |  |          | 10.0  |          |  |          |    |          |  |          | 10.0  |          |  |          | (10.0   | )        |  |       |     |   |  |  | (10.0   | ) |  |  |     |   |  |  |       |   |  |  |       |  
|Finance credit (see note 6) (p)                                                      |  |          | (2.7  | )        |  |          | 0.8 |          |  |          | (1.9  | )        |  |          |        |          |  |       |     |   |  |  |        |   |  |  |     |   |  |  |       |   |  |  |       |  
|Write down (recognition) of deferred
    tax asset (c) (i)                           |  |          |      |          |  |          |    |          |  |          |      |          |  |          |        |          |  |       | 83.3 |   |  |  | 83.3    |   |  |  |     |   |  |  | (122.6 | ) |  |  | (122.6 | )
|                                                                                     |  |          |       |          |  |          |     |          |  |          |       |          |  |          |         |          |  |       |      |   |  |  |         |   |  |  |      |   |  |  |        |   |  |  |        |  
|Total exceptional items                                                              |  |          | 155.0 |          |  |          | 0.8 |          |  |          | 155.8 |          |  |          | 1,037.3 |          |  |       | 77.8 |   |  |  | 1,115.1 |   |  |  | 10.3 |   |  |  | (121.2 | ) |  |  | (110.9 | )
|                                                                                     |  |          |       |          |  |          |     |          |  |          |       |          |  |          |         |          |  |       |      |   |  |  |         |   |  |  |      |   |  |  |        |   |  |  |        |  

2003

Exceptional operating items

a)   ITV Digital

The Group provided in full against all unprovided
balances owed by ITV Digital, following the announcement made on
April 30, 2002 (see note (d) below). During the year,
the Group received £4.8 million from ITV
Digitals administrators and released
£4.8 million of its exceptional operating provision
accordingly.

Other exceptional items

b)  Amounts written off fixed asset
investments, net

At December 31, 2002, the Group made a
further provision against its minority investments in football
clubs, leading to a non-cash exceptional charge of
£21.0 million. Subsequently, the Group reduced its

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


provision against its investment in Chelsea
Village plc at June 30, 2003 by £3.2 million,
following the agreement to sell its minority investment in July
2003.

At December 31, 2002, the Group reduced its
deferred revenue balance relating to minority investments in new
media companies by £5.1 million, and reduced both its
investment and its provision against the investment in these
companies accordingly.

At December 31, 2002, the Group made a
provision against its investment in Open TV shares, leading to a
non-cash exceptional charge of £2.9 million, bringing
the carrying value of the Groups investment in Open TV to
£0.3 million. During February and March 2003, the
Group disposed of its entire investment in Open TV shares,
leading to a loss on disposal of £0.1 million.

c)   Recognition of deferred
tax asset

Following a review of the forecast utilization of
tax losses within the Group, and as a consequence of a planned
reorganization of certain assets within the Group, there is now
sufficient evidence to support the recognition of a deferred tax
asset arising on losses incurred in the Company. Accordingly, a
deferred tax credit of £122.6 million has been
recognized as an exceptional item.

2002

Exceptional operating items

d)  ITV Digital

At March 27, 2002, the date on which the ITV
Digital DTT platform was put into administration, the Group had
balances owed to it and unprovided for, in respect of
programming licensed to ITV Digital, of £22.3 million.
On April 30, 2002, the joint administrators of ITV Digital
announced the closure of pay television services on the platform
and their intention to close the administration. Accordingly,
the Group made an exceptional operating provision against the
whole of this balance (see note (a) above).

e)   Release of analog
termination provision

On September 27, 2001, the Group terminated
its analog operation. From the original exceptional operating
provision of £41.0 million, taken at June 30,
2000, £4.1 million of provision had not been utilized
at June 30, 2002, and was therefore released to the profit
and loss account as an exceptional credit.

Other exceptional items

f)   Joint ventures
goodwill amortization, net

The exceptional item of £971.4 million
of joint ventures goodwill amortization, net, relates to
the impairment charge taken against the carrying value of the
Groups interest in KirchPayTV of £984.9 million
as at December 31, 2001, net of an amount of
£13.5 million released from the provision matching the
Groups share of losses for the period from January 1,
2002 to February 8, 2002, at which date the Group ceased to
gross equity account for KirchPayTVs results (see
notes 5 and 14).

g)  Profit on sale of fixed asset
investment

On July 2, 2001, the Group disposed of its
unlisted investment in Static 2358 Limited, realizing a profit
on disposal of £2.3 million (see note 15).

h)   Release of provision for
loss on disposal of subsidiary

On October 16, 2001, the Group and
Ladbrokes, the betting and gaming division of Hilton Group plc,
announced that they had agreed not to pursue the proposed joint
venture to offer a fixed odds betting

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


service on Sky Sports channels and other media.
As a result, the provision for loss on disposal of the
subsidiary, taken at June 30, 2001, was written back,
resulting in a non-cash exceptional profit of
£10.0 million (see note (o) below). The Group
continues to operate and develop interactive TV betting services
through its wholly-owned bookmaker, SkyBet (formerly known as
Surrey Sports).

i)   Write down of deferred tax
asset

Following the impairment charge made in respect
of the Groups investment in KirchPayTV at
December 31, 2001 (see note 14) there was insufficient
evidence to support the recognition of a deferred tax asset
arising on losses incurred by certain UK companies. Accordingly,
the deferred tax asset of £95.6 million was written
off in full at December 31, 2001, although by June 30,
2002, £12.3 million of this amount had been written
back due to the utilization of tax losses.

j)   Amounts written off fixed
asset investments

At December 31, 2001, the Group made a
provision against its minority investments in football clubs,
leading to a non-cash exceptional charge of
£60.0 million.

2001

Exceptional operating items

k)   Reorganization of Sky
Interactive

In May 2001, the Group announced the
consolidation of all of its interactive and online activities
within the Sky Interactive division. The costs of
reorganization within Sky Interactive were estimated at
£23.1 million and principally comprised the cost of
termination of certain contracts, the closure of duplicate sites
and a reduction in headcount. Of these costs,
£7.0 million were included within fixed assets,
£4.0 million were included within other creditors and
the remainder within provisions.

Other exceptional items

l)   Share of joint
ventures operating exceptional item

In April 2001, BiB incurred exceptional operating
costs of £16.5 million, which principally comprised
the cost of the write-down of the current platform. Of these
costs, £13.1 million were included within fixed assets
and the remainder within provisions.

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

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

n)   Amounts written off fixed
asset investments

At June 30, 2001, £38.6 million
was provided against the Groups minority investments in
new media companies.

o)  Provision for loss on disposal
of subsidiary

On July 11, 2001, the Group and Ladbrokes,
the betting and gaming division of Hilton Group plc, reached
agreement to form a 50:50 joint venture to develop and operate a
fixed-odds and pools betting business linked to Sky channels on
Sky digital. The agreement was for the Group to contribute its
wholly-

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


owned bookmaker, Surrey Sports, to the joint
venture and a provision was made in the year to June 30,
2001 for the adjustment to existing goodwill which would have
been necessary when Surrey Sports was transferred to the new
joint venture. This provision was subsequently reversed when the
Group and Ladbrokes agreed not to pursue the proposed joint
venture in October 2001 (see note (h) above).

p)  Finance credit

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

5.  Share of operating results of
joint ventures

|                                                            |  |      |        |      |  |      |       |   |  |  |     | 
|----------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  |  | --- | 
|                                                            |  | 2001 |        | 2002 |  | 2003
|                                                            |  |      |        |      |  |     
|                                                            |  | £m   |        | £m   |  | £m  
|KirchPayTV operating loss                                   |  |      | (116.0 | )    |  |      | (70.0 | ) |  |  |    | 
|BiB                                                         |  |      | (118.9 | )    |  |      |      |   |  |  |    | 
|BiB  exceptional item (see note 4)                         |  |      | (16.5  | )    |  |      |      |   |  |  |    | 
|Programming joint ventures operating (loss)
    profit, net |  |      | (4.3   | )    |  |      | (6.7  | ) |  |  | 3.4 | 
|                                                            |  |      |        |      |  |      |       |   |  |  |     | 
|Total (losses) profits                                      |  |      | (255.7 | )    |  |      | (76.7 | ) |  |  | 3.4 | 
|                                                            |  |      |        |      |  |      |       |   |  |  |     | 

This relates to the Groups equity share of
the operating results of the Groups joint ventures.

KirchPayTV

By February 8, 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
February 8, 2002, it was no longer appropriate to account
for its interest in KirchPayTV as a joint venture, and ceased
accounting for KirchPayTVs losses using the gross equity
method from that date.

As the Group has no intention of providing any
future funding to KirchPayTV and the Group, on a consolidated
basis, has no financial commitments, outstanding financial
liabilities or contingent liabilities in respect of KirchPayTV,
an amount of £13.5 million was released from the
impairment provision made at December 31, 2001, in order to
match the Groups share of KirchPayTVs losses for the
period from January 1, 2002 to February 8, 2002.

BiB

The Group recognized 32.5% of the results of BiB
up until November 2000. From this date to May 9, 2001, 100%
of BiBs losses were recognized due to the agreement dated
July 17, 2000, under which the Group agreed to provide 100%
of BiBs funding after existing funding had been utilized.
From May 9, 2001, the Group fully consolidated BiB as a
subsidiary.

F-16



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


6.  Interest

a)  Interest receivable and similar
income

|                                                 |  |      |      |      |  |      |      |  |  |  |     | 
|------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | --- | 
|                                                 |  | 2001 |      | 2002 |  | 2003
|                                                 |  |      |      |      |  |     
|                                                 |  | £m   |      | £m   |  | £m  
|Interest receivable on short-term deposits       |  |      | 3.8  |      |  |      | 8.2  |  |  |  | 2.6 | 
|Share of joint ventures interest receivable     |  |      | 3.5  |      |  |      | 2.0  |  |  |  | 0.5 | 
|Interest receivable on funding to joint ventures |  |      | 10.4 |      |  |      | 0.3  |  |  |  | 0.1 | 
|Other interest receivable and similar income     |  |      | 0.5  |      |  |      | 0.6  |  |  |  | 0.5 | 
|                                                 |  |      |      |      |  |      |      |  |  |  |     | 
|                                                 |  |      | 18.2 |      |  |      | 11.1 |  |  |  | 3.7 | 
|Exceptional finance credit (see note 4)          |  |      | 2.7  |      |  |      |     |  |  |  |    | 
|                                                 |  |      |      |      |  |      |      |  |  |  |     | 
|                                                 |  |      | 20.9 |      |  |      | 11.1 |  |  |  | 3.7 | 
|                                                 |  |      |      |      |  |      |      |  |  |  |     | 

b)  Interest payable and similar
charges

|                                                                                                |  |      |       |      |  |      |       |  |  |  |       | 
|----------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                                                |  | 2001 |       | 2002 |  | 2003
|                                                                                                |  |      |       |      |  |     
|                                                                                                |  | £m   |       | £m   |  | £m  
|On bank loans, overdrafts and other loans
    repayable within five years, not by installments: |  |      |       |      |  |      |       |  |  |  |       | 
| £200 million RCF
    (previously £300 million RCF)*                                           |  |      | 0.8   |      |  |      | 10.8  |  |  |  | 2.5   | 
| £750 million RCF**                                                                            |  |      | 38.5  |      |  |      | 46.3  |  |  |  | 27.0  | 
| £600 million RCF**                                                                            |  |      |      |      |  |      |      |  |  |  | 3.7   | 
|US$650 million of 8.200% Guaranteed Notes,
    repayable in 2009                                |  |      | 31.6  |      |  |      | 31.6  |  |  |  | 31.1  | 
|£100 million of 7.750% Guaranteed
    Notes, repayable in 2009                                  |  |      | 7.8   |      |  |      | 7.8   |  |  |  | 7.8   | 
|US$600 million of 6.875% Guaranteed Notes,
    repayable in 2009                                |  |      | 30.1  |      |  |      | 30.1  |  |  |  | 30.1  | 
|US$300 million of 7.300% Guaranteed Notes,
    repayable in 2006                                |  |      | 15.5  |      |  |      | 15.1  |  |  |  | 13.8  | 
|Finance lease interest                                                                          |  |      | 0.9   |      |  |      | 1.0   |  |  |  | 1.0   | 
|Share of joint ventures interest payable                                                       |  |      | 27.8  |      |  |      | 4.9   |  |  |  | 0.3   | 
|Other interest payable and similar charges                                                      |  |      | 0.3   |      |  |      | 0.4   |  |  |  | 0.9   | 
|                                                                                                |  |      |       |      |  |      |       |  |  |  |       | 
|                                                                                                |  |      | 153.3 |      |  |      | 148.0 |  |  |  | 118.2 | 
|                                                                                                |  |      |       |      |  |      |       |  |  |  |       | 






|   |                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | In March 2003, the Group voluntarily cancelled
    £100 million of its £300 million RCF. The
    maturity date of the resultant £200 million RCF is
    still June 2004.                                                                                                                          
|  
|** | In addition, in March 2003 the Group entered into
    a new £600 million RCF. This facility was used to
    cancel the £750 million RCF, which was entered into in
    July 1999, and will be used for general corporate purposes. The
    new £600 million RCF has a maturity date of March 2008.

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


7.  (Loss) profit on ordinary
activities before taxation

The (loss) profit on ordinary activities before
taxation is stated after charging (crediting):

|                                                                                       |                                    |      |       |       |  |      |         |      |  |  |       |      | 
|-------------------------------------------------------------------------------------- | ---------------------------------- | ---- | ----- | ----- |  | ---- | ------- | ---- |  |  | ----- | ---- | 
|                                                                                       |                                    | 2001 |       | 2002  |  | 2003
|                                                                                       |                                    |      |       |       |  |     
|                                                                                       |                                    | £m   |       | £m    |  | £m  
| depreciation (see note 13)                                                           |                                    |      |       |       |  |      |         |      |  |  |       |     
|                                                                                       |  owned assets                     |      |       | 70.8  |  |      |         | 79.5 |  |  |       | 96.2 | 
|                                                                                       |  assets held under finance leases |      |       | 0.3   |  |      |         | 1.6  |  |  |       | 1.7  | 
| amortization and impairment of
    intangible fixed assets (see note 12)             |                                    |      | 44.3  |       |  |      | 118.4   |      |  |  | 121.5 |     
| joint ventures goodwill
    amortization, net (see note 14)                         |                                    |      | 101.1 |       |  |      | 1,069.9 |      |  |  |      |     
| amounts written off fixed asset
    investments, net (see note 15)                   |                                    |      | 38.6  |       |  |      | 60.0    |      |  |  | 15.1  |     
| profit on disposals of fixed assets
    and fixed asset investments                  |                                    |      |      |       |  |      | (2.3    | )    |  |  | (0.2  | )   
| rentals on operating leases and
    similar arrangements:                            |                                    |      |       |       |  |      |         |      |  |  |       |     
|                                                                                       |  land and buildings               |      |       | 7.2   |  |      |         | 8.2  |  |  |       | 9.0  | 
|                                                                                       |  plant and machinery              |      |       | 112.2 |  |      |         | 76.4 |  |  |       | 80.0 | 
| sub-lease rentals on operating leases
    received in respect of plant and machinery |                                    |      | (53.9 | )     |  |      | (23.7   | )    |  |  | (25.5 | )   
| sub-lease rentals on operating leases
    received in respect of land and buildings  |                                    |      | (1.4  | )     |  |      | (1.4    | )    |  |  | (1.5  | )   
| staff costs (see note 8)                                                             |                                    |      | 260.9 |       |  |      | 276.9   |      |  |  | 299.1 |     

Amounts payable to the auditors are analyzed
below:

|                                                        |  |      |      |      |  |      |     |  |  |  |     | 
|------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | --- |  |  |  | --- | 
|                                                        |  | 2001 |      | 2002 |  | 2003
|                                                        |  |      |      |      |  |     
|                                                        |  | £m   |      | £m   |  | £m  
|Statutory audit services                                |  |      | 0.6  |      |  |      | 0.7 |  |  |  | 0.8 | 
|Audit-related fees                                      |  |      | 0.4  |      |  |      | 0.8 |  |  |  | 0.6 | 
|                                                        |  |      |      |      |  |      |     |  |  |  |     | 
|Audit and audit-related services                        |  |      | 1.0  |      |  |      | 1.5 |  |  |  | 1.4 | 
|                                                        |  |      |      |      |  |      |     |  |  |  |     | 
|Tax advisory services                                   |  |      | 0.6  |      |  |      | 0.4 |  |  |  | 0.6 | 
|                                                        |  |      |      |      |  |      |     |  |  |  |     | 
|Customer relationship management center
    development |  |      | 4.9  |      |  |      | 4.8 |  |  |  | 5.1 | 
|Website development                                     |  |      | 6.0  |      |  |      | 0.5 |  |  |  |    | 
|Other services                                          |  |      | 1.9  |      |  |      | 1.0 |  |  |  | 0.7 | 
|                                                        |  |      |      |      |  |      |     |  |  |  |     | 
|Non-audit-related services                              |  |      | 12.8 |      |  |      | 6.3 |  |  |  | 5.8 | 
|                                                        |  |      |      |      |  |      |     |  |  |  |     | 

During the year, the auditors received
£5.1 million (2002: £4.8 million; 2001:
£4.9 million) in respect of on-going contact center
development services. Due to the complex and long-term nature of
the infrastructure development work, the Group is satisfied that
Deloitte & Touche should continue to provide these services.

In addition to the amounts above, the Group
understands that, during fiscal 2002, its auditors indirectly
received £4.0 million (2001: £2.9 million)
from the Group, through the performance of sub-contracted
services for one of the Groups customer relationship
management center consultants. The Group understands that no
such payments were made during 2003.

F-18



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


8.  Staff costs

a)  Employee costs

Employee costs for permanent and temporary
employees, and Executive Directors during the year amounted to:

|                                                                  |  |      |       |      |  |      |       |  |  |  |       | 
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                  |  | 2001 |       | 2002 |  | 2003
|                                                                  |  |      |       |      |  |     
|                                                                  |  | £m   |       | £m   |  | £m  
|Wages and salaries                                                |  |      | 213.2 |      |  |      | 227.1 |  |  |  | 234.3 | 
|Costs of LTIP, KCP, EBP and other share-related
    bonus schemes |  |      | 14.0  |      |  |      | 17.2  |  |  |  | 27.4  | 
|Social security costs                                             |  |      | 25.4  |      |  |      | 22.0  |  |  |  | 25.9  | 
|Other pension costs                                               |  |      | 8.3   |      |  |      | 10.6  |  |  |  | 11.5  | 
|                                                                  |  |      |       |      |  |      |       |  |  |  |       | 
|                                                                  |  |      | 260.9 |      |  |      | 276.9 |  |  |  | 299.1 | 
|                                                                  |  |      |       |      |  |      |       |  |  |  |       | 

The Group operates a defined contribution pension
scheme through the BSkyB Pension 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
£11.5 million (2002: £10.6 million; 2001:
£8.3 million). The Groups contributions owing to
the plan at June 30, 2003 were £0.8 million
(2002: £0.7 million).

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

|                                   |  |        |       |        |  |        |       |  |  |  |       | 
|---------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- |  |  |  | ----- | 
|                                   |  | 2001   |       | 2002   |  | 2003  
|                                   |  |        |       |        |  |       
|                                   |  | Number |       | Number |  | Number
|Programming                        |  |        | 1,134 |        |  |        | 1,131 |  |  |  | 1,106 | 
|Transmission and related functions |  |        | 1,071 |        |  |        | 1,274 |  |  |  | 1,383 | 
|Marketing                          |  |        | 173   |        |  |        | 193   |  |  |  | 199   | 
|Subscriber management              |  |        | 6,472 |        |  |        | 5,432 |  |  |  | 5,381 | 
|Administration                     |  |        | 872   |        |  |        | 965   |  |  |  | 954   | 
|Betting                            |  |        | 226   |        |  |        | 88    |  |  |  | 109   | 
|                                   |  |        |       |        |  |        |       |  |  |  |       | 
|                                   |  |        | 9,948 |        |  |        | 9,083 |  |  |  | 9,132 | 
|                                   |  |        |       |        |  |        |       |  |  |  |       | 

There are approximately 1,115 temporary staff
included within the average number of full time equivalent
people employed by the Group.

F-19



---



##### 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     
|                         |  | emoluments |           | emoluments |  |          |           |         |  |          |           | Total      |  |          |           | emoluments
|                         |  | including  |           | including  |  |          |           |         |  |          |           | emoluments |  |          |           | including 
|                         |  | pensions   |           | pensions   |  | Salary   |           | Bonus   |  |          |           | before     |  |          |           | pensions  
|                         |  | 2001       |           | 2002       |  | and fees |           | schemes |  | Benefits |           | pensions   |  | Pensions |           | 2003      
|                         |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |           
|                         |  | £          |           | £          |  | £        |           | £       |  | £        |           | £          |  | £        |           | £         
|Executive                |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |         |  |  |  |           | 
|Tony Ball                |  |            | 1,964,383 |            |  |          | 2,049,343 |         |  |          | 762,134   |            |  |          | 1,500,000 |            |  |  | 41,436 |  |  |  | 2,303,570 |  |  |  | 156,167 |  |  |  | 2,459,737 | 
|Martin Stewart           |  |            | 821,451   |            |  |          | 713,517   |         |  |          | 400,000   |            |  |          | 500,000   |            |  |  | 24,750 |  |  |  | 924,750   |  |  |  | 31,686  |  |  |  | 956,436   | 
|Non-Executive            |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |         |  |  |  |           | 
|Rupert Murdoch           |  |            |          |            |  |          |          |         |  |          | 17,741    |            |  |          |          |            |  |  |       |  |  |  | 17,741    |  |  |  |        |  |  |  | 17,741    | 
|Philip Bowman            |  |            | 30,750    |            |  |          | 45,000    |         |  |          | 46,750    |            |  |          |          |            |  |  |       |  |  |  | 46,750    |  |  |  |        |  |  |  | 46,750    | 
|Chase Carey(i)           |  |            |          |            |  |          |          |         |  |          | 13,946    |            |  |          |          |            |  |  |       |  |  |  | 13,946    |  |  |  |        |  |  |  | 13,946    | 
|David DeVoe              |  |            |          |            |  |          |          |         |  |          | 17,741    |            |  |          |          |            |  |  |       |  |  |  | 17,741    |  |  |  |        |  |  |  | 17,741    | 
|David Evans              |  |            |          |            |  |          | 27,057    |         |  |          | 39,994    |            |  |          |          |            |  |  |       |  |  |  | 39,994    |  |  |  |        |  |  |  | 39,994    | 
|Allan Leighton           |  |            | 25,500    |            |  |          | 39,698    |         |  |          | 41,750    |            |  |          |          |            |  |  |       |  |  |  | 41,750    |  |  |  |        |  |  |  | 41,750    | 
|James Murdoch(ii)        |  |            |          |            |  |          |          |         |  |          | 13,946    |            |  |          |          |            |  |  |       |  |  |  | 13,946    |  |  |  |        |  |  |  | 13,946    | 
|Jacques Nasser(iii)      |  |            |          |            |  |          |          |         |  |          | 26,923    |            |  |          |          |            |  |  |       |  |  |  | 26,923    |  |  |  |        |  |  |  | 26,923    | 
|Gail Rebuck(iv)          |  |            |          |            |  |          |          |         |  |          | 25,596    |            |  |          |          |            |  |  |       |  |  |  | 25,596    |  |  |  |        |  |  |  | 25,596    | 
|Arthur Siskind           |  |            |          |            |  |          |          |         |  |          | 15,843    |            |  |          |          |            |  |  |       |  |  |  | 15,843    |  |  |  |        |  |  |  | 15,843    | 
|Lord St. John of Fawsley |  |            | 25,500    |            |  |          | 35,000    |         |  |          | 40,673    |            |  |          |          |            |  |  |       |  |  |  | 40,673    |  |  |  |        |  |  |  | 40,673    | 
|John Thornton            |  |            | 28,125    |            |  |          | 49,522    |         |  |          | 53,744    |            |  |          |          |            |  |  |       |  |  |  | 53,744    |  |  |  |        |  |  |  | 53,744    | 
|Lord Wilson of Dinton(v) |  |            |          |            |  |          |          |         |  |          | 13,946    |            |  |          |          |            |  |  |       |  |  |  | 13,946    |  |  |  |        |  |  |  | 13,946    | 
|Leslie Hinton(vi)        |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |        |  |  |  |          | 
|Martin Pompadur(vii)     |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |        |  |  |  |          | 
|Former directors         |  |            | 120,268   |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |        |  |  |  |          | 
|Total emoluments         |  |            | 3,015,977 |            |  |          | 2,959,137 |         |  |          | 1,530,727 |            |  |          | 2,000,000 |            |  |  | 66,186 |  |  |  | 3,596,913 |  |  |  | 187,853 |  |  |  | 3,784,766 | 






|      |                                                                                        
|----- | ---------------------------------------------------------------------------------------
|(i)   | Chase Carey was appointed a Director of the
    Company on February 13, 2003.          
|     
|(ii)  | James Murdoch was appointed a Director of the
    Company on February 13, 2003.        
|     
|(iii) | Jacques Nasser was appointed a Director of the
    Company on November 8, 2002.        
|     
|(iv)  | Gail Rebuck was appointed a Director of the
    Company on November 8, 2002.           
|     
|(v)   | Lord Wilson of Dinton was appointed a Director of
    the Company on February 13, 2003.
|     
|(vi)  | Leslie Hinton resigned as a Director of the
    Company on February 13, 2003.          
|     
|(vii) | Martin Pompadur resigned as a Director of the
    Company on February 13, 2003.        

Executive bonuses

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

|               |  |            |   |            |  |       |           |  |  |  |           | 
|-------------- |  | ---------- | - | ---------- |  | ----- | --------- |  |  |  | --------- | 
|               |  | Additional |   | Senior     |  |      
|               |  | Executive  |   | Management |  |      
|               |  | Bonus      |   | Bonus      |  |      
|               |  | Scheme(i)  |   | Scheme(ii) |  | Total
|               |  |            |   |            |  |      
|               |  | £          |   | £          |  | £    
|Executive      |  |            |   |            |  |       |           |  |  |  |           | 
|Tony Ball      |  |            |  |            |  |       | 1,500,000 |  |  |  | 1,500,000 | 
|Martin Stewart |  |            |  |            |  |       | 500,000   |  |  |  | 500,000   | 




F-20



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




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

Tony Ball has rights over 600,000 notional shares
which became exercisable during the year. The notional shares
have an exercise price of
        £5.35 but the gain on exercise is
limited to a maximum of 48 pence per notional share.


During the year to June 30, 2003 no shares
(notional or actual) were awarded or exercised under this scheme.



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

The amounts shown above are those which have been
approved by the Remuneration Committee for the year ended
June 30, 2003.


PENSION

The amounts received by the Directors under
pension arrangements are detailed below.

During the year the Company reviewed the
operation of its pension arrangements for Executive Directors
and Senior Executives whose Pension Plan contributions are
restricted due to Inland Revenue limits. For these Executives,
in the first instance, 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.

Tony Ball received a one-off payment of
£113,883 and a further payment of £10,421 in relation
to the shortfall in his pension arrangements that resulted from
historical differences between employer contributions, as capped
by Inland Revenue limits, and 8% of his pensionable salary.
Employer contributions of £31,863 were paid into the BSkyB
Pension Plan.

Martin Stewart received a further payment of
£4,213 in relation to the shortfall in his pension
arrangements, as described above. Employer contributions of
£27,473 were paid into the BSkyB Pension Plan.

SHARE OWNERSHIP

LTIP

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

|                  |  |                              |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |       |  |  |  |     |  |  |  |          |  |  |  |          | 
|----------------- |  | ---------------------------- | ------- | -------- |  | --------- | ------- | -------- |  | -------- | - | -------- |  | ----------- | ------- | ------ |  | - | ----- |  |  |  | --- |  |  |  | -------- |  |  |  | -------- | 
|                  |  |                              |         |          |  |           |         |          |  |         
|                  |  | Number of shares under award |         |          |  |           |         |          |  |         
|                  |  |                              |         |          |  | Market    |         |          |  |         
|                  |  | At                           |         | Granted  |  | Exercised |         | At       |  |          |   | price at |  | Date from   |         |       
|                  |  | June 30,                     |         | during   |  | during    |         | June 30, |  | Exercise |   | date of  |  | which       |         | Expiry
|                  |  | 2002                         |         | the year |  | the year  |         | 2003     |  | price    |   | exercise |  | exercisable |         | date  
|                  |  |                              |         |          |  |           |         |          |  |          |   |          |  |             |         |       
|Name of Directors |  |                              |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |       |  |  |  |     |  |  |  |          |  |  |  |          | 
|Tony Ball         |  |                              | 454,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 03.11.02 |  |  |  | 03.11.10 | 
|                  |  |                              | 454,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 03.11.10 | 
|                  |  |                              | 454,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 21.11.11 | 
|                  |  |                              | 454,000 | (ii)     |  |           |        |          |  |          |  |          |  |             | 454,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.04 |  |  |  | 21.11.11 | 
|                  |  |                              |        |          |  |           | 227,110 | (iii)    |  |          |  |          |  |             | 227,110 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 227,110 | (iii)    |  |          |  |          |  |             | 227,110 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 11,466  | (iii)    |  |          |  |          |  |             | 11,466  |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 11,466  | (iii)    |  |          |  |          |  |             | 11,466  |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 
|                 
|Martin Stewart    |  |                              | 227,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 03.11.02 |  |  |  | 03.11.10 | 
|                  |  |                              | 227,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 10.04 |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 03.11.10 | 
|                  |  |                              | 227,000 | (i)      |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.03 |  |  |  | 21.11.11 | 
|                  |  |                              | 227,000 | (ii)     |  |           |        |          |  |          |  |          |  |             | 227,000 |        |  | £ | 8.30  |  |  |  | N/A |  |  |  | 30.06.04 |  |  |  | 21.11.11 | 
|                  |  |                              |        |          |  |           | 113,555 | (iii)    |  |          |  |          |  |             | 113,555 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 113,555 | (iii)    |  |          |  |          |  |             | 113,555 |        |  | £ | 5.55  |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 5,733   | (iii)    |  |          |  |          |  |             | 5,733   |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |        |          |  |           | 5,733   | (iii)    |  |          |  |          |  |             | 5,733   |        |  | £ | 5.60  |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 




F-21



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Awards under the LTIP take the form of a market
value option 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.

The aggregate gain made by the Directors under
the LTIP during the year was nil (2002: £7,777,500).

Notes:



|      |                                                                                                                                                                                                                                                                                     
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | These awards vested during the year.                                                                                                                                                                                                                                                
|     
|(ii)  | These awards will vest subject to meeting
    performance conditions on June 30, 2004. The vesting date
    for this award was amended during the year from an original
    vesting date of July 31, 2004, in order to align the
    vesting date with the Companys financial year.
|     
|(iii) | In August 2002, awards were granted over
    performance periods ending in July 2004 and July 2005.                                                                                                                                                                                 

Equity Bonus Plan

|                  |  |                              |   |          |  |           |        |          |  |          |   |          |  |             |        |        |  |  |     |  |  |  |     |  |  |  |          |  |  |  |          | 
|----------------- |  | ---------------------------- | - | -------- |  | --------- | ------ | -------- |  | -------- | - | -------- |  | ----------- | ------ | ------ |  |  | --- |  |  |  | --- |  |  |  | -------- |  |  |  | -------- | 
|                  |  |                              |   |          |  |           |        |          |  |         
|                  |  | Number of shares under award |   |          |  |           |        |          |  |         
|                  |  |                              |   |          |  | Market    |        |          |  |         
|                  |  | At                           |   | Granted  |  | Exercised |        | At       |  |          |   | price at |  | Date from   |        |       
|                  |  | June 30,                     |   | during   |  | during    |        | June 30, |  | Exercise |   | date of  |  | which       |        | Expiry
|                  |  | 2002                         |   | the year |  | the year  |        | 2003     |  | price(i) |   | exercise |  | exercisable |        | date  
|                  |  |                              |   |          |  |           |        |          |  |          |   |          |  |             |        |       
|Name of Directors |  |                              |   |          |  |           |        |          |  |          |   |          |  |             |        |        |  |  |     |  |  |  |     |  |  |  |          |  |  |  |          | 
|Tony Ball         |  |                              |  |          |  |           | 52,000 |          |  |          |  |          |  |             | 52,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |  |          |  |           | 52,000 |          |  |          |  |          |  |             | 52,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 
|                 
|Martin Stewart    |  |                              |  |          |  |           | 26,000 |          |  |          |  |          |  |             | 26,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                  |  |                              |  |          |  |           | 26,000 |          |  |          |  |          |  |             | 26,000 |        |  |  | N/A |  |  |  | N/A |  |  |  | 31.07.05 |  |  |  | 31.07.12 | 




Note:



|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Awards under the EBP take the form of a
    contingent right to acquire existing BSkyB shares at the vesting
    date, for nil consideration.

The performance conditions applicable to the
awards under the EBP were measured at June 30, 2003. The
plan will deliver the shares in equal measures at July 31,
2004 and July 31, 2005.

Executive share options

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

|                  |  |                   |         |          |  |           |   |          |  |          |       |          |  |             |         |        |  |   |      |  |  |   |      |  |  |  |          |  |  |  |          | 
|----------------- |  | ----------------- | ------- | -------- |  | --------- | - | -------- |  | -------- | ----- | -------- |  | ----------- | ------- | ------ |  | - | ---- |  |  | - | ---- |  |  |  | -------- |  |  |  | -------- | 
|                  |  |                   |         |          |  |           |   |          |  |         
|                  |  | Number of options |         |          |  |           |   |          |  |         
|                  |  |                   |         |          |  | Market    |   |          |  |         
|                  |  | At                |         | Granted  |  | Exercised |   | At       |  |          |       | price at |  | Date from   |         |       
|                  |  | June 30,          |         | during   |  | during    |   | June 30, |  | Exercise |       | date of  |  | which       |         | Expiry
|                  |  | 2002              |         | the year |  | the year  |   | 2003     |  | price    |       | exercise |  | exercisable |         | date  
|                  |  |                   |         |          |  |           |   |          |  |          |       |          |  |             |         |       
|Name of Directors |  |                   |         |          |  |           |   |          |  |          |       |          |  |             |         |        |  |   |      |  |  |   |      |  |  |  |          |  |  |  |          | 
|Tony Ball         |  |                   | 5,145   | (i)      |  |           |  |          |  |          |      |          |  |             | 5,145   |        |  | £ | 5.83 |  |  |   | N/A  |  |  |  | 12.08.02 |  |  |  | 12.08.09 | 
|                  |  |                   | 594,855 | (i)      |  |           |  |          |  |          |      |          |  |             | 594,855 |        |  | £ | 5.83 |  |  |   | N/A  |  |  |  | 12.08.02 |  |  |  | 12.08.06 | 
|                  |  |                   | 600,000 |          |  |           |  |          |  |          |      |          |  |             | 600,000 |        |  | £ | 7.35 |  |  |   | N/A  |  |  |  | 05.06.05 |  |  |  | 05.06.12 | 
|                 
|Martin Stewart    |  |                   | 2,096   | (ii)     |  |           |  |          |  |          | 2,096 |          |  |             |        |        |  | £ | 4.62 |  |  | £ | 6.62 |  |  |  |         |  |  |  |         | 




Note:



|     |                                                                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | The options, granted to Tony Ball on
    August 12, 1999, became exercisable during the year.                                                                                                     
|    
|(ii) | These options were granted under the
    Companys Sharesave Scheme and were exercised on
    May 22, 2003 following their maturity. The gain on exercise
    of the Sharesave options was £4,192.

During the year ended June 30, 2003 the
share price traded within the range of £4.58 to £7.06
per share. The middle-market closing price on the last working
day of the financial year was £6.72.

F-22



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


9.  Taxation

a)  Analysis of charge (credit) in
year

|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------------ |  | ----------- | ---- | ----------- |  | ---------- | --- | ----------- |  | ---------- | ---- | ------ |  | ----------- | ---- | ---------- |  | ----- | ---- |  |  |  | ----- |  |  |  | ----- | - |  |  | ------ | - |  |  | ------ | -
|                                                                                     |  |             |      |             |  |           
|                                                                                     |  | 2001        |      | 2002        |  | 2003      
|                                                                                     |  |             |      |             |  |           
|                                                                                     |  |             |      |             |  | Tax charge |     |            
|                                                                                     |  | Tax charge  |      |             |  | Tax charge |     |             |  | (credit)   |      |       
|                                                                                     |  | on profit   |      |             |  | on profit  |     |             |  | on profit  |      |       
|                                                                                     |  | before      |      |             |  | before     |     | Exceptional |  |            |      | before |  | Exceptional |      |           
|                                                                                     |  | exceptional |      | Exceptional |  |            |     | exceptional |  | tax charge |      |        |  | exceptional |      | tax charge |  |      
|                                                                                     |  | items       |      | tax charge  |  | Total      |     | items       |  | (ii)       |      | Total  |  | items       |      | (credit)   |  | Total
|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |      
|                                                                                     |  | £m          |      | £m          |  | £m         |     | £m          |  | £m         |      | £m     |  | £m          |      | £m         |  | £m   
|Current tax                                                                          |  |             |     |             |  |            |    |             |  |            |     |        |  |             |     |            |  |       |     |  |  |  |      |  |  |  | 85.0  |   |  |  | 1.4    |   |  |  | 86.4   |  
|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  
|Deferred tax:                                                                        |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  
|Origination and reversal of timing differences                                       |  |             | 23.3 |             |  |            | 0.8 |             |  |            | 24.1 |        |  |             | 27.3 |            |  |       | 77.8 |  |  |  | 105.1 |  |  |  | (26.6 | ) |  |  | (122.6 | ) |  |  | (149.2 | )
|Increase in estimate of recoverable deferred tax
    asset in respect of prior years |  |             |     |             |  |            |    |             |  |            |     |        |  |             |     |            |  |       |     |  |  |  |      |  |  |  | (1.8  | ) |  |  |       |   |  |  | (1.8   | )
|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  
|Total deferred tax (i)                                                               |  |             | 23.3 |             |  |            | 0.8 |             |  |            | 24.1 |        |  |             | 27.3 |            |  |       | 77.8 |  |  |  | 105.1 |  |  |  | (28.4 | ) |  |  | (122.6 | ) |  |  | (151.0 | )
|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  
|Share of joint ventures tax charge                                                  |  |             |     |             |  |            |    |             |  |            |     |        |  |             | 1.3  |            |  |       |     |  |  |  | 1.3   |  |  |  | 2.1   |   |  |  |       |   |  |  | 2.1    |  
|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  
|                                                                                     |  |             | 23.3 |             |  |            | 0.8 |             |  |            | 24.1 |        |  |             | 28.6 |            |  |       | 77.8 |  |  |  | 106.4 |  |  |  | 58.7  |   |  |  | (121.2 | ) |  |  | (62.5  | )
|                                                                                     |  |             |      |             |  |            |     |             |  |            |      |        |  |             |      |            |  |       |      |  |  |  |       |  |  |  |       |   |  |  |        |   |  |  |        |  






|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | During the year the Group recorded a deferred tax
    credit of £163.3 million relating to deferred tax
    assets not previously recognized. The Directors consider that
    there is now sufficient evidence to support the recognition of
    these deferred tax assets on the basis that it is more likely
    than not that there will be suitable taxable profits against
    which these assets can be utilized. £122.6 million of
    the deferred tax credit has been treated as an exceptional item.
|    
|(ii) | An exceptional deferred tax charge of
    £95.6 million was made at December 31, 2001,
    against which £12.3 million has been written back at
    June 30, 2002 as a result of the utilization of tax losses.
    This was offset by a £5.5 million tax credit on a
    provision against ITV Digitals programming debtor and the
    release of the analog 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 higher
than the standard rate of corporation tax in the UK (30%). The
differences are explained below:

|                                                                                                                                  |  |      |        |      |  |      |          |   |  |  |       |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | -------- | - |  |  | ----- | -
|                                                                                                                                  |  | 2001 |        | 2002 |  | 2003
|                                                                                                                                  |  |      |        |      |  |     
|                                                                                                                                  |  | £m   |        | £m   |  | £m  
|(Loss) profit on ordinary activities before tax                                                                                   |  |      | (514.5 | )    |  |      | (1,276.2 | ) |  |  | 127.8 |  
|Less: Share of joint ventures loss (profit)
    before tax                                                                       |  |      | 350.0  |      |  |      | 79.6     |   |  |  | (3.6  | )
|                                                                                                                                  |  |      |        |      |  |      |          |   |  |  |       |  
|(Loss) profit on ordinary activities before tax                                                                                   |  |      | (164.5 | )    |  |      | (1,196.6 | ) |  |  | 124.2 |  
|                                                                                                                                  |  |      |        |      |  |      |          |   |  |  |       |  
|(Loss) profit on ordinary activities multiplied
    by standard rate of corporation tax in the UK of 30% (2002 and
    2001: 30%) |  |      | (49.4  | )    |  |      | (359.0   | ) |  |  | 37.3  |  
|Effects of:                                                                                                                       |  |      |        |      |  |      |          |   |  |  |       |  
|Write-down of KirchPayTV not deductible for tax
    purposes                                                                      |  |      |       |      |  |      | 291.4    |   |  |  |      |  
|Other expenses not deductible for tax purposes
    (primarily goodwill amortization)                                              |  |      | 63.9   |      |  |      | 77.8     |   |  |  | 42.5  |  
|Other timing differences                                                                                                          |  |      | (2.9   | )    |  |      | 19.2     |   |  |  | 11.8  |  
|Utilization of tax losses                                                                                                         |  |      | (11.3  | )    |  |      | (30.6    | ) |  |  | (7.3  | )
|Consortium relief                                                                                                                 |  |      | (0.3   | )    |  |      | 1.2      |   |  |  | 2.1   |  
|                                                                                                                                  |  |      |        |      |  |      |          |   |  |  |       |  
|Current tax charge for the year                                                                                                   |  |      |       |      |  |      |         |   |  |  | 86.4  |  
|                                                                                                                                  |  |      |        |      |  |      |          |   |  |  |       |  

F-23



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


c)  Factors that may affect future
tax charges

At June 30, 2003, a deferred tax asset of
£12.5 million (2002: £149.6 million) arising
from UK losses in the Group, has not been recognized. These
losses can be offset only against taxable profits generated in
the entities concerned. Although the Directors ultimately expect
sufficient profits to arise, there is currently insufficient
evidence to support recognition of a deferred tax asset relating
to these losses. The losses are available to be carried forward
indefinitely under current law.

Deferred tax assets of £63.7 million
(2002: £63.7 million) have not been recognized in
respect of trading losses in the Groups German holding
companies of KirchPayTV, and £450.0 million (2002:
£450.0 million) have not been recognized in respect of
potential capital losses related to the Groups holding of
KirchPayTV. These losses are available to be carried forward
indefinitely under current law. A deferred tax asset of
£4.6 million (2002: £18.0 million) arising
principally on other timing differences has not been recognized
on the basis that these timing differences are not more likely
than not to reverse.

10. Dividends

The Directors do not propose an interim or final
dividend for the financial year (2002: nil; 2001: nil). At
June 30, 2003, the Company had a deficit on its
company-only profit and loss account reserve of
£1,120.4 million. The Company is currently not in a
position to pay a dividend.

The ESOP has waived its rights to dividends.

11. (Loss) earnings per share

Basic (loss) earnings per share represents the
(loss) profit 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 shares held in the Groups ESOP
trust during the year.

Diluted (loss) earnings per share represents the
(loss) profit 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 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
shares outstanding during the year (see below).

The weighted average number of shares in the year
was:

|                                                                                                |  |           |         |           |  |           |         |   |  |  |         |  
|----------------------------------------------------------------------------------------------- |  | --------- | ------- | --------- |  | --------- | ------- | - |  |  | ------- | -
|                                                                                                |  | 2001      |         | 2002      |  | 2003     
|                                                                                                |  |           |         |           |  |          
|                                                                                                |  | Millions  |         | Millions  |  | Millions 
|                                                                                                |  | of shares |         | of shares |  | of shares
|Ordinary Shares                                                                                 |  |           | 1,851.1 |           |  |           | 1,891.2 |   |  |  | 1,921.2 |  
|ESOP trust shares                                                                               |  |           | (4.0    | )         |  |           | (3.8    | ) |  |  | (6.2    | )
|                                                                                                |  |           |         |           |  |           |         |   |  |  |         |  
|Basic shares                                                                                    |  |           | 1,847.1 |           |  |           | 1,887.4 |   |  |  | 1,915.0 |  
|Dilutive Ordinary Shares from share options and
    other potential Ordinary Shares outstanding |  |           |        | *         |  |           |        | * |  |  | 27.2    |  
|                                                                                                |  |           |         |           |  |           |         |   |  |  |         |  
|Diluted shares                                                                                  |  |           | 1,847.1 |           |  |           | 1,887.4 |   |  |  | 1,942.2 |  
|                                                                                                |  |           |         |           |  |           |         |   |  |  |         |  






|  |                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | As the Group made a loss on ordinary activities
    after taxation in 2001 and 2002, no share options or other
    potential Ordinary Shares outstanding were considered to be
    dilutive.

The number of anti-dilutive shares at
June 30, 2003 was 36,779,664 shares (2002: 83,438,705
shares; 2001: 70,237,843 shares) which comprised share options
of 36,779,664 (2002: 42,845,578 shares; 2001: 32,712,169 shares)
and deferred consideration of nil (2002: 40,593,127 shares;
2001: 37,558,480 shares).

F-24



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


12. Intangible fixed assets

The movement in the year was as follows:

|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|------------------------------------------------------------------------ |  | ---------------- | ----- | ---------- |  | ----- | ---- | - |  |  | ----- | -
|                                                                         |  |                  |       | Other      |  |      
|                                                                         |  |                  |       | intangible |  |      
|                                                                         |  |                  |       | fixed      |  |      
|                                                                         |  | Goodwill(i),(ii) |       | assets     |  | Total
|                                                                         |  |                  |       |            |  |      
|                                                                         |  | £m               |       | £m         |  | £m   
|Cost                                                                     |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2001                                                         |  |                  | 842.6 |            |  |       | 1.0  |   |  |  | 843.6 |  
|Fair value adjustments to BiB provisional goodwill                       |  |                  | (22.9 | )          |  |       |     |   |  |  | (22.9 | )
|Disposals                                                                |  |                  |      |            |  |       | (0.6 | ) |  |  | (0.6  | )
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2002                                                         |  |                  | 819.7 |            |  |       | 0.4  |   |  |  | 820.1 |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2003                                                         |  |                  | 819.7 |            |  |       | 0.4  |   |  |  | 820.1 |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|Amortization                                                             |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2001                                                         |  |                  | 54.2  |            |  |       | 0.1  |   |  |  | 54.3  |  
|Charge                                                                   |  |                  | 118.3 |            |  |       | 0.1  |   |  |  | 118.4 |  
|Release of provision for loss on disposal of
    subsidiary (see note 4) |  |                  | (10.0 | )          |  |       |     |   |  |  | (10.0 | )
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2002                                                         |  |                  | 162.5 |            |  |       | 0.2  |   |  |  | 162.7 |  
|Charge                                                                   |  |                  | 116.3 |            |  |       |     |   |  |  | 116.3 |  
|Impairment losses (ii)                                                   |  |                  | 5.2   |            |  |       |     |   |  |  | 5.2   |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2003                                                         |  |                  | 284.0 |            |  |       | 0.2  |   |  |  | 284.2 |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|Net book value                                                           |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2001                                                         |  |                  | 788.4 |            |  |       | 0.9  |   |  |  | 789.3 |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2002                                                         |  |                  | 657.2 |            |  |       | 0.2  |   |  |  | 657.4 |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  
|At June 30, 2003                                                         |  |                  | 535.7 |            |  |       | 0.2  |   |  |  | 535.9 |  
|                                                                         |  |                  |       |            |  |       |      |   |  |  |       |  

Goodwill



|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Goodwill of £272.4 million,
    £542.1 million and £5.2 million, arising on
    the acquisitions of SIG, BiB and WAPTV respectively, is being
    amortized 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 June 30, 2002. These reviews showed that no
    impairment was identified in either case. Consistent with the
    Group strategy, the business plans on which these reviews were
    based reflected significant projected increases in betting and
    other interactive revenues over the subsequent five years. Since
    the time of these reviews the performance of these operations
    has been broadly in line with the forecasts in the business
    plans used for these reviews, and no indications of impairment
    have arisen.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | At December 31, 2002, the Group made a
    provision of £5.2 million, included within
    amortization, against goodwill which arose on the acquisition of
    Opta Index Limited (Opta) (a subsidiary of SIG,
    which provides 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-25



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Other intangible fixed assets

Other intangible fixed assets comprise internet
domain names, which are being amortized over a period of seven
years on a straight-line basis. During fiscal 2002, the Group
disposed of betting shop licenses that were included in other
intangible fixed assets.

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 June 30, 2001            |  |              | 29.9 |              |  |                  | 80.5 |              |  |       | 481.5 |   |  |  | 7.0   |   |  |  | 598.9 |  
|Additions                   |  |              | 8.0  |              |  |                  | 3.0  |              |  |       | 75.8  |   |  |  | 27.9  |   |  |  | 114.7 |  
|Disposals                   |  |              |     |              |  |                  | (0.2 | )            |  |       | (7.9  | ) |  |  |      |   |  |  | (8.1  | )
|Transfers                   |  |              |     |              |  |                  |     |              |  |       | 5.0   |   |  |  | (5.0  | ) |  |  |      |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2002            |  |              | 37.9 |              |  |                  | 83.3 |              |  |       | 554.4 |   |  |  | 29.9  |   |  |  | 705.5 |  
|Additions                   |  |              | 0.4  |              |  |                  | 3.2  |              |  |       | 73.0  |   |  |  | 24.8  |   |  |  | 101.4 |  
|Disposals                   |  |              |     |              |  |                  |     |              |  |       | (10.9 | ) |  |  |      |   |  |  | (10.9 | )
|Transfers                   |  |              |     |              |  |                  |     |              |  |       | 25.8  |   |  |  | (25.8 | ) |  |  |      |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2003            |  |              | 38.3 |              |  |                  | 86.5 |              |  |       | 642.3 |   |  |  | 28.9  |   |  |  | 796.0 |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|Depreciation                |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2001            |  |              | 5.0  |              |  |                  | 39.7 |              |  |       | 238.8 |   |  |  |      |   |  |  | 283.5 |  
|Charge                      |  |              | 1.0  |              |  |                  | 3.7  |              |  |       | 76.4  |   |  |  |      |   |  |  | 81.1  |  
|Transferred from provisions |  |              |     |              |  |                  |     |              |  |       | 4.5   |   |  |  |      |   |  |  | 4.5   |  
|Disposals                   |  |              |     |              |  |                  | (0.1 | )            |  |       | (6.5  | ) |  |  |      |   |  |  | (6.6  | )
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2002            |  |              | 6.0  |              |  |                  | 43.3 |              |  |       | 313.2 |   |  |  |      |   |  |  | 362.5 |  
|Charge                      |  |              | 2.3  |              |  |                  | 4.0  |              |  |       | 91.6  |   |  |  |      |   |  |  | 97.9  |  
|Disposals                   |  |              |     |              |  |                  |     |              |  |       | (10.6 | ) |  |  |      |   |  |  | (10.6 | )
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2003            |  |              | 8.3  |              |  |                  | 47.3 |              |  |       | 394.2 |   |  |  |      |   |  |  | 449.8 |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|Net book value              |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2001            |  |              | 24.9 |              |  |                  | 40.8 |              |  |       | 242.7 |   |  |  | 7.0   |   |  |  | 315.4 |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2002            |  |              | 31.9 |              |  |                  | 40.0 |              |  |       | 241.2 |   |  |  | 29.9  |   |  |  | 343.0 |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  
|At June 30, 2003            |  |              | 30.0 |              |  |                  | 39.2 |              |  |       | 248.1 |   |  |  | 28.9  |   |  |  | 346.2 |  
|                            |  |              |      |              |  |                  |      |              |  |       |       |   |  |  |       |   |  |  |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The amounts shown include assets held under
    finance leases with a net book value of £6.3 million
    (2002: £6.7 million). The cost of these assets was
    £8.6 million (2002: £8.6 million) and the
    accumulated depreciation was £2.3 million (2002:
    £1.9 million). Depreciation charged during the year on
    these assets was £0.4 million (2002:
    £0.3 million; 2001: £0.3 million).

Depreciation was not charged on
    £9.4 million of land (2002: £9.4 million).



|     |                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | The amounts shown include assets held under
    finance leases with a net book value of £2.3 million
    (2002: £3.6 million). The cost of these assets was
    £4.9 million (2002: £4.9 million) and the
    accumulated depreciation was £2.6 million (2002:
    £1.3 million). Depreciation charged during the year on
    these assets was £1.3 million (2002:
    £1.3 million; 2000: nil).

F-26



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


14. Investments in joint
ventures

The movement in the year was as follows:

|                                               |                                                               |      |     |         |   |  |     |        |  
|---------------------------------------------- | ------------------------------------------------------------- | ---- | --- | ------- | - |  | --- | ------ | -
|                                               |                                                               | 2002 |     | 2003   
|                                               |                                                               |      |     |        
|                                               |                                                               | £m   |     | £m     
|Cost and funding, excluding goodwill           |                                                               |      |     |         |   |  |     |       
|                                               | Beginning of year                                             |      |     | 217.9   |   |  |     | 224.7  |  
|                                               | Loans advanced to joint ventures                              |      |     | 11.6    |   |  |     | 14.6   |  
|                                               | Loans repaid by joint ventures                                |      |     | (4.8    | ) |  |     | (4.5   | )
|                                               |                                                               |      |     |         |   |  |     |       
|                                               | End of year                                                   |      |     | 224.7   |   |  |     | 234.8  |  
|                                               |                                                               |      |     |         |   |  |     |       
|Transfer to creditors(i)                       |                                                               |      | 1.6 |         |   |  | 2.6 |       
|                                               |                                                               |      |     |         |   |  |     |       
|Movement in share of underlying net
    assets |                                                               |      |     |         |   |  |     |       
|                                               | Beginning of year                                             |      |     | (195.7  | ) |  |     | (204.5 | )
|                                               | Share of operating results of joint ventures (see
    note 5) |      |     | (76.7   | ) |  |     | 3.4    |  
|                                               | Share of joint ventures interest receivable
    (see note 6) |      |     | 2.0     |   |  |     | 0.5    |  
|                                               | Share of joint ventures interest payable
    (see note 6)    |      |     | (4.9    | ) |  |     | (0.3   | )
|                                               | Share of joint ventures tax charges (see
    note 9)         |      |     | (1.3    | ) |  |     | (2.1   | )
|                                               | Dividends received from joint venture                         |      |     |        |   |  |     | (4.0   | )
|                                               | Exchange adjustments                                          |      |     | 1.4     |   |  |     |       |  
|                                               | Transferred to other fixed asset investments                  |      |     | 70.7    |   |  |     |       |  
|                                               |                                                               |      |     |         |   |  |     |       
|                                               | End of year                                                   |      |     | (204.5  | ) |  |     | (207.0 | )
|                                               |                                                               |      |     |         |   |  |     |       
|Goodwill                                       |                                                               |      |     |         |   |  |     |       
|                                               | Beginning of year                                             |      |     | 1,140.6 |   |  |     |       |  
|                                               | Amortization                                                  |      |     | (98.5   | ) |  |     |       |  
|                                               | Amounts provided, net (see note 4)                            |      |     | (971.4  | ) |  |     |       |  
|                                               | Transferred to other fixed asset investments                  |      |     | (70.7   | ) |  |     |       |  
|                                               |                                                               |      |     |         |   |  |     |       
|                                               | End of year                                                   |      |     |        |   |  |     |       |  
|                                               |                                                               |      |     |         |   |  |     |       
|Net book value(ii)                             |                                                               |      |     |         |   |  |     |       
|                                               | Beginning of year                                             |      |     | 1,163.7 |   |  |     | 21.8   |  
|                                               |                                                               |      |     |         |   |  |     |       
|                                               | End of year                                                   |      |     | 21.8    |   |  |     | 30.4   |  
|                                               |                                                               |      |     |         |   |  |     |       






|     |                                                                                                                                                                                                                                                          
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | The investment in joint ventures excludes
    cumulative losses of £2.6 million (2002:
    £1.6 million), which represent losses in excess of the
    funding provided. The related obligation is recorded within
    creditors.                         
|    
|(ii) | The net book value above includes listed
    investments with a net book value of £5.0 million at
    June 30, 2003 (2002: £6.2 million). The aggregate
    market value of these investments at June 30, 2003 was
    £4.8 million (2002: £3.5 million).

KirchPayTV

At December 31, 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 amortization of
£984.9 million. Joint ventures goodwill
amortization also included goodwill amortization of
£98.5 million for the six months ended
December 31, 2001. The Groups investment in
KirchPayTV was treated as a joint venture until February 8,
2002, after which date the Group considered that it was no
longer able to exercise significant influence over KirchPayTV.
Accordingly on February 8, 2002, the investment was
transferred within Fixed Asset Investments to Other investments
at a net book value of nil. On August 1, 2002, formal
insolvency proceedings were opened for KirchPayTV. The Group
does not expect to receive any funds from these proceedings. On
May 13, 2002, the Group exercised a put option to transfer
its interest in

F-27



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


KirchPayTV to Taurus Holding GmbH & Co
KG, a company which became the subject of formal insolvency
proceedings on September 13, 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 all joint ventures:

|                                         |  |         |        |          |  |      |       |   |  |  |       |  
|---------------------------------------- |  | ------- | ------ | -------- |  | ---- | ----- | - |  |  | ----- | -
|                                         |  | 2001(i) |        | 2002(ii) |  | 2003
|                                         |  |         |        |          |  |     
|                                         |  | £m      |        | £m       |  | £m  
|Turnover                                 |  |         | 224.1  |          |  |      | 139.2 |   |  |  | 76.5  |  
|Fixed assets                             |  |         | 139.7  |          |  |      | 3.6   |   |  |  | 4.1   |  
|Current assets                           |  |         | 130.8  |          |  |      | 85.1  |   |  |  | 82.7  |  
|Liabilities due within one year          |  |         | (124.2 | )        |  |      | (66.0 | ) |  |  | (47.6 | )
|Liabilities due after more than one year |  |         | (124.1 | )        |  |      | (2.5  | ) |  |  | (11.4 | )






|     |                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | This includes the Groups share of
    BiBs turnover up until BiB was consolidated as a
    subsidiary from May 9, 2001.                    
|    
|(ii) | This includes the Groups 22% share of
    KirchPayTVs turnover up until it ceased to be treated as a
    joint venture on February 8, 2002.

|                                                        |  |                |        |                  |  |  |       |  
|------------------------------------------------------- |  | -------------- | ------ | ---------------- |  |  | ----- | -
|                                                        |  | Groups share  |        | Groups share   
|                                                        |  | of KirchPayTV  |        | of KirchPayTV   
|                                                        |  | (as adjusted)  |        | (as adjusted)   
|                                                        |  | Year to        |        | April 1, to     
|                                                        |  | March 31, 2001 |        | November 8, 2001
|                                                        |  |                |        |                 
|                                                        |  | £m             |        | £m              
|Turnover                                                |  |                | 117.4  |                  |  |  | 66.5  |  
|                                                        |  |                |        |                  |  |  |       |  
|Operating loss                                          |  |                | (116.0 | )                |  |  | (70.0 | )
|Loss on sale of fixed asset investment (see
    note 4) |  |                | (69.5  | )                |  |  |      |  
|Net interest payable                                    |  |                | (9.7   | )                |  |  | (3.6  | )
|                                                        |  |                |        |                  |  |  |       |  
|Loss before taxation                                    |  |                | (195.2 | )                |  |  | (73.6 | )
|Taxation                                                |  |                |       |                  |  |  |      |  
|                                                        |  |                |        |                  |  |  |       |  
|Loss after taxation                                     |  |                | (195.2 | )                |  |  | (73.6 | )
|                                                        |  |                |        |                  |  |  |       |  
|Fixed assets                                            |  |                | 135.5  |                  |  |  |      |  
|                                                        |  |                |        |                  |  |  |       |  
|Current assets                                          |  |                | 67.9   |                  |  |  |      |  
|                                                        |  |                |        |                  |  |  |       |  
|Liabilities due within one year                         |  |                | (110.8 | )                |  |  |      |  
|                                                        |  |                |        |                  |  |  |       |  
|Liabilities due after more than one
    year            |  |                | (91.1  | )                |  |  |      |  
|                                                        |  |                |        |                  |  |  |       |  

As KirchPayTV ceased to be treated as a joint
venture from February 8, 2002, no joint venture balance
sheet disclosure has been provided for either 2003 or 2002.

In the absence of KirchPayTV results for the
period from July 1, 2001 to February 8, 2002, the
results for a similar period, the period from April 1, 2001
to November 8, 2001, have been used. In June 2001, due to
the absence of results for KirchPayTV for the year from
July 1, 2000 to June 30, 2001, the results for a
similar period, the year to March 31, 2001, were used.

F-28



---



##### 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:

|                                                                         |  |                   |  |                                              |  |                                                                                                                  
|------------------------------------------------------------------------ |  | ----------------- |  | -------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------
|                                                                         |  | Country of        |  | Description and                              |  |                                                                                                                  
|                                                                         |  | incorporation/    |  | proportion of                                |  |                                                                                                                  
|Name                                                                     |  | operation         |  | shares held (%)                              |  | Principal activity                                                                                               
|                                                                         |  |                   |  |                                              |  |                                                                                                                  
|Subsidiaries: Direct holdings                                            |  |                   |  |                                              |  |                                                                                                                  
|British Sky Broadcasting Limited                                         |  | England and Wales |  | 10,000,002 Ordinary Shares of £1 each (100%) |  | The transmission of the Groups English
    language satellite television broadcasting services                  
|Sky Television Limited                                                   |  | England and Wales |  | 13,376,982 Ordinary Shares of £1 each (100%) |  | Holding company                                                                                                  
|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                         
|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(i)                 |  | England and Wales |  | 651,960 Ordinary Shares of £1 each (100%)    |  | The transmission of interactive services                                                                         
|Subsidiaries: Indirect holdings                                          |  |                   |  |                                              |  |                                                                                                                  
|Sky Subscribers Services Limited                                         |  | England and Wales |  | 2 Ordinary Shares of £1 each (100%)          |  | The provision of ancillary functions supporting
    the satellite television broadcasting operations of the Group
|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 (formerly Sky New
    Media Ventures plc) |  | England and Wales |  | 12,500 Ordinary Shares of £1 each (100%)     |  | Holding company for new media investments                                                                        

F-29



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                       |  |                   |  |                                                                                               |  |                                                                               
|-------------------------------------- |  | ----------------- |  | --------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------
|                                       |  | Country of        |  | Description and                                                                               |  |                                                                               
|                                       |  | incorporation/    |  | proportion of                                                                                 |  |                                                                               
|Name                                   |  | operation         |  | shares held (%)                                                                               |  | Principal activity                                                            
|                                       |  |                   |  |                                                                                               |  |                                                                               
|Joint ventures                         |  |                   |  |                                                                                               |  |                                                                               
|Nickelodeon UK                         |  | England and Wales |  | 104 B Shares of £0.01 each (50%)                                                              |  | The transmission of childrens television
    services                        
|The History Channel (UK)               |  | England and Wales |  | 50,000 A shares of £1 each (50%)                                                              |  | The transmission of history and biography
    television services             
|Paramount UK(ii)                       |  | England and Wales |  | Partnership interest (25%)                                                                    |  | The transmission of a general entertainment
    comedy channel                
|Australian News Channel Pty Limited    |  | Australia         |  | 1 Ordinary Share of AUS$1 (33.33%)                                                            |  | The transmission of a 24-hour news channel                                    
|Granada Sky Broadcasting Limited (iii) |  | England and Wales |  | 800 B Shares of £1 each (80%)                                                                 |  | The transmission of general entertainment channels                            
|MUTV                                   |  | England and Wales |  | 100 B Shares of £1 each (33.33%)                                                              |  | The transmission of the Manchester United
    football channel                
|National Geographic Channel(iv)        |  | England and Wales |  | Partnership interest (50%)                                                                    |  | The transmission of natural history and adventure
    channels                
|Music Choice Europe Limited            |  | England and Wales |  | 44,001,120 A Shares of £1 each (36.4%)                                                        |  | The transmission of audio music channels                                      
|attheraces Holdings Limited            |  | England and Wales |  | 1,000 Ordinary Shares of £1 each (33.33%)                                                     |  | The transmission of a horse racing service and
    related on-line activities 
|Chelsea Digital Media Limited          |  | England and Wales |  | 19,800 B Shares of £0.01 each (20%) and
    3,860,174 redeemable preference shares of £1 each |  | The production and marketing of the Chelsea
    Football Club football channel




Notes



|      |                                                                                                                  
|----- | -----------------------------------------------------------------------------------------------------------------
|(i)   | 80.1% directly held by British Sky Broadcasting
    Group plc and 19.9% held by British Sky Broadcasting Limited.
|     
|(ii)  | The registered address of Paramount UK is
    180, Oxford Street, London W1N 0DS.                                
|     
|(iii) | The economic interest held in Granada Sky
    Broadcasting Limited is 49.5%.                                     
|     
|(iv)  | The registered address of National Geographic
    Channel is Grant Way, Isleworth, Middlesex TW7 5QD.            

F-30



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The following are included in the net book value
of other fixed asset investments:

|                             |  |      |       |      |  |  |      | 
|---------------------------- |  | ---- | ----- | ---- |  |  | ---- | 
|                             |  | 2002 |       | 2003
|                             |  |      |       |     
|                             |  | £m   |       | £m  
|Investment in own shares (a) |  |      | 42.2  |      |  |  | 34.6 | 
|Other investments (b)        |  |      | 64.9  |      |  |  | 43.9 | 
|                             |  |      |       |      |  |  |      | 
|                             |  |      | 107.1 |      |  |  | 78.5 | 
|                             |  |      |       |      |  |  |      | 



|    |                         
|--- | ------------------------
|(a) | Investment in own shares

The movement in the year was as follows:

|                                        |  |                 |           |      |  |                 |      |    |  |  |            |   |  |  |      |  
|--------------------------------------- |  | --------------- | --------- | ---- |  | --------------- | ---- | -- |  |  | ---------- | - |  |  | ---- | -
|                                        |  |                 |           |     
|                                        |  | 2002            |           | 2003
|                                        |  |                 |           |     
|                                        |  | Number of       |           |      |  | Number of       |      |   
|                                        |  | Ordinary Shares |           | £m   |  | Ordinary Shares |      | £m
|                                        |  |                 |           |      |  |                 |      |   
|At beginning of year                    |  |                 | 3,354,512 |      |  |                 | 19.1 |    |  |  | 6,599,637  |   |  |  | 42.2 |  
|Share options exercised during the year |  |                 | (654,875  | )    |  |                 | (3.8 | )  |  |  | (1,142,625 | ) |  |  | (7.6 | )
|Shares purchased during the year        |  |                 | 3,900,000 |      |  |                 | 26.9 |    |  |  |           |   |  |  |     |  
|                                        |  |                 |           |      |  |                 |      |    |  |  |            |   |  |  |      |  
|At end of year                          |  |                 | 6,599,637 |      |  |                 | 42.2 |    |  |  | 5,457,012  |   |  |  | 34.6 |  
|                                        |  |                 |           |      |  |                 |      |    |  |  |            |   |  |  |      |  

At June 30, 2003, the Groups ESOP held
5.5 million Ordinary Shares in the Company (2002:
6.6 million) at an average value of £6.34 per share
(2002: £6.39 per share). These shares were designated to
hedge a portion of the Groups obligations outstanding
under share schemes: the LTIP (4.0 million shares), the EBP
(0.4 million shares) and the KCP (1.1 million shares).

The 1.1 million Ordinary Shares utilized
during the year relate to the exercise of LTIP and
KCP awards.

The cost to the Group of the LTIP, EBP and KCP
awards hedged by the ESOP is accrued over the relevant vesting
periods of these schemes. An amount of £28.3 million
is included within accruals (2002: £19.3 million).

The market value of shares held by the ESOP at
June 30, 2003 was £36.6 million (2002:
£41.5 million), and the nominal value was
£2.7 million (2002: £3.3 million).

F-31



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(b) Other investments

|                                                   |  |      |         |      |  |  |         |  
|-------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                                                   |  | 2002 |         | 2003
|                                                   |  |      |         |     
|                                                   |  | £m   |         | £m  
|Cost                                               |  |      |         |      |  |  |         |  
|Beginning of year                                  |  |      | 161.2   |      |  |  | 1,119.9 |  
|Additions (vi)                                     |  |      | 3.2     |      |  |  |        |  
|Transfer from joint ventures (x)                   |  |      | 971.4   |      |  |  |        |  
|Transfer to joint ventures (ii)                    |  |      |        |      |  |  | (1.0    | )
|Disposals (iii), (iv), (v), (vi), (viii),
    (ix) |  |      | (15.9   | )    |  |  | (14.0   | )
|                                                   |  |      |         |      |  |  |         |  
|End of year                                        |  |      | 1,119.9 |      |  |  | 1,104.9 |  
|                                                   |  |      |         |      |  |  |         |  
|Provision                                          |  |      |         |      |  |  |         |  
|Beginning of year                                  |  |      | 38.1    |      |  |  | 1,055.0 |  
|Disposals (iii), (iv), (v), (vi), (viii),
    (ix) |  |      | (14.5   | )    |  |  | (13.7   | )
|Transfer from joint ventures (x)                   |  |      | 971.4   |      |  |  |        |  
|Transfer to joint ventures (ii)                    |  |      |        |      |  |  | (1.0    | )
|Provided during the year, net (i), (iv),
    (vii) |  |      | 60.0    |      |  |  | 20.7    |  
|                                                   |  |      |         |      |  |  |         |  
|End of year                                        |  |      | 1,055.0 |      |  |  | 1,061.0 |  
|                                                   |  |      |         |      |  |  |         |  
|Net book value                                     |  |      |         |      |  |  |         |  
|Beginning of year                                  |  |      | 123.1   |      |  |  | 64.9    |  
|                                                   |  |      |         |      |  |  |         |  
|End of year                                        |  |      | 64.9    |      |  |  | 43.9    |  
|                                                   |  |      |         |      |  |  |         |  

2003



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | At December 31, 2002, the Group made a
    further provision against its minority equity investments in
    football clubs, leading to a non-cash exceptional charge of
    £21.0 million, reduced by £3.2 million to
    reflect the post year end disposal of its investment in Chelsea
    Village plc (see note 31).                                                                                                                                            
|     
|(ii)  | In April 2003, the Groups total investment
    in Mykindaplace increased to 26%. The investment was
    subsequently transferred to Investments in Joint Ventures from
    Other Investments at its net book value of nil.                                                                                                                                                                                                                                         
|     
|(iii) | At December 31, 2002, the Group reduced its
    deferred revenue balance relating to minority investments in new
    media companies by £5.1 million, and reduced both its
    investment and its provision against the investment in these
    companies accordingly.                                                                                                                                                                                              
|     
|(iv)  | At December 31, 2002, the Group made a
    provision against its investment in Open TV shares, leading to a
    non-cash exceptional charge of £2.9 million. This
    reduced the carrying value of the Groups investment in
    Open TV to £0.3 million. Between February 12,
    2003 and March 24, 2003, the Group disposed of its entire
    investment in Open TV shares for total consideration of
    £0.2 million, resulting in a loss of
    £0.1 million.
|     
|(v)   | In March 2003, the Group disposed of its
    investment in Streetsonline for total consideration of
    £0.6 million which had been held at cost of
    £6.0 million less provision of £6.0 million.
    These amounts were written back upon disposal of the
    Groups investment in Streetsonline.                                                                                                                                                              

2002



|     |                                                                                                                                                                                                                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(vi) | On July 2, 2001, the Group disposed of its
    unlisted investment in Static 2358 Limited for total
    consideration of £3.7 million, comprising a mixture of
    cash and shares in Open TV. The Group made a profit on disposal
    of £2.3 million. The investment in Open TV shares is
    included as an addition to other investments in the period.

F-32



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(vii)  | At December 31, 2001, the Group made a
    provision against its minority equity investments in football
    clubs, leading to a non-cash exceptional charge of
    £60.0 million.                                                                                                                                                                                                                                           
|      
|(viii) | On February 26, 2002, the Group sold its
    listed investment in Gameplay plc for total consideration of
    £0.03 million, realizing a profit on disposal of
    £0.03 million. The Groups investment in Gameplay
    plc was held at cost of £12.3 million less provision
    of £12.3 million. These amounts were written back upon
    disposal of the Groups investment in Gameplay plc.                             
|      
|(ix)   | On June 7, 2002, the Group disposed of its
    listed investment in Toyzone plc following its liquidation. The
    Groups investment in Toyzone plc was held at cost of
    £2.2 million less provision of £2.2 million.
    These amounts were written back upon disposal of the
    Groups investment in Toyzone plc.                                                                                                    
|      
|(x)    | The Groups investment in KirchPayTV was
    treated as a joint venture until February 8, 2002, after
    which date the Group considered that it was no longer able to
    exercise significant influence over KirchPayTV. The investment
    is now treated as a fixed asset investment and was transferred
    from Investments in Joint Ventures to Other Investments on
    February 8, 2002 at a net book value of nil.

Further analysis of listed investments is shown
below:

|                                                                |  |      |      |      |  |  |      | 
|--------------------------------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | 
|                                                                |  | 2002 |      | 2003
|                                                                |  |      |      |     
|                                                                |  | £m   |      | £m  
|Carrying value of listed investments included
    above (i)     |  |      | 49.4 |      |  |  | 37.4 | 
|Aggregate market value of listed investments at
    end of year |  |      | 40.1 |      |  |  | 44.6 | 






|    |                                      
|--- | -------------------------------------
|(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

|                                    |  |      |       |      |  |  |       | 
|----------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                    |  | 2002 |       | 2003
|                                    |  |      |       |     
|                                    |  | £m   |       | £m  
|Television program rights           |  |      | 367.3 |      |  |  | 337.2 | 
|Set-top boxes and related equipment |  |      | 42.2  |      |  |  | 29.0  | 
|Raw materials and consumables       |  |      | 4.4   |      |  |  | 1.6   | 
|Goods held for resale               |  |      | 0.3   |      |  |  | 2.6   | 
|                                    |  |      |       |      |  |  |       | 
|                                    |  |      | 414.2 |      |  |  | 370.4 | 
|                                    |  |      |       |      |  |  |       | 

At least 79% (2002: 77%) of the existing
television program rights at June 30, 2003 will be
amortized within one year.

F-33



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


17. Debtors

|                                                          |  |      |       |      |  |  |       | 
|--------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                          |  | 2002 |       | 2003
|                                                          |  |      |       |     
|                                                          |  | £m   |       | £m  
|Debtors: Amounts falling due within one
    year          |  |      |       |      |  |  |       | 
|Trade debtors                                             |  |      | 177.5 |      |  |  | 170.9 | 
|Amounts owed by joint ventures (see note 27)              |  |      | 15.2  |      |  |  | 16.0  | 
|Amounts owed by other related parties (see
    note 27)   |  |      | 1.0   |      |  |  | 0.4   | 
|Other debtors                                             |  |      | 8.5   |      |  |  | 6.4   | 
|Prepaid program rights                                    |  |      | 80.5  |      |  |  | 53.8  | 
|Prepaid transponder rentals                               |  |      | 15.5  |      |  |  | 16.9  | 
|Advance Corporation Tax                                   |  |      | 18.2  |      |  |  | 39.7  | 
|Deferred tax assets (see note 18)                         |  |      | 13.9  |      |  |  | 30.8  | 
|Prepaid media agency rights                               |  |      | 3.7   |      |  |  | 2.6   | 
|Other prepayments and accrued income                      |  |      | 66.9  |      |  |  | 56.6  | 
|                                                          |  |      |       |      |  |  |       | 
|                                                          |  |      | 400.9 |      |  |  | 394.1 | 
|                                                          |  |      |       |      |  |  |       | 
|Debtors: Amounts falling due after more than
    one year |  |      |       |      |  |  |       | 
|Prepaid program rights                                    |  |      | 38.6  |      |  |  | 2.7   | 
|Prepaid transponder rentals                               |  |      | 55.6  |      |  |  | 48.7  | 
|Advance Corporation Tax                                   |  |      | 67.1  |      |  |  |      | 
|Deferred tax assets (see note 18)                         |  |      | 24.9  |      |  |  | 159.0 | 
|Prepaid media agency rights                               |  |      | 12.8  |      |  |  | 5.5   | 
|Other prepayments and accrued income                      |  |      | 8.0   |      |  |  | 7.0   | 
|                                                          |  |      |       |      |  |  |       | 
|                                                          |  |      | 207.0 |      |  |  | 222.9 | 
|                                                          |  |      |       |      |  |  |       | 

Trade debtors are shown net of certain
provisions. The movement in these provisions is as follows:

|                            |  |            |       |  
|--------------------------- |  | ---------- | ----- | -
|                            |  | Provisions
|                            |  |           
|                            |  | £m        
|At July 1, 2000             |  |            | (31.9 | )
|Utilized during fiscal 2001 |  |            | 3.9   |  
|Provided during fiscal 2001 |  |            | (19.1 | )
|                            |  |            |       |  
|At July 1, 2001             |  |            | (47.1 | )
|Utilized during fiscal 2002 |  |            | 1.5   |  
|Provided during fiscal 2002 |  |            | (15.8 | )
|                            |  |            |       |  
|At July 1, 2002             |  |            | (61.4 | )
|Utilized during fiscal 2003 |  |            | 4.6   |  
|Provided during fiscal 2003 |  |            | (42.2 | )
|                            |  |            |       |  
|At June 30, 2003            |  |            | (99.0 | )
|                            |  |            |       |  

The Group does not have any significant
concentrations of credit risk.

F-34



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


18. Deferred tax asset

|                                                                   |                                  |      |        |      |  |  |       |       | 
|------------------------------------------------------------------ | -------------------------------- | ---- | ------ | ---- |  |  | ----- | ----- | 
|                                                                   |                                  | 2002 |        | 2003
|                                                                   |                                  |      |        |     
|                                                                   |                                  | £m   |        | £m  
|Included within debtors due within one
    year:                   |                                  |      |        |      |  |  |       |      
|                                                                   |  tax losses carried forward     |      |        | 11.7 |  |  |       | 20.7  | 
|                                                                   |  accelerated capital allowances |      |        | 2.2  |  |  |       | 6.7   | 
|                                                                   |  short-term timing differences  |      |        |     |  |  |       | 3.4   | 
|                                                                   |                                  |      |        |      |  |  |       |      
|                                                                   |                                  |      | 13.9   |      |  |  | 30.8  |      
|                                                                   |                                  |      |        |      |  |  |       |      
|Included within debtors due after more than
    one year:          |                                  |      |        |      |  |  |       |      
|                                                                   |  tax losses carried forward     |      |        |     |  |  |       | 125.0 | 
|                                                                   |  accelerated capital allowances |      |        | 24.9 |  |  |       | 21.5  | 
|                                                                   |  short-term timing differences  |      |        |     |  |  |       | 12.5  | 
|                                                                   |                                  |      |        |      |  |  |       |      
|                                                                   |                                  |      | 24.9   |      |  |  | 159.0 |      
|                                                                   |                                  |      |        |      |  |  |       |      
|                                                                   |                                  |      | 38.8   |      |  |  | 189.8 |      
|                                                                   |                                  |      |        |      |  |  |       |      
|Deferred tax asset                                                 |                                  |      |        |      |  |  |       |      
|Beginning of year                                                  |                                  |      | 143.9  |      |  |  | 38.8  |      
|(Charge) credit in the profit and loss account
    during the year |                                  |      | (105.1 | )    |  |  | 151.0 |      
|                                                                   |                                  |      |        |      |  |  |       |      
|End of year                                                        |                                  |      | 38.8   |      |  |  | 189.8 |      
|                                                                   |                                  |      |        |      |  |  |       |      

Included within the total deferred tax recognized
at June 30, 2003 is £145.7 million (2002:
£11.7 million), relating to carried-forward tax losses.

Following a review of the forecast utilization of
tax losses within the Group, and as a consequence of a planned
reorganization of certain assets within the Group, the Directors
consider that there is now sufficient evidence to support the
recognition of these deferred tax assets on the basis that it is
more likely than not that there will be suitable taxable profits
against which these assets can be utilized.

The amount of unrecognized deferred tax present
within the Group is disclosed in note 9.

19. Creditors: Amounts falling due
within one year

|                                             |  |      |       |      |  |  |       | 
|-------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                             |  | 2002 |       | 2003
|                                             |  |      |       |     
|                                             |  | £m   |       | £m  
|Short-term borrowings                        |  |      |       |      |  |  |       | 
|£200 million RCF (see note 20a)              |  |      |      |      |  |  |      | 
|Obligations under finance leases             |  |      | 1.5   |      |  |  | 0.2   | 
|                                             |  |      |       |      |  |  |       | 
|                                             |  |      | 1.5   |      |  |  | 0.2   | 
|                                             |  |      |       |      |  |  |       | 
|Other                                        |  |      |       |      |  |  |       | 
|Trade creditors                              |  |      | 311.1 |      |  |  | 323.4 | 
|Amounts due to joint ventures (see note 27)  |  |      |      |      |  |  | 0.8   | 
|Amounts due to related parties (see note 27) |  |      | 20.4  |      |  |  | 24.6  | 
|UK corporation tax                           |  |      | 4.7   |      |  |  | 27.6  | 
|VAT                                          |  |      | 86.2  |      |  |  | 61.7  | 
|Social security and PAYE                     |  |      | 7.0   |      |  |  | 0.4   | 
|Other creditors                              |  |      | 42.0  |      |  |  | 43.5  | 
|Accruals and deferred income                 |  |      | 432.5 |      |  |  | 473.0 | 
|                                             |  |      |       |      |  |  |       | 
|                                             |  |      | 903.9 |      |  |  | 955.0 | 
|                                             |  |      |       |      |  |  |       | 
|                                             |  |      | 905.4 |      |  |  | 955.2 | 
|                                             |  |      |       |      |  |  |       | 

F-35



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Included within trade creditors are
£226.2 million (2002: £243.6 million) of US
dollar-denominated program creditors. At least 90% (2002: 90%)
of these were covered by forward rate currency contracts (see
note 25).

20. Creditors: Amounts falling due after
more than one year

|                                                                     |  |      |         |      |  |  |         | 
|-------------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                                     |  | 2002 |         | 2003
|                                                                     |  |      |         |     
|                                                                     |  | £m   |         | £m  
|Long-term borrowings                                                 |  |      |         |      |  |  |         | 
|£750 million RCF (a)                                                 |  |      | 500.0   |      |  |  |        | 
|£600 million RCF (a)                                                 |  |      |        |      |  |  | 75.0    | 
|US$650 million of 8.200% Guaranteed Notes,
    repayable in 2009 (b) |  |      | 412.5   |      |  |  | 412.5   | 
|£100 million of 7.750% Guaranteed
    Notes, repayable in 2009 (b)   |  |      | 100.0   |      |  |  | 100.0   | 
|US$600 million of 6.875% Guaranteed Notes,
    repayable in 2009 (b) |  |      | 367.2   |      |  |  | 367.2   | 
|US$300 million of 7.300% Guaranteed Notes,
    repayable in 2006 (b) |  |      | 189.2   |      |  |  | 189.2   | 
|Obligations under finance leases (c)                                 |  |      | 7.8     |      |  |  | 7.5     | 
|Other borrowings                                                     |  |      | 0.2     |      |  |  | 0.2     | 
|                                                                     |  |      |         |      |  |  |         | 
|                                                                     |  |      | 1,576.9 |      |  |  | 1,151.6 | 
|                                                                     |  |      |         |      |  |  |         | 
|Other                                                                |  |      |         |      |  |  |         | 
|Accruals and deferred income                                         |  |      | 16.0    |      |  |  | 20.5    | 
|                                                                     |  |      |         |      |  |  |         | 
|                                                                     |  |      | 1,592.9 |      |  |  | 1,172.1 | 
|                                                                     |  |      |         |      |  |  |         | 

(a)  RCFs

In March 2003 the Group entered into a new
£600 million RCF. This facility was used to cancel the
£750 million RCF, which was entered into in July 1999,
and will be used for general corporate purposes. The new
£600 million RCF 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 amortization
(EBITDA) (as defined in the loan agreement). Until
June 2004, the margin is 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 maturity date of the resultant
£200 million RCF is still June 2004 and should it be
drawn upon, accrues interest at between 0.500% and 1.750%
(presently 1.125%) per annum above LIBOR dependent on the
Groups credit rating. This facility reduction, together
with the replacement of the Groups £750 million
RCF as described above, reduced the Groups aggregate
available facilities from £1,050 million to
£800 million. In June 2004, when the
£200 million RCF matures, the aggregate facilities
available to the Group will be reduced to
£600 million. These reductions in committed bank
facilities are consistent with the Groups anticipated
liquidity requirements.

Each of the Groups RCFs contain certain
financial covenants which are tested at the end of each
six-monthly accounting period. For the £200 million
RCF the key financial covenants are the ratio of annualized
EBITDA to net interest payable; and the ratio of total
consolidated senior debt (as defined in the loan agreement) to
annualized EBITDA. The ratio of total consolidated senior debt
to annualized EBITDA is also tested on draw-down or rollover of
drawn amounts. The Group must currently maintain these ratios as
follows at all times:



|  |                                                                                  
|- | ---------------------------------------------------------------------------------
| | annualized EBITDA to net interest payable must be
    at least 3.5:1; and        
| 
| | total consolidated senior debt to annualized
    EBITDA must be no more than 3:1.

F-36



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The loan agreement provides for the exclusion
from these financial ratio calculations of specified subscriber
acquisition costs. The costs excluded are capped at an agreed
maximum for each six monthly accounting period until the
maturity of the loan agreement in June 2004. EBITDA is
calculated as operating profit before depreciation and
amortization of goodwill and intangible assets.

For the £600 million facility 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, not on draw-down or rollover
dates as for the £200 million facility. Until June
2004 the ratios benefit from the same exclusion of specified
subscriber acquisition costs as described above for the
£200 million RCF. EBITDA in this instance is
calculated in the same way as described above for the
£200 million facility, but on a last twelve months
basis rather than on an annualized basis. 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.                

The ratio of EBITDA to net interest payable was
4.1:1. At June 30, 2003, the ratio of net debt to EBITDA
was 2.4:1.

For the £200 million RCF only, a change
of control provision is included in the list of potential events
of default, the effect of which is that the facility may become
due and payable in the event that (except for News Corporation
and Vivendi Universal SA (which acquired Pathé, a founding
shareholder of the Company) or any member of their respective
groups) any person or nominee of such person, together with any
connected person or persons acting in
concert (if any) (each as defined under applicable English
law or regulation) becomes a holder of more than 30% in
aggregate of the voting rights of the Company.

Commitment fees of £2.9 million (2002:
£1.2 million; 2001: £1.6 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 June 30, 2003 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 at an
average fixed rate of 7.653% payable semi-annually. In December
2002 and March 2003, the Group amended the terms relating to
£63.5 million of these swap arrangements, the effect
of which was to fix the interest rate on £63.5 million
at 5.990% until January 2004, after which time it will revert to
a floating rate equal to six months LIBOR plus a margin of
3.390%.

£100 million of 7.750% Guaranteed
Notes, repayable in July 2009. The fixed coupon is payable
annually.

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 at an
average fixed rate of 8.200%, payable semi-annually.

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, half of which carries a fixed rate
of interest of 8.384% until maturity, payable semi-annually. The
remainder was fixed at 7.940% until April 15, 2002,
thereafter floating at 0.620% over six months LIBOR, again
payable semi-annually. In respect of this remaining floating
exposure, on January 16, 2002, the Group entered into a
further interest rate hedging arrangement to fix the rate at
6.130% from April 15, 2002, payable semi-annually for the
remainder of the life of the Notes.

F-37



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Both the bank facilities and the publicly-traded
guaranteed notes have been guaranteed by British Sky
Broadcasting Limited and Sky Subscribers Services Limited (see
note 25).

Borrowings outstanding, which exclude finance
leases, are repayable as follows:

|                                                                 |  |                      |       |      |  |      |      |      |  |  |       |  |  |  |       | 
|---------------------------------------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ---- | ---- |  |  | ----- |  |  |  | ----- | 
|                                                                 |  |                     
|                                                                 |  | Year ending June 30,
|                                                                 |  |                     
|                                                                 |  | 2007                 |       | 2008 |  | 2009 |      | 2010
|                                                                 |  |                      |       |      |  |      |      |     
|£600 million RCF                                                 |  |                      |      |      |  |      | 75.0 |      |  |  |      |  |  |  |      | 
|US$650 million of 8.200% Guaranteed Notes,
    repayable in 2009 |  |                      |      |      |  |      |     |      |  |  |      |  |  |  | 412.5 | 
|£100 million of 7.750% Guaranteed
    Notes, repayable in 2009   |  |                      |      |      |  |      |     |      |  |  |      |  |  |  | 100.0 | 
|US$600 million of 6.875% Guaranteed Notes,
    repayable in 2009 |  |                      |      |      |  |      |     |      |  |  | 367.2 |  |  |  |      | 
|US$300 million of 7.300% Guaranteed Notes,
    repayable in 2006 |  |                      | 189.2 |      |  |      |     |      |  |  |      |  |  |  |      | 
|Other borrowings                                                 |  |                      |      |      |  |      |     |      |  |  |      |  |  |  | 0.2   | 
|                                                                 |  |                      |       |      |  |      |      |      |  |  |       |  |  |  |       | 
|                                                                 |  |                      | 189.2 |      |  |      | 75.0 |      |  |  | 367.2 |  |  |  | 512.7 | 
|                                                                 |  |                      |       |      |  |      |      |      |  |  |       |  |  |  |       | 

(c)  Finance leases

Obligations under finance leases are payable as
follows:

|                                              |                  |    |     |     | 
|--------------------------------------------- | ---------------- | -- | --- | --- | 
|                                              |                  | £m
|Amounts repayable in the year ending June 30: |                  |    |     |    
|                                              | 2004             |    |     | 0.2 | 
|                                              | 2005             |    |     | 0.3 | 
|                                              | 2006             |    |     | 0.3 | 
|                                              | 2007             |    |     | 0.3 | 
|                                              | 2008             |    |     | 0.3 | 
|                                              | After five years |    |     | 6.3 | 
|                                              |                  |    |     |    
|                                              |                  |    | 7.7 |    
|                                              |                  |    |     |    

At June 30, 2003, all obligations under
finance leases represent amounts drawn down in connection with
the Customer Relationship Management Center in Dunfermline.
Repayments of £0.7 million (2002:
£0.8 million) were made against the Customer
Relationship Management Center lease and repayments of
£1.5 million (2002: £2.4 million) were made
against the IT asset leases, which were fully repaid in the
current year. A proportion of these payments has been allocated
to any capital amount outstanding. The Customer Relationship
Management Center 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 managing foreign exchange, interest rate and counterparty
risks. Treasury operations are conducted within a framework of
policies and guidelines authorized and reviewed by both the
Audit Committee and the Board, who receive regular updates of
treasury activity. A further quarterly review of Treasury
activities and controls is carried out by the Treasury
Committee. 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. The amount of cash placed with
any one institution is restricted to ensure counterparty risks
are minimized.

F-38



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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. Interest rate
swaps are used to hedge interest rate risks, forward rate
agreements to hedge transactional currency exposures and
cross-currency interest rate swaps to hedge exposures on
long-term foreign currency debt.

Interest rate management

The Group has financial exposures to both
sterling and US dollar interest rates, arising primarily from
bank borrowings and long-term bonds. These exposures are managed
by borrowing at fixed and variable rates of interest and by
using interest rate swaps to manage exposure to interest rate
fluctuations. The principal method of hedging interest rate risk
is to enter into cross-currency swap arrangements, the effects
of which are to fix the Groups sterling interest costs at
certain rates. The majority of these arrangements relate to the
Groups dollar-denominated debt and provide for the
exchange, at specified intervals, of fixed-rate amounts of
dollars in return for fixed-rate amounts of sterling. All of the
Groups debt exposure is denominated in sterling after
cross-currency swaps are taken into account; however, at
June 30, 2003, the split of aggregate net borrowings into
its core currencies was US dollar 84% and sterling 16%
(June 30, 2002: US dollar 62% and sterling 38%).

The Group also enters into sterling interest rate
swap arrangements that provide for the exchange, at specified
intervals, of the difference between fixed rates and variable
rates, calculated by reference to an agreed notional sterling
amount. The fair value of interest rate and cross currency swaps
held as of June 30, 2003 was approximately
£7 million in the Groups favor (June 30,
2002: £60 million in the Groups favor).

The Groups exposure to floating interest
rates is currently limited to drawings upon its revolving credit
bank facilities. At June 30, 2003 bank facility drawings
represented 7% of the Groups total debt (June 30,
2002: 32%). 93% of the Groups total debt at June 30,
2003 is fixed-rate after taking account of interest rate swaps
(June 30, 2002: 87%).

To ensure continuity of funding, the Groups
policy is to ensure that available funding matures over a period
of years. At June 30, 2003, 47% of the Groups
available funding was due to mature in more than five years
(June 30, 2002: 42%).

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
fiscal 2003, 15% of operating costs (£423.7 million)
were denominated in US dollars (fiscal 2002: 15%
(£393.0 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 90% of dollar-denominated costs over
the relevant 18-month period.

At June 30, 2003, the Group had outstanding
commitments to purchase in aggregate US$903 million, at
average rates of US$1.493 to £1.00. Although these
financial instruments can mitigate the effect of short-term
fluctuations in exchange rates, there can be no effective or
complete hedge against long-term currency fluctuations.

The Groups primary euro exposure arises as
a result of revenues generated from subscribers in the Republic
of Ireland. These euro-denominated revenues are offset to a
certain extent by euro-denominated costs, relating mainly to
certain transponder rentals, which results in a euro surplus.

F-39



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


During the year, surplus euros were exchanged for
sterling on currency spot markets. In the twelve months to
June 30, 2003, euro 59 million (2002: euro 55
million) was exchanged at spot rates for sterling. A further
euro 30 million has been retained to meet obligations under
forward foreign exchange contracts for the purchase of Swiss
francs (see below).

During the period, the Group acquired the Pay TV
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 will be 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, all of this exposure for 2003/04
(CHF 99 million) has been hedged via the use of forward
contracts for the exchange of euros and Swiss francs. In line
with treasury policies, the remaining commitment of CHF 199
million will be hedged in advance of each fiscal year in which
the liability crystalizes.

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:

|                                                                |  |       |         |          |  |       |       |       |  |          |         |       |  |  |         |   |  |  |      |   |  |  |         |  
|--------------------------------------------------------------- |  | ----- | ------- | -------- |  | ----- | ----- | ----- |  | -------- | ------- | ----- |  |  | ------- | - |  |  | ---- | - |  |  | ------- | -
|                                                                |  |       |         |         
|                                                                |  | 2002  |         | 2003    
|                                                                |  |       |         |         
|                                                                |  | Fixed |         | Floating |  | Total |       | Fixed |  | Floating |         | Total
|                                                                |  |       |         |          |  |       |       |       |  |          |         |      
|£m                                                              |  |       | 1,378.2 |          |  |       | 200.2 |       |  |          | 1,578.4 |       |  |  | 1,076.6 |   |  |  | 75.2 |   |  |  | 1,151.8 |  
|Weighted average interest rate                                  |  |       | 7.7     | %        |  |       | 5.4   | %     |  |          | 7.4     | %     |  |  | 7.7     | % |  |  | 4.8  | % |  |  | 7.5     | %
|Weighted average period for which the rate is
    fixed (years) |  |       | 5.1     |          |  |       | N/A   |       |  |          | N/A     |       |  |  | 5.2     |   |  |  | N/A  |   |  |  | N/A     |  
|Weighted average term (years)                                   |  |       | 5.5     |          |  |       | 2.0   |       |  |          | 5.0     |       |  |  | 5.4     |   |  |  | 4.8  |   |  |  | 5.4     |  

Further details of interest rates on long-term
borrowings are given in note 20.

In addition, cash at bank and in hand of
£46.4 million (2002: £50.3 million) consists
of sterling deposits, in bank accounts or on money markets, at
overnight rates or on time deposits. At June 30, 2003,
there were no time deposit balances (2002:
£0.5 million, expiring within 14 days of year end
at an average interest rate of 3.75%).

Currency risks

The table below shows the Groups currency
exposures after hedging that give rise to the net currency gains
and losses recognized in the profit and loss account. Such
exposures comprise the net monetary assets and liabilities of
the Group that are not denominated in the functional currency of
the operating unit involved and principally consist of cash
deposits, trade debtors and trade creditors.

|                                                |  |                                           |     |       |  |       |     |     |  |       |     |       |  |  |      |  |  |  |      |  |  |  |      | 
|----------------------------------------------- |  | ----------------------------------------- | --- | ----- |  | ----- | --- | --- |  | ----- | --- | ----- |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                                                |  |                                          
|                                                |  | Net foreign currency monetary assets (£m)
|                                                |  |                                          
|                                                |  |                                           |     |      
|                                                |  | 2002                                      |     | 2003 
|                                                |  |                                           |     |      
|                                                |  | USD                                       |     | euros |  | Total |     | USD |  | euros |     | Total
|                                                |  |                                           |     |       |  |       |     |     |  |       |     |      
|Functional currency of Group operating
    unit |  |                                           |     |       |  |       |     |     |  |       |     |       |  |  |      |  |  |  |      |  |  |  |      | 
|Sterling                                        |  |                                           | 1.5 |       |  |       | 7.4 |     |  |       | 8.9 |       |  |  | 13.9 |  |  |  | 29.8 |  |  |  | 43.7 | 

At June 30, 2003 and June 30, 2002, 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)).

F-40



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Liquidity risks

The profile of the Groups financial
liabilities, other than short-term creditors, is shown in
note 20. The expected profile of provisions is discussed in
note 22. The Groups undrawn committed bank
facilities, subject to covenants, were as follows:

|                                    |  |      |       |      |  |  |       | 
|----------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                    |  | 2002 |       | 2003
|                                    |  |      |       |     
|                                    |  | £m   |       | £m  
|Expiring within one year            |  |      |      |      |  |  | 200.0 | 
|Expiring between one and two years  |  |      | 550.0 |      |  |  |      | 
|Expiring between two and five years |  |      |      |      |  |  | 525.0 | 
|                                    |  |      |       |      |  |  |       | 
|Total                               |  |      | 550.0 |      |  |  | 725.0 | 
|                                    |  |      |       |      |  |  |       | 

Fair values

Set out below is a comparison by category of the
book values and the estimated fair values of the Groups
financial assets and financial liabilities, and associated
derivative financial instruments at June 30, 2003 and
June 30, 2002:

|                                                                                           |  |            |          |            |  |            |          |            |  |  |          |   |  |  |          |  
|------------------------------------------------------------------------------------------ |  | ---------- | -------- | ---------- |  | ---------- | -------- | ---------- |  |  | -------- | - |  |  | -------- | -
|                                                                                           |  |            |          |           
|                                                                                           |  | 2002       |          | 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                                                                            |  |            | (500.2   | )          |  |            | (500.2   | )          |  |  | (75.2    | ) |  |  | (75.2    | )
|Quoted bond debt                                                                           |  |            | (1,068.9 | )          |  |            | (1,067.8 | )          |  |  | (1,068.9 | ) |  |  | (1,185.2 | )
|Finance leases                                                                             |  |            | (9.3     | )          |  |            | (9.3     | )          |  |  | (7.7     | ) |  |  | (7.7     | )
|Cash deposits                                                                              |  |            | 50.3     |            |  |            | 50.3     |            |  |  | 46.4     |   |  |  | 46.4     |  
|Derivative financial instruments held to
    manage the interest rate and currency profile |  |            |          |            |  |            |          |            |  |  |          |   |  |  |          |  
|Combined interest and exchange rate swaps                                                  |  |            |         |            |  |            | 60.2     |            |  |  |         |   |  |  | 7.0      |  
|Forward foreign currency contracts                                                         |  |            |         |            |  |            | (50.3    | )          |  |  |         |   |  |  | (51.4    | )

The fair values of quoted bond debt are based on
period-end mid-market quoted prices. The fair values of other
borrowings are estimated by discounting the future cash flows to
net present value. The fair values of derivative financial
instruments are estimated by calculating the difference between
the contracted rates and the appropriate market rates prevailing
at the period ends.

In addition to the financial instruments in the
above fair value table, the Group had holdings in the equity
share capital of other listed investments at June 30, 2003
and June 30, 2002. See notes 14 and 15 for disclosure
of their book and fair values.

The difference between book value and fair value
reflects unrealized gains or losses inherent in the instrument,
based on valuations as at June 30, 2003 and June 30,
2002. The volatile nature of the markets means that values at
any subsequent date could be significantly different from the
values reported above.

F-41



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Hedges

The Groups policy is to hedge the following
exposures:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | interest rate risk, using interest rate and cross
    currency swaps          
|
| |  | transactional currency exposures, using forward
    foreign currency contracts
|
| |  | exposures on long-term foreign currency debt,
    using cross currency swaps  

Gains and losses on instruments used for hedging
are not recognized until the hedged position is recognized.
Unrecognized gains and losses on instruments used for hedging,
and the movements therein, are as follows:

|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|-------------------------------------------------------------------------------------------------- |  | ----- | ----- | --------- |  | -------- | ----- | --------- |  | ------ | ----- | -------- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                                                                   |  |       |       |          
|                                                                                                   |  | 2002  |       | 2003     
|                                                                                                   |  |       |       |          
|                                                                                                   |  |       |       | Total net |  |          |       | Total net
|                                                                                                   |  |       |       | gains     |  |          |       | gains    
|                                                                                                   |  | Gains |       | Losses    |  | (losses) |       | Gains     |  | Losses |       | (losses)
|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |         
|                                                                                                   |  | £m    |       | £m        |  | £m       |       | £m        |  | £m     |       | £m      
|Unrecognized gains and losses at the beginning
    of the year                                     |  |       | 113.7 |           |  |          | (23.7 | )         |  |        | 90.0  |          |  |  | 73.8  |   |  |  | (63.9 | ) |  |  | 9.9   |  
|Gains and losses arising in previous years that
    were recognized in the year                    |  |       | (13.1 | )         |  |          | 4.0   |           |  |        | (9.1  | )        |  |  | (0.1  | ) |  |  | 45.5  |   |  |  | 45.4  |  
|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|Gains and losses arising before the beginning
    of the year that were not recognized in the year |  |       | 100.6 |           |  |          | (19.7 | )         |  |        | 80.9  |          |  |  | 73.7  |   |  |  | (18.4 | ) |  |  | 55.3  |  
|Gains and losses arising in the year that were
    not recognized in the year                      |  |       | (26.8 | )         |  |          | (44.2 | )         |  |        | (71.0 | )        |  |  | (34.9 | ) |  |  | (64.8 | ) |  |  | (99.7 | )
|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|Unrecognized gains and losses on hedges at the
    end of the year                                 |  |       | 73.8  |           |  |          | (63.9 | )         |  |        | 9.9   |          |  |  | 38.8  |   |  |  | (83.2 | ) |  |  | (44.4 | )
|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|Of which:                                                                                          |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|Gains and losses expected to be recognized in the
    next year                                    |  |       | 0.1   |           |  |          | (37.7 | )         |  |        | (37.6 | )        |  |  | 0.1   |   |  |  | (46.4 | ) |  |  | (46.3 | )
|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|Gains and losses expected to be recognized after
    the next year                                 |  |       | 73.7  |           |  |          | (26.2 | )         |  |        | 47.5  |          |  |  | 38.7  |   |  |  | (36.8 | ) |  |  | 1.9   |  
|                                                                                                   |  |       |       |           |  |          |       |           |  |        |       |          |  |  |       |   |  |  |       |   |  |  |       |  

22. Provisions for liabilities and
charges

|                            |  |             |      |            |  |                 |       |                 |  |               |      |       |  |  |      |   |  |  |      |   |  |  |       |  
|--------------------------- |  | ----------- | ---- | ---------- |  | --------------- | ----- | --------------- |  | ------------- | ---- | ----- |  |  | ---- | - |  |  | ---- | - |  |  | ----- | -
|                            |  |             |      |            |  | Sky In-Home     |       |                 |  |               |      |      
|                            |  | Analog      |      |            |  | Service Limited |       | Sky Interactive |  | Provision for |      |      
|                            |  | termination |      | Transition |  | reorganization  |       | reorganization  |  | closure of    |      |      
|                            |  | provision   |      | provision  |  | provision(a)    |       | provision(b)    |  | Sky Pictures  |      | Total
|                            |  |             |      |            |  |                 |       |                 |  |               |      |      
|                            |  | £m          |      | £m         |  | £m              |       | £m              |  | £m            |      | £m   
|At July 1, 2001             |  |             | 8.2  |            |  |                 | 18.6  |                 |  |               | 0.4  |       |  |  | 15.5 |   |  |  | 0.3  |   |  |  | 43.0  |  
|Utilized in year            |  |             | (4.1 | )          |  |                 | (18.6 | )               |  |               | (0.2 | )     |  |  | (7.1 | ) |  |  | (0.3 | ) |  |  | (30.3 | )
|Released in year            |  |             | (4.1 | )          |  |                 |      |                 |  |               |     |       |  |  |     |   |  |  |     |   |  |  | (4.1  | )
|Transferred to fixed assets |  |             |     |            |  |                 |      |                 |  |               |     |       |  |  | (4.5 | ) |  |  |     |   |  |  | (4.5  | )
|                            |  |             |      |            |  |                 |       |                 |  |               |      |       |  |  |      |   |  |  |      |   |  |  |       |  
|At June 30, 2002            |  |             |     |            |  |                 |      |                 |  |               | 0.2  |       |  |  | 3.9  |   |  |  |     |   |  |  | 4.1   |  
|Utilized in year            |  |             |     |            |  |                 |      |                 |  |               | (0.1 | )     |  |  | (0.8 | ) |  |  |     |   |  |  | (0.9  | )
|                            |  |             |      |            |  |                 |       |                 |  |               |      |       |  |  |      |   |  |  |      |   |  |  |       |  
|At June 30, 2003            |  |             |     |            |  |                 |      |                 |  |               | 0.1  |       |  |  | 3.1  |   |  |  |     |   |  |  | 3.2   |  
|                            |  |             |      |            |  |                 |       |                 |  |               |      |       |  |  |      |   |  |  |      |   |  |  |       |  






|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The remaining Sky In-Home Service Limited
    reorganization provision principally comprises the costs of
    onerous lease contracts and is expected to be utilized by June
    2005.

F-42



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|    |                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | The remaining Sky Interactive reorganization
    provision principally comprises the cost of onerous contracts
    associated with the reorganization and consolidation of all
    interactive and on-line activities within the division Sky
    Interactive, and is expected to be utilized by June 2009.

23. Called-up share capital

|                                                                 |  |      |         |      |  |  |         | 
|---------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                                 |  | 2002 |         | 2003
|                                                                 |  |      |         |     
|                                                                 |  | £m   |         | £m  
|Authorized                                                       |  |      |         |      |  |  |         | 
|3,000,000,000 Ordinary Shares of 50p                             |  |      | 1,500.0 |      |  |  | 1,500.0 | 
|                                                                 |  |      |         |      |  |  |         | 
|Allotted, called-up and fully paid 
    equity                  |  |      |         |      |  |  |         | 
|Ordinary Shares  1,937,754,876 (2002:
    1,893,428,580) of 50p |  |      | 946.7   |      |  |  | 968.9   | 
|                                                                 |  |      |         |      |  |  |         | 

|                                                                                           |  |                 |               | 
|------------------------------------------------------------------------------------------ |  | --------------- | ------------- | 
|                                                                                           |  | Number of      
|Allotted and fully paid during the year                                                    |  | Ordinary Shares
|                                                                                           |  |                
|Beginning of year                                                                          |  |                 | 1,893,428,580 | 
|Options exercised under the Executive Share
    Option Scheme at between £0.500 and £6.385 |  |                 | 666,838       | 
|Options exercised under the Sharesave Scheme at
    between £2.050 and £6.110              |  |                 | 423,822       | 
|Shares issued in respect of deferred
    consideration for the acquisition of BiB          |  |                 | 43,235,636    | 
|                                                                                           |  |                 |               | 
|End of year                                                                                |  |                 | 1,937,754,876 | 
|                                                                                           |  |                 |               | 

Movements in share capital in the year ended
June 30, 2003 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 contingent share awards in
existence at June 30, 2003 were as follows:

|                                             |  |                 |            | 
|-------------------------------------------- |  | --------------- | ---------- | 
|                                             |  | Number of      
|Scheme                                       |  | Ordinary Shares
|                                             |  |                
|Executive Share Option Scheme
    Options(a) |  |                 | 41,052,567 | 
|Sharesave Scheme Options(b)                  |  |                 | 3,749,134  | 
|LTIP Awards(c)                               |  |                 | 7,269,683  | 
|KCP Awards(d)                                |  |                 | 1,135,000  | 
|EBP Awards(e)                                |  |                 | 397,000    | 
|                                             |  |                 |            | 
|                                             |  |                 | 53,603,384 | 
|                                             |  |                 |            | 

F-43



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(a)  Executive Share Option Scheme
Options

Options in existence at June 30, 2003 under
the Executive Schemes are shown in the table below:

|              |  |                 |            |              |  |             |        |  |  |  |           | 
|------------- |  | --------------- | ---------- | ------------ |  | ----------- | ------ |  |  |  | --------- | 
|              |  | Number of       |            |              |  | Exercisable
|Date of grant |  | Ordinary Shares |            | Option price |  | from       
|              |  |                 |            |              |  |            
|              |  |                 |            | £            |  |            
|8-Dec-94      |  |                 | 172,795    |              |  |             | 2.560  |  |  |  | 8-Dec-97  | 
|15-May-97     |  |                 | 266,078    |              |  |             | 5.675  |  |  |  | 15-May-00 | 
|10-Jun-97     |  |                 | 15,061     |              |  |             | 5.975  |  |  |  | 10-Jun-00 | 
|18-Aug-97     |  |                 | 6,864      |              |  |             | 4.370  |  |  |  | 18-Aug-00 | 
|18-Aug-97     |  |                 | 21,809     |              |  |             | 4.420  |  |  |  | 18-Aug-00 | 
|14-Nov-97     |  |                 | 7,308      |              |  |             | 4.105  |  |  |  | 14-Nov-00 | 
|14-Nov-97     |  |                 | 36,253     |              |  |             | 4.030  |  |  |  | 14-Nov-00 | 
|4-Feb-98      |  |                 | 8,298      |              |  |             | 3.615  |  |  |  | 4-Feb-01  | 
|1-Dec-98      |  |                 | 3,624,812  |              |  |             | 5.010  |  |  |  | 1-Dec-01  | 
|7-May-99      |  |                 | 4,589      |              |  |             | 4.350  |  |  |  | 7-May-02  | 
|12-Aug-99     |  |                 | 600,000    |              |  |             | 5.830  |  |  |  | 12-Aug-02 | 
|18-Oct-99     |  |                 | 1,124      |              |  |             | 0.980  |  |  |  | 18-Oct-02 | 
|29-Oct-99     |  |                 | 4,382,303  |              |  |             | 6.385  |  |  |  | 29-Oct-02 | 
|1-Nov-99      |  |                 | 214,231    |              |  |             | 6.535  |  |  |  | 1-Nov-02  | 
|22-Nov-99     |  |                 | 107,775    |              |  |             | 6.495  |  |  |  | 22-Nov-02 | 
|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     |  |                 | 34,993     |              |  |             | 11.430 |  |  |  | 12-Jun-03 | 
|30-Jun-00     |  |                 | 100,931    |              |  |             | 12.880 |  |  |  | 30-Jun-03 | 
|26-Jul-00     |  |                 | 46,077     |              |  |             | 12.370 |  |  |  | 26-Jul-03 | 
|30-Aug-00     |  |                 | 267,535    |              |  |             | 11.400 |  |  |  | 30-Aug-03 | 
|23-Nov-00     |  |                 | 5,698,957  |              |  |             | 9.900  |  |  |  | 23-Nov-01 | 
|1-Dec-00      |  |                 | 3,901,500  |              |  |             | 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      |  |                 | 9,565,078  |              |  |             | 7.940  |  |  |  | 6-Nov-02  | 
|13-Nov-01     |  |                 | 26,668     |              |  |             | 8.360  |  |  |  | 13-Nov-02 | 
|4-Jan-02      |  |                 | 88,057     |              |  |             | 7.890  |  |  |  | 4-Jan-03  | 
|14-Feb-02     |  |                 | 12,479     |              |  |             | 7.005  |  |  |  | 14-Feb-03 | 
|26-Feb-02     |  |                 | 20,343     |              |  |             | 6.850  |  |  |  | 26-Feb-03 | 
|14-May-02     |  |                 | 32,689     |              |  |             | 6.820  |  |  |  | 14-May-03 | 
|5-Jun-02      |  |                 | 600,000    |              |  |             | 7.350  |  |  |  | 5-Jun-05  | 
|28-Jun-02     |  |                 | 13,725     |              |  |             | 6.290  |  |  |  | 28-Jun-03 | 
|5-Aug-02      |  |                 | 9,832,806  |              |  |             | 5.300  |  |  |  | 5-Aug-04  | 
|20-Sep-02     |  |                 | 47,815     |              |  |             | 5.185  |  |  |  | 20-Sep-04 | 
|30-Sep-02     |  |                 | 20,672     |              |  |             | 5.305  |  |  |  | 30-Sep-04 | 
|2-Jan-03      |  |                 | 229,296    |              |  |             | 6.390  |  |  |  | 2-Jan-05  | 
|20-Feb-03     |  |                 | 64,362     |              |  |             | 6.010  |  |  |  | 20-Feb-05 | 
|18-Mar-03     |  |                 | 74,672     |              |  |             | 6.100  |  |  |  | 18-Mar-05 | 
|              |  |                 |            |              |  |             |        |  |  |  |           | 
|              |  |                 | 41,052,567 |              |  |             |        |  |  |  |           | 
|              |  |                 |            |              |  |             |        |  |  |  |           | 

The Group operates both an Approved and an
Unapproved Executive Share Option Scheme.

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The Company follows a policy of granting options
over BSkyB shares to eligible employees linked to salary. This
is 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 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, profit
before tax and earnings per share (EPS) targets.

For awards made during the year ended
June 30, 2003, the performance target was based on EPS. 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. Given that EPS was negative at the date of grant, growth
is to be measured from the actual EPS achieved for the year to
June 30, 2003.

(b) Sharesave Scheme Options

Options in existence at June 30, 2003 under
the Sharesave Scheme are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |          | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | -------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|25-Oct-95     |  |                 | 6,841     |        |  |             | 3.020 |  |  |  | 1-Feb-03 | 
|2-Nov-96      |  |                 | 17,752    |        |  |             | 4.620 |  |  |  | 1-Jan-04 | 
|27-Oct-97     |  |                 | 30,066    |        |  |             | 3.720 |  |  |  | 1-Jan-03 | 
|27-Oct-97     |  |                 | 26,932    |        |  |             | 3.720 |  |  |  | 1-Jan-05 | 
|28-Sep-98     |  |                 | 164,341   |        |  |             | 3.780 |  |  |  | 1-Dec-03 | 
|28-Sep-98     |  |                 | 89,830    |        |  |             | 3.780 |  |  |  | 1-Dec-05 | 
|18-Oct-99     |  |                 | 96,553    |        |  |             | 4.620 |  |  |  | 1-Jan-03 | 
|18-Oct-99     |  |                 | 172,190   |        |  |             | 4.620 |  |  |  | 1-Jan-05 | 
|18-Oct-99     |  |                 | 41,899    |        |  |             | 4.620 |  |  |  | 1-Jan-07 | 
|3-Oct-00      |  |                 | 254,788   |        |  |             | 9.710 |  |  |  | 1-Jan-04 | 
|3-Oct-00      |  |                 | 79,489    |        |  |             | 9.710 |  |  |  | 1-Jan-06 | 
|3-Oct-00      |  |                 | 27,677    |        |  |             | 9.710 |  |  |  | 1-Jan-08 | 
|28-Sep-01     |  |                 | 520,428   |        |  |             | 6.110 |  |  |  | 1-Jan-05 | 
|28-Sep-01     |  |                 | 133,085   |        |  |             | 6.110 |  |  |  | 1-Jan-07 | 
|28-Sep-01     |  |                 | 39,898    |        |  |             | 6.110 |  |  |  | 1-Jan-09 | 
|30-Sep-02     |  |                 | 1,424,523 |        |  |             | 4.750 |  |  |  | 1-Jan-06 | 
|30-Sep-02     |  |                 | 506,511   |        |  |             | 4.750 |  |  |  | 1-Jan-08 | 
|30-Sep-02     |  |                 | 116,331   |        |  |             | 4.750 |  |  |  | 1-Jan-10 | 
|              |  |                 |           |        |  |             |       |  |  |  |          | 
|              |  |                 | 3,749,134 |        |  |             |       |  |  |  |          | 
|              |  |                 |           |        |  |             |       |  |  |  |          | 

The Sharesave Scheme is open to all employees,
including Executive Directors. Options (over BSkyB shares) 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 for the employees to
participate in the scheme following the announcement of the end
of year results.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(c)  LTIP Awards

Awards in existence at June 30, 2003 under
the LTIP are shown in the table below:

|              |  |                 |           |        |  |             |        |  |  |  |           | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ------ |  |  |  | --------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|3-Nov-00      |  |                 | 936,375   |        |  |             | 10.040 |  |  |  | 3-Nov-02  | 
|3-Nov-00      |  |                 | 1,532,250 |        |  |             | 10.040 |  |  |  | 30-Jun-03 | 
|21-Nov-01     |  |                 | 1,489,686 |        |  |             | 8.300  |  |  |  | 30-Jun-03 | 
|21-Nov-01     |  |                 | 1,489,689 |        |  |             | 8.300  |  |  |  | 30-Jun-04 | 
|2-Aug-02      |  |                 | 779,600   |        |  |             | 5.550  |  |  |  | 31-Jul-04 | 
|2-Aug-02      |  |                 | 779,601   |        |  |             | 5.550  |  |  |  | 31-Jul-05 | 
|13-Aug-02     |  |                 | 39,361    |        |  |             | 5.600  |  |  |  | 31-Jul-04 | 
|13-Aug-02     |  |                 | 39,361    |        |  |             | 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 | 
|              |  |                 |           |        |  |             |        |  |  |  |           | 
|              |  |                 | 7,269,683 |        |  |             |        |  |  |  |           | 
|              |  |                 |           |        |  |             |        |  |  |  |           | 

The Company operates an LTIP for Executive
Directors and Senior Executives. An award under the existing
LTIP comprised a retention element Core Award (which makes up 5%
of the award) and a Performance Award (which makes up 95% of the
award). The Core Award vests dependent on continued service with
the Group for a specified period and is not subject to the
performance conditions. It is intended that no future Core
Awards will be made under the LTIP. The Performance Award vests,
in full or in part, dependent on the satisfaction of specified
performance targets. Awards are not transferable or pensionable
and are made over a number of shares in the Company, determined
by the Remuneration Committee. Awards 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 would have
the same value to the participant.

Outstanding awards under the LTIP take the form
of a market value option 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. 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.

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.

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(d) KCP Awards

Awards in existence at June 30, 2003 under
the KCP are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |           | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | --------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|21-Nov-01     |  |                 | 61,750    |        |  |             | 8.300 |  |  |  | 31-Jul-02 | 
|21-Nov-01     |  |                 | 577,500   |        |  |             | 8.300 |  |  |  | 31-Jul-03 | 
|4-Mar-02      |  |                 | 15,750    |        |  |             | 7.175 |  |  |  | 31-Jul-03 | 
|9-Aug-02      |  |                 | 237,500   |        |  |             | 5.700 |  |  |  | 31-Jul-03 | 
|9-Aug-02      |  |                 | 237,500   |        |  |             | 5.700 |  |  |  | 31-Jul-04 | 
|14-Aug-02     |  |                 | 2,500     |        |  |             | 5.655 |  |  |  | 31-Jul-03 | 
|14-Aug-02     |  |                 | 2,500     |        |  |             | 5.655 |  |  |  | 31-Jul-04 | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 
|              |  |                 | 1,135,000 |        |  |             |       |  |  |  |           | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 

(e)  EBP Awards

Awards in existence at June 30, 2003 under
the EBP are shown in the table below:

|              |  |                 |         |        |  |             |     |  |  |  |           | 
|------------- |  | --------------- | ------- | ------ |  | ----------- | --- |  |  |  | --------- | 
|              |  | Number of       |         | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |         | price  |  | from       
|              |  |                 |         |        |  |            
|              |  |                 |         | £      |  |            
|02-Aug-02     |  |                 | 178,500 |        |  |             | N/A |  |  |  | 31-Jul-04 | 
|02-Aug-02     |  |                 | 178,500 |        |  |             | N/A |  |  |  | 31-Jul-05 | 
|02-Jan-03     |  |                 | 20,000  |        |  |             | N/A |  |  |  | 31-Jul-04 | 
|02-Jan-03     |  |                 | 20,000  |        |  |             | N/A |  |  |  | 31-Jul-05 | 
|              |  |                 |         |        |  |             |     |  |  |  |           | 
|              |  |                 | 397,000 |        |  |             |     |  |  |  |           | 
|              |  |                 |         |        |  |             |     |  |  |  |           | 

Awards under the EBP take the form of a
contingent right to acquire existing BSkyB shares at the vesting
date for nil consideration.

During the year 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
BSkyB shares, subject to performance achieved in the financial
year. For the 2002 EBP, the awards of these shares are deferred
in equal amounts for a further one and two years, subject to
continuing employment.

F-47



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


24. Reconciliation of movement in
shareholders funds

Movement in shareholders funds includes all
movements in reserves.

|                 |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |          |  
|---------------- | -------------------------------------------------------------- | ------- | ----- | ------- |  | ------ | ------- | ------- | - | ---------- | ----- | ------------- | - |  | ----- | ----- | - |  | -------- | -------- | - |  | ------- | -------- | -
|                 |                                                                |         |       |         |  |        |         |         |   |            |       | Total        
|                 |                                                                |         |       |         |  |        |         |         |   |            |       | equity       
|                 |                                                                |         |       |         |  | Shares |         |         |   | Profit and |       | shareholders
|                 |                                                                | Share   |       | Share   |  | to be  |         | Merger  |   | loss       |       | funds        
|                 |                                                                | capital |       | premium |  | issued |         | reserve |   | account    |       | (deficit)    
|                 |                                                                |         |       |         |  |        |         |         |   |            |       |              
|                 |                                                                | £m      |       | £m      |  | £m     |         | £m      |   | £m         |       | £m           
|At July 1, 2000  |                                                                |         | 912.9 |         |  |        | 2,209.9 |         |   |            |      |               |   |  |      |       |   |  | (2,325.9 | )        |   |  | 796.9   |         
|                 | Issue of share capital                                         |         |       | 31.5    |  |        |         | 171.2   |   |            |       |              |   |  |       | 378.1 |   |  |          | (9.1     | ) |  |         | 571.7    |  
|                 | Shares to be issued                                            |         |       |        |  |        |         |        |   |            |       | 256.9         |   |  |       |      |   |  |          |         |   |  |         | 256.9    |  
|                 | Share issue costs                                              |         |       |        |  |        |         | (3.5    | ) |            |       |              |   |  |       |      |   |  |          |         |   |  |         | (3.5     | )
|                 | Loss for the financial year                                    |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (538.6   | ) |  |         | (538.6   | )
|                 | Net loss on deemed disposals                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (20.7    | ) |  |         | (20.7    | )
|                 | Transfer from merger reserve                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       | (37.3 | ) |  |          | 37.3     |   |  |         |         |  
|                 | Translation differences on foreign currency net
    investment |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (2.1     | ) |  |         | (2.1     | )
|                 |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         
|At July 1, 2001  |                                                                |         | 944.4 |         |  |        | 2,377.6 |         |   |            | 256.9 |               |   |  | 340.8 |       |   |  | (2,859.1 | )        |   |  | 1,060.6 |         
|                 | Issue of share capital                                         |         |       | 2.3     |  |        |         | 34.0    |   |            |       | (1.1          | ) |  |       |      |   |  |          | (13.5    | ) |  |         | 21.7     |  
|                 | Share issue costs                                              |         |       |        |  |        |         | (1.8    | ) |            |       |              |   |  |       |      |   |  |          |         |   |  |         | (1.8     | )
|                 | Loss for the financial year                                    |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (1,382.6 | ) |  |         | (1,382.6 | )
|                 | Transfer from merger reserve                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       | (74.1 | ) |  |          | 74.1     |   |  |         |         |  
|                 | Translation differences on foreign currency net
    investment |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | 1.4      |   |  |         | 1.4      |  
|                 |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         
|At July 1, 2002  |                                                                |         | 946.7 |         |  |        | 2,409.8 |         |   |            | 255.8 |               |   |  | 266.7 |       |   |  | (4,179.7 | )        |   |  | (300.7  | )       
|                 | Issue of share capital                                         |         |       | 22.2    |  |        |         | 125.8   |   |            |       | (253.1        | ) |  |       | 111.5 |   |  |          | (1.6     | ) |  |         | 4.8      |  
|                 | Share issue costs                                              |         |       |        |  |        |         | (0.1    | ) |            |       |              |   |  |       |      |   |  |          |         |   |  |         | (0.1     | )
|                 | Profit for the financial year                                  |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | 190.3    |   |  |         | 190.3    |  
|                 | Transfer from merger reserve                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       | (79.2 | ) |  |          | 79.2     |   |  |         |         |  
|                 |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         
|At June 30, 2003 |                                                                |         | 968.9 |         |  |        | 2,535.5 |         |   |            | 2.7   |               |   |  | 299.0 |       |   |  | (3,911.8 | )        |   |  | (105.7  | )       
|                 |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         

2003

At June 30, 2003, the cumulative goodwill
written off directly to reserves by the Group amounted to
£523.8 million (2002: £523.8 million).

During the year, £35.6 million (2002:
£35.6 million) relating to the amortization of BiB
goodwill and £43.6 million (2002:
£38.5 million) relating to the amortization of SIG
goodwill was transferred from the Group merger reserve to the
Group profit and loss reserve.

During the year the Company issued shares with a
market value of £6.4 million (2002:
£35.2 million) in respect of the exercise of options
awarded under various share option schemes, with
£4.8 million (2002: £14.3 million) received
from employees.

On November 11, 2002, the Company issued
43.2 million shares with a fair value of
£253.1 million to HSBC, Matsushita and BT (the
selling shareholders) in respect of deferred consideration
for the

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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 July 15, 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. No liability had
been recorded in the prior year in respect of this earn out.
Additional Group merger reserve of £111.5 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.

2002

In June 2002, the Company issued 169,375 new
shares, which were used to satisfy part of the contingent
consideration in respect of the acquisition of the remaining 5%
minority interest in WAPTV Limited in May 2001. A further
338,755 new shares are expected to be issued in September 2003
to satisfy the remaining contingent consideration.

During 2002, £35.6 million relating to
the amortization of BiB goodwill and £38.5 million
relating to the amortization of SIG goodwill was transferred
from the Group merger reserve to the Group profit and loss
account reserve.

25. Guarantees, contingencies and other
financial commitments

(a)  Future expenditure

|                                                         |                                       |      |         |         |  |  |         |         | 
|-------------------------------------------------------- | ------------------------------------- | ---- | ------- | ------- |  |  | ------- | ------- | 
|                                                         |                                       | 2002 |         | 2003   
|                                                         |                                       |      |         |        
|                                                         |                                       | £m   |         | £m     
|Contracted for, but not provided for in the
    accounts |                                       |      |         |         |  |  |         |        
|                                                         |  television program
    rights(i)    |      |         | 2,165.6 |  |  |         | 1,617.8 | 
|                                                         |  set-top boxes and related equipment |      |         | 126.9   |  |  |         | 106.0   | 
|                                                         |  third party payments(ii)            |      |         | 58.3    |  |  |         | 46.1    | 
|                                                         |  capital expenditure                 |      |         | 5.9     |  |  |         | 2.5     | 
|                                                         |  other purchase obligations          |      |         |        |  |  |         | 7.5     | 
|                                                         |                                       |      |         |         |  |  |         |        
|                                                         |                                       |      | 2,356.7 |         |  |  | 1,779.9 |        
|                                                         |                                       |      |         |         |  |  |         |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Of the commitments for television program rights,
    £692 million (2002: £1,005 million) related
    to commitments payable in US dollars for periods of up to
    ten years (2002: seven years) and
    £136 million (2002: nil) related to commitments
    payable in Swiss francs for periods of up to three years. At
    June 30, 2003, the US dollar commitments have been
    translated at the year end rate of US$1.6497:£1 (2002:
    US$1.5347:£1), except for US$566 million (2002:
    US$585 million) covered by forward rate contracts where the
    average forward rate of US$1.4925:£1 (2002:
    US$1.3856:£1) has been used. The Swiss franc commitments
    have been translated at the year end rate of CHF2.2288:£1,
    except for CHF99 million covered by forward rate contracts
    where the average forward rate of CHF2.1068:£1 has been
    used.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The US dollar commitment disclosed above is
    subject to price escalation clauses in accordance with the terms
    of certain of the movie program rights contracts. The extent of
    the escalation, and hence of the commitments, is dependent both
    upon the number of subscribers to the relevant movie channel in
    certain cases and upon inflationary increases. If subscriber
    numbers were to remain at June 30, 2003 levels, the
    additional commitment in respect of subscriber escalation would
    be £213 million (US$351 million) (2002:
    £251 million (US$386 million)).



|     |                                                                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | The third party payment commitments in respect of
    distribution agreements for the Sky Distributed channels
    disclosed above are subject to price escalation clauses in
    accordance with the terms of

F-49



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | certain of the distribution agreements. The
    extent of the escalation, and levels of the commitments, are
    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 June 30, 2003 levels, the additional commitment
    in respect of subscriber escalation would be
    £799 million (2002: £885 million), for
    periods of up to six years (2002: six years).

At June 30, 2003, the Group had outstanding
forward rate contract commitments to purchase in aggregate
US$903 million (2002: US$920 million) at an average
rate of US$1.4925:£1 (2002: US$1.3856:£1). The Group
also had outstanding forward rate contract commitments to
purchase in aggregate CHF99 million (2002: nil) at average
rates of CHF2.0834:£1 and CHF1.4844:EUR1.

(b) Contingent liabilities

The Group has contingent liabilities by virtue of
its investments in unlimited companies, or partnerships, which
include Nickelodeon UK, The History Channel (UK), Paramount UK,
QVC and National Geographic Channel UK.

The Directors do not expect any material loss to
arise from the above contingent liabilities.

(c)  Guarantees

Two of the Groups subsidiary undertakings,
British Sky Broadcasting Limited and Sky Subscribers Services
Limited, have given joint and several guarantees in relation to
the Companys £200 million and
£600 million RCFs and the US$650 million,
US$600 million, US$300 million and
£100 million Guaranteed Notes (see note 20).

The Group has agreed to provide additional
funding to several of its investments in limited and unlimited
companies and partnerships in accordance with funding agreements.

(d) Contingent consideration

On May 29, 2001 the Group acquired the 5%
minority interest in WAPTV Limited for a total consideration of
£5.0 million. The consideration comprised 169,375 new
BSkyB Ordinary Shares issued on May 29, 2001, contingent
consideration which was satisfied by the issue of a further
169,375 new BSkyB Ordinary Shares on June 30, 2002, and
contingent consideration which will be satisfied by the issue of
338,755 new BSkyB Ordinary Shares on September 30, 2003.
The contingent consideration is contingent upon the vendors
remaining continuously in the employment of a member of the
Group from completion until the date the deferred consideration
is due. The remaining contingent consideration has been
recognized and recorded within shares to be issued as it is
considered probable that these criteria will be fulfilled.

F-50



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(e)  Lease and similar
commitments

The minimum annual rentals under these
arrangements are as follows:

|                                                            |                              |          |      |           |  |       |      |      |  |  |      |      | 
|----------------------------------------------------------- | ---------------------------- | -------- | ---- | --------- |  | ----- | ---- | ---- |  |  | ---- | ---- | 
|                                                            |                              |          |      | Plant and |  |      
|                                                            |                              | Property |      | machinery |  | Total
|                                                            |                              |          |      |           |  |      
|                                                            |                              | £m       |      | £m        |  | £m   
|June 30, 2003                                               |                              |          |      |           |  |       |      |      |  |  |      |     
|Operating leases and similar arrangements which
    expire: |                              |          |      |           |  |       |      |      |  |  |      |     
|                                                            |  within one year            |          |      | 0.5       |  |       |      | 3.4  |  |  |      | 3.9  | 
|                                                            |  between two and five years |          |      | 2.4       |  |       |      | 26.2 |  |  |      | 28.6 | 
|                                                            |  after five years           |          |      | 7.9       |  |       |      | 35.1 |  |  |      | 43.0 | 
|                                                            |                              |          |      |           |  |       |      |      |  |  |      |     
|                                                            |                              |          | 10.8 |           |  |       | 64.7 |      |  |  | 75.5 |     
|                                                            |                              |          |      |           |  |       |      |      |  |  |      |     
|June 30, 2002                                               |                              |          |      |           |  |       |      |      |  |  |      |     
|Operating leases and similar arrangements which
    expire: |                              |          |      |           |  |       |      |      |  |  |      |     
|                                                            |  within one year            |          |      | 0.8       |  |       |      | 0.5  |  |  |      | 1.3  | 
|                                                            |  between two and five years |          |      | 0.9       |  |       |      | 14.6 |  |  |      | 15.5 | 
|                                                            |  after five years           |          |      | 9.2       |  |       |      | 43.1 |  |  |      | 52.3 | 
|                                                            |                              |          |      |           |  |       |      |      |  |  |      |     
|                                                            |                              |          | 10.9 |           |  |       | 58.2 |      |  |  | 69.1 |     
|                                                            |                              |          |      |           |  |       |      |      |  |  |      |     

The Group leases certain land and buildings on
short-term and long-term operating leases. The rents payable
under these leases are subject to renegotiation at the various
intervals specified in the leases.

Summarized below at June 30, 2003, are the
minimum lease payments for non-cancelable operating leases and
similar arrangements.

|                     |                  |                  |       |       | 
|-------------------- | ---------------- | ---------------- | ----- | ----- | 
|                     |                  | Operating leases
|                     |                  | and similar     
|                     |                  | arrangements    
|                     |                  |                 
|                     |                  | £m              
|Year ending June 30: |                  |                  |       |      
|                     | 2004             |                  |       | 75.5  | 
|                     | 2005             |                  |       | 80.3  | 
|                     | 2006             |                  |       | 77.2  | 
|                     | 2007             |                  |       | 72.7  | 
|                     | 2008             |                  |       | 55.8  | 
|                     | After five years |                  |       | 133.8 | 
|                     |                  |                  |       |      
|                     |                  |                  | 495.3 |      
|                     |                  |                  |       |      

Payments made under non-cancelable operating
leases and similar arrangements in the year ended June 30,
2003, totaled £9.0 million (2002:
£8.2 million; 2001: £7.2 million) in respect
of property and £80.0 million (2002:
£76.4 million; 2001: £112.2 million) in
respect of transponders, computer and technical equipment.

Summarized below at June 30, 2003, are the
minimum sub-lease rentals to be received under non-cancelable
operating subleases.

F-51



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                     |                  |            |      |      | 
|-------------------- | ---------------- | ---------- | ---- | ---- | 
|                     |                  | Sub-leases
|                     |                  |           
|                     |                  | £m        
|Year ending June 30: |                  |            |      |     
|                     | 2004             |            |      | 23.3 | 
|                     | 2005             |            |      | 18.6 | 
|                     | 2006             |            |      | 13.6 | 
|                     | 2007             |            |      | 12.3 | 
|                     | 2008             |            |      | 9.8  | 
|                     | After five years |            |      | 11.8 | 
|                     |                  |            |      |     
|                     |                  |            | 89.4 |     
|                     |                  |            |      |     

26. Regulatory update

Office of Fair Trading
(OFT)

On December 5, 2000 the OFT announced that
it was to conduct an inquiry into the affairs of British Sky
Broadcasting Limited (BSkyB Limited), under the UK
Competition Act 1998 (Competition Act), in
particular the wholesale supply by BSkyB Limited of certain of
its channels to third party distributors in the
UK(1). BSkyB Limited maintained that it had not
infringed the Competition Act and, on December 17, 2002,
following submission by BSkyB Limited of written and oral
representations, the OFT announced that BSkyB Limited had not
been found in breach of competition law. Such findings by the
OFT may be appealed by third parties who have a sufficient
interest in accordance with the provisions of the
Competition Act.

EC Investigation 
FAPL

The EC Commission has commenced investigations
into a number of agreements, decisions or practices leading to
the acquisition of broadcast rights to football events within
the EEA, including the sale of exclusive broadcast rights to
Premier League football by the Football Association Premier
League Limited (FAPL). On June 21, 2002, BSkyB
Limited and the FAPL notified BSkyB Limiteds current
arrangements for the broadcast of FAPL football matches to the
EC Commission seeking either a clearance or an exemption from
Article 81 of the EC Treaty. The FAPL has also notified the
rules of the FAPL to the EC Commission. On
December 20, 2002, the EC Commission issued a Statement of
Objections to the FAPL outlining certain concerns in respect of
the FAPLs joint selling of broadcast rights to Premier
League football. On July 30, 2003 and October 3, 2003,
the Group received requests for information from the EC
Commission concerning the bidding process undertaken by the FAPL
in relation to the sale of Premier League football rights in
respect of the three year period 2004-2007. Whilst this EC
investigation remains ongoing, the FAPL has announced that the
Group has been awarded (subject to contract) all four packages
of exclusive live UK rights to FAPL football and two near
live packages of UK rights to FAPL football (both on a
delayed basis) from the beginning of the 2004/05 season to the
end of the 2006/07 season. The Group is currently unable to
assess whether this EC investigation will have a material effect
on the Group and its financial results.

EC Investigation  Movie
Contracts

The EC Commission is investigating the terms on
which movies produced by major US movie studios are supplied to
distributors, including pay TV operators, throughout the
European Union. The Group is



---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Where an undertaking has intentionally or
    negligently infringed the Competition Act, it may be fined up to
    a maximum of 10% of its total UK turnover for each year it is
    found to be in breach, up to a maximum of three years. In
    addition, third parties, such as customers and competitors, may
    be entitled to recover damages where they have suffered loss as
    a result of conduct in breach of the Competition Act.

F-52



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


co-operating with this investigation. At this
stage, the Group is unable to determine whether it will have a
material effect on the Group and its financial results.



|    |                                                             
|--- | ------------------------------------------------------------
|27. | Transactions with related parties and major
    shareholders



|    |                                     
|--- | ------------------------------------
|(a) | Transactions with major shareholders

The Company and Group conduct business
transactions on an arms length basis with shareholder
companies or members of their groups and associated undertakings.

A number of transactions are conducted with
members of the News Corporation Group. These companies include
Twentieth Century Fox, NDS Limited (NDS),
Broadsystem Ventures Limited (BVL), and STAR
Television Group (STAR) with which the Group has
significant contracts.

Twentieth Century Fox supplied programming with a
total value of £63.2 million in the year (2002:
£55.9 million; 2001: £44.8 million), the
majority of which is supplied under arrangements extending to
December 2004, with a variable annual value dependent on the
number of films supplied. The Group also earned
£0.5 million (2002: nil; 2001: nil) from Twentieth
Century Fox in respect of programming-related fees.

NDS supplied smart cards and encryption services
with a value of £49.7 million in the year (2002:
£44.5 million; 2001: £46.1 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 £3.7 million (2002:
£5.1 million; 2001: nil) was paid during the year.

BVL supplied telephony services with a value of
£3.0 million during the year (2002:
£2.0 million; 2001: £2.2 million). The Group
also earned £4.2 million (2002:
£1.0 million; 2001: nil) from BVL in respect of
telephony services.

News International plc and News America
Publishing provided media-based advertising services worth
£5.2 million in the year (2002:
£4.9 million; 2001: £5.8 million) and News
International plc provided rental premises at a cost to the
Group of £0.4 million in the year
(2002: £0.4 million; 2001:
£0.4 million). The Group also earned
£1.7 million (2002: £1.1 million; 2001:
£1.8 million) from News International plc for the
provision of airtime.

Orbis Technology Limited and Visonik supplied
interactive and internet-based services of
£2.3 million in the year (2002:
£0.9 million; 2001: nil).

National Rugby League Limited and News
Interactive sold sports rights to the Group during the year
worth £4.0 million (2002: £3.4 million;
2001: £3.0 million).

STAR, Fox News Channel and Phoenix Chinese News
and Entertainment paid the Group £1.4 million during
the year (2002: £1.3 million; 2001:
£0.6 million) for the provision of transponder
capacity. The Group paid STAR £1.5 million (2002:
£1.2 million; 2001: £0.3 million) in respect
of carriage fees for the supply of programming.

JSkySports Corporation, ESPN STAR Sports and
Fancy A Flutter Limited paid the Group £0.9 million
(2002: £0.5 million; 2001: £0.9 million) of
fees related to programming.

F-53



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Balances payable to the above companies which
form part of The News Corporation Group, analyzed by activity:

|                    |  |      |      |      |  |  |      | 
|------------------- |  | ---- | ---- | ---- |  |  | ---- | 
|                    |  | 2002 |      | 2003
|                    |  |      |      |     
|                    |  | £m   |      | £m  
|Programming         |  |      | 18.2 |      |  |  | 22.6 | 
|Encryption services |  |      | 2.2  |      |  |  | 0.7  | 
|Telephony services  |  |      |     |      |  |  | 0.9  | 
|Advertising         |  |      |     |      |  |  | 0.4  | 
|                    |  |      |      |      |  |  |      | 
|                    |  |      | 20.4 |      |  |  | 24.6 | 
|                    |  |      |      |      |  |  |      | 

Balances receivable from members of The News
Corporation Group, analyzed by activity:

|             |  |      |     |      |  |  |     | 
|------------ |  | ---- | --- | ---- |  |  | --- | 
|             |  | 2002 |     | 2003
|             |  |      |     |     
|             |  | £m   |     | £m  
|Transponders |  |      | 0.4 |      |  |  | 0.1 | 
|Other        |  |      | 0.6 |      |  |  | 0.3 | 
|             |  |      |     |      |  |  |     | 
|             |  |      | 1.0 |      |  |  | 0.4 | 
|             |  |      |     |      |  |  |     | 

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% Senior Exchangeable BUCS, in a private
placement to certain institutions. Each BUCS is exchangeable on
or after April 2, 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 March 15, 2010,
March 15, 2013 or March 15, 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 our
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 ADSs
representing the Companys ordinary shares, from News
America. The aggregate number of the Companys ordinary
shares subject to such warrants is 90,098,598. Upon the exercise
of a warrant, News America has the right to elect to pay the
holder in cash, in ordinary shares or ADSs, or any combination
thereof. The warrants are redeemable at the option of News
America, on or after November 12, 2001, and expire on
November 12, 2016. News Corporation and News America have
agreed to indemnify the Group and our directors, officers,
agents and employees against certain liabilities arising out of
or in connection with the TOPrS.

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

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

F-54



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|    |                                 
|--- | --------------------------------
|(b) | Transactions with joint ventures

All transactions with joint ventures are
conducted on an arms length basis.

|                |  |      |      |      |  |      |      |  |  |  |      | 
|--------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                |  | 2001 |      | 2002 |  | 2003
|                |  |      |      |      |  |     
|                |  | £m   |      | £m   |  | £m  
|Revenue         |  |      | 25.9 |      |  |      | 23.0 |  |  |  | 19.4 | 
|Operating costs |  |      | 43.4 |      |  |      | 53.9 |  |  |  | 63.8 | 

Revenues are primarily generated from the
provision of transponder capacity, marketing and support
services, together with commissions receivable. Operating costs
represent fees payable for channel carriage.

|                                             |  |      |       |      |  |  |       | 
|-------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                             |  | 2002 |       | 2003
|                                             |  |      |       |     
|                                             |  | £m   |       | £m  
|Funding to joint ventures (see note 14)      |  |      | 224.7 |      |  |  | 234.8 | 
|Amounts owed by joint ventures (see note 17) |  |      | 15.2  |      |  |  | 16.0  | 
|Amounts owed to joint ventures (see note 19) |  |      |      |      |  |  | 0.8   | 

The funding to joint ventures is in the form of
loans which bear interest at rates of between zero and three
month LIBOR plus 1%.



|    |                                            
|--- | -------------------------------------------
|(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 owns 60% of the ordinary share capital of Shine
Entertainment Limited, in which the Group has a 3.5% equity
shareholding. During the year, the Group incurred development
and production costs for television of £2.0 million
(2002: £1.3 million; 2001:
£0.3 million) from Shine Entertainment Limited. At
June 30, 2003, there were no outstanding amounts due
to or from Shine Entertainment Limited (2002: nil).

Allan Leighton is one of the Companys
Non-Executive Directors and is also Deputy Chairman of Leeds
United plc. The Group has a 9.1% equity interest in Leeds United
plc and has been appointed the exclusive commercial and media
agent for certain commercial and audiovisual rights available
for exploitation by such company or its affiliates.

In addition to the foregoing, we have engaged in
a number of transactions 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 GAAP applicable in the UK, which differ in
certain significant respects from those applicable in
the US.

The following is a summary of the significant
adjustments to operating profit (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 June 30,
2003, at a rate of £1:$1.6529, (the noon buying rate of the
Federal Reserve Bank of New York on June 30, 2003) 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.

F-55



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |     |  
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------- | ------ | ----------- | - | ---- | ------ | ---- | - |  | ----- | --- | - |  | ----- | --- | -
|                                                                                                               |                                                                       |                         |        |            
|                                                                                                               |                                                                       | Year ended June 30,     |        | Convenience
|                                                                                                               |                                                                       |                         |        | translation
|                                                                                                               |                                                                       | 2001                    |        | 2002        |   | 2003 |        | 2003
|                                                                                                               |                                                                       |                         |        |             |   |      |        |     
|                                                                                                               |                                                                       | £m                      |        | £m          |   | £m   |        | $m  
|                                                                                                               |                                                                       |                        
|                                                                                                               |                                                                       | (except per share data)
|Operating profit (loss):                                                                                       |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Operating profit under UK GAAP                                                                                 |                                                                       |                         | 93     |             |   |      | 55     |      |   |  | 254   |     |   |  | 420   |    
|Adjustments:                                                                                                   |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|                                                                                                               | Goodwill  subsidiary(1)                                              |                         |        | (14         | ) |      |        | (27  | ) |  |       | 117 |   |  |       | 193 |  
|                                                                                                               | Transition provision(3)                                               |                         |        | (151        | ) |      |        | (19  | ) |  |       |    |   |  |       |    |  
|                                                                                                               | Employee stock-based compensation(4)                                  |                         |        | (15         | ) |      |        | (14  | ) |  |       | 4   |   |  |       | 6   |  
|                                                                                                               | Derivative accounting(5)                                              |                         |        | (22         | ) |      |        | 14   |   |  |       | 17  |   |  |       | 28  |  
|                                                                                                               | Capitalized interest(6)                                               |                         |        |            |   |      |        | (2   | ) |  |       | (2  | ) |  |       | (4  | )
|                                                                                                               | Provision for loss on disposal of
    subsidiary(9)                   |                         |        | (10         | ) |      |        |     |   |  |       |    |   |  |       |    |  
|                                                                                                               | Fixed asset investments(10)                                           |                         |        | (59         | ) |      |        | (37  | ) |  |       | (18 | ) |  |       | (30 | )
|                                                                                                               | Sky+ set-top boxes profit on sale(12)                                 |                         |        |            |   |      |        |     |   |  |       | (2  | ) |  |       | (3  | )
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Operating (loss) profit before cumulative
    effect of a change in accounting principle                       |                                                                       |                         | (178   | )           |   |      | (30    | )    |   |  | 370   |     |   |  | 610   |    
|Cumulative effect on prior years (to
    June 30, 2000) of implementation of
    SFAS 133(5)                   |                                                                       |                         | 2      |             |   |      |       |      |   |  |      |     |   |  |      |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Operating (loss) profit under
    US GAAP                                                                      |                                                                       |                         | (176   | )           |   |      | (30    | )    |   |  | 370   |     |   |  | 610   |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Net income (loss):                                                                                             |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|(Loss) profit on ordinary activities after
    taxation under UK GAAP                                          |                                                                       |                         | (539   | )           |   |      | (1,383 | )    |   |  | 190   |     |   |  | 315   |    
|Adjustments:                                                                                                   |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|                                                                                                               | Goodwill  subsidiary(1)                                              |                         |        | (14         | ) |      |        | (27  | ) |  |       | 117 |   |  |       | 193 |  
|                                                                                                               | Goodwill  joint venture(1)                                           |                         |        | 30          |   |      |        | 358  |   |  |       |    |   |  |       |    |  
|                                                                                                               | Transition provision(3)                                               |                         |        | (174        | ) |      |        | (19  | ) |  |       |    |   |  |       |    |  
|                                                                                                               | Employee stock-based compensation(4)                                  |                         |        | (15         | ) |      |        | (14  | ) |  |       | 4   |   |  |       | 6   |  
|                                                                                                               | Derivative accounting(5)                                              |                         |        | (22         | ) |      |        | 14   |   |  |       | 17  |   |  |       | 28  |  
|                                                                                                               | Capitalized interest(6)                                               |                         |        | (1          | ) |      |        |     |   |  |       | (1  | ) |  |       | (1  | )
|                                                                                                               | Deferred taxation on US GAAP
    adjustments(7)                       |                         |        | 59          |   |      |        |     |   |  |       | (15 | ) |  |       | (25 | )
|                                                                                                               | Deferred taxation(7)                                                  |                         |        |            |   |      |        |     |   |  |       | (21 | ) |  |       | (35 | )
|                                                                                                               | Provision for loss on disposal of
    subsidiary(9)                   |                         |        |            |   |      |        | (10  | ) |  |       |    |   |  |       |    |  
|                                                                                                               | Amounts (written off) written back to fixed asset
    investments(10) |                         |        | (20         | ) |      |        | 20   |   |  |       | (3  | ) |  |       | (5  | )
|                                                                                                               | Share of joint ventures loss on sale of
    investment(11)           |                         |        | 69          |   |      |        |     |   |  |       |    |   |  |       |    |  
|                                                                                                               | Sky+ set-top boxes profit on sale(12)                                 |                         |        |            |   |      |        |     |   |  |       | (2  | ) |  |       | (3  | )
|                                                                                                               | Share of results of joint ventures(14)                                |                         |        |            |   |      |        | 14   |   |  |       |    |   |  |       |    |  
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Net (loss) profit before cumulative effect of
    a change in accounting principle                             |                                                                       |                         | (627   | )           |   |      | (1,047 | )    |   |  | 286   |     |   |  | 473   |    
|Cumulative effect on prior years (to
    June 30, 2000) of implementation of
    SFAS 133(5)                   |                                                                       |                         | 2      |             |   |      |       |      |   |  |      |     |   |  |      |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Net (loss) profit under US GAAP                                                                                |                                                                       |                         | (625   | )           |   |      | (1,047 | )    |   |  | 286   |     |   |  | 473   |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Basic (loss) earnings per share under
    US GAAP
    (before cumulative effect of accounting
    change)(8)   |                                                                       |                         | (33.9p | )           |   |      | (55.5p | )    |   |  | 14.9p |     |   |  | 24.7c |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Basic (loss) earnings per share under
    US GAAP
    (after cumulative effect of accounting
    change)(8)    |                                                                       |                         | (33.8p | )           |   |      | (55.5p | )    |   |  | 14.9p |     |   |  | 24.7c |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Diluted (loss) earnings per share under
    US GAAP
    (before cumulative effect of accounting
    change)(8) |                                                                       |                         | (33.9p | )           |   |      | (55.5p | )    |   |  | 14.7p |     |   |  | 24.3c |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    
|Diluted (loss) earnings per share under
    US GAAP
    (after cumulative effect of accounting
    change)(8)  |                                                                       |                         | (33.8p | )           |   |      | (55.5p | )    |   |  | 14.7p |     |   |  | 24.3c |    
|                                                                                                               |                                                                       |                         |        |             |   |      |        |      |   |  |       |     |   |  |       |    

F-56



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |      |  
|----------------------------------------------- | ------------------------------------------------------------------ | -------------- | ------ | ----------- | - | ---- | ------ | ---- | - |  | ------ | ---- | -
|                                                |                                                                    |                |        |            
|                                                |                                                                    | As at June 30, |        | Convenience
|                                                |                                                                    |                |        | translation
|                                                |                                                                    | 2002           |        | 2003        |   | 2003
|                                                |                                                                    |                |        |             |   |     
|                                                |                                                                    | £m             |        | £m          |   | $m  
|Shareholders (deficit) funds:                  |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Capital and reserves under
    UK GAAP          |                                                                    |                | (301   | )           |   |      | (106   | )    |   |  | (175   | )   
|Adjustments:                                    |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|                                                | Goodwill  subsidiary(1)                                           |                |        | 400         |   |      |        | 496  |   |  |        | 820  |  
|                                                | Goodwill  joint venture(1)                                        |                |        | 26          |   |      |        | 26   |   |  |        | 43   |  
|                                                | ESOP(2)                                                            |                |        | (42         | ) |      |        | (35  | ) |  |        | (58  | )
|                                                | Employee stock-based compensation(4)                               |                |        | 26          |   |      |        | 48   |   |  |        | 79   |  
|                                                | Derivative accounting(5)                                           |                |        | (6          | ) |      |        | 11   |   |  |        | 18   |  
|                                                | Capitalized interest(6)                                            |                |        | 8           |   |      |        | 7    |   |  |        | 12   |  
|                                                | Deferred taxation(7)                                               |                |        | 10          |   |      |        | (5   | ) |  |        | (8   | )
|                                                | Fixed asset investments(10)                                        |                |        | (9          | ) |      |        | 8    |   |  |        | 13   |  
|                                                | Installation, set-top boxes and related equipment
    revenues(12) |                |        |            |   |      |        | (2   | ) |  |        | (3   | )
|                                                | Deferred consideration(13)                                         |                |        | (253        | ) |      |        |     |   |  |        |     |  
|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Shareholders (deficit) funds under US
    GAAP |                                                                    |                | (141   | )           |   |      | 448    |      |   |  | 741    |     
|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Total assets:                                   |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Under UK GAAP                                   |                                                                    |                | 2,201  |             |   |      | 2,025  |      |   |  | 3,347  |     
|Adjustments:                                    |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|                                                | Goodwill  subsidiary(1)                                           |                |        | 400         |   |      |        | 496  |   |  |        | 820  |  
|                                                | Goodwill  joint venture(1)                                        |                |        | 26          |   |      |        | 26   |   |  |        | 43   |  
|                                                | ESOP(2)                                                            |                |        | (42         | ) |      |        | (35  | ) |  |        | (58  | )
|                                                | Derivative accounting(5)                                           |                |        | 74          |   |      |        | 71   |   |  |        | 117  |  
|                                                | Capitalized interest(6)                                            |                |        | 8           |   |      |        | 7    |   |  |        | 12   |  
|                                                | Deferred taxation(7)                                               |                |        | 10          |   |      |        | (5   | ) |  |        | (8   | )
|                                                | Fixed asset investments(10)                                        |                |        | (9          | ) |      |        | 8    |   |  |        | 13   |  
|                                                | Installation, set-top boxes and related equipment
    costs (12)   |                |        | 185         |   |      |        | 217  |   |  |        | 359  |  
|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Under US GAAP                                   |                                                                    |                | 2,853  |             |   |      | 2,810  |      |   |  | 4,645  |     
|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Total liabilities:                              |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Under UK GAAP                                   |                                                                    |                | (2,502 | )           |   |      | (2,131 | )    |   |  | (3,522 | )   
|Adjustments:                                    |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|                                                | Employee stock-based compensation(4)                               |                |        | 26          |   |      |        | 48   |   |  |        | 79   |  
|                                                | Derivative accounting(5)                                           |                |        | (80         | ) |      |        | (60  | ) |  |        | (99  | )
|                                                | Installation, set-top boxes and related equipment
    revenues(12) |                |        | (185        | ) |      |        | (219 | ) |  |        | (362 | )
|                                                | Deferred consideration(13)                                         |                |        | (253        | ) |      |        |     |   |  |        |     |  
|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |     
|Under US GAAP                                   |                                                                    |                | (2,994 | )           |   |      | (2,362 | )    |   |  | (3,904 | )   
|                                                |                                                                    |                |        |             |   |      |        |      |   |  |        |     




Notes

(1)  Goodwill



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP prior to July 1, 1998,
    goodwill arising on acquisitions was eliminated against
    reserves. From July 1, 1998, FRS 10 required
    future goodwill to be capitalized, although, as permitted by FRS
    10, goodwill previously written off has not been restated on the
    balance sheet. On disposal or closure of a previously acquired
    business, any goodwill previously written off to reserves will
    be included in calculating the profit or loss on disposal. Where
    capitalized goodwill is regarded as having a limited useful
    economic life, FRS 10 provides that the cost is amortized on a
    straight-line basis over that life, of up to 20 years.
    Impairment reviews, as required by FRS 11, are carried out to
    ensure that

F-57



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | goodwill is not carried at above the recoverable
    amount. Any amortization or impairment write-downs are charged
    to the profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Under US GAAP, prior to July 1, 2002,
    goodwill arising on acquisitions was recognized in the balance
    sheet and amortized by charges against income over its useful
    life, which was not to exceed 40 years. The Group
    considered various factors in determining its amortization
    period, including competitive, legal, regulatory and other
    factors. As was required by APB Opinion No. 17
    Intangible Assets, the Group limited its
    amortization period to the specified maximum life of
    40 years. Goodwill was accounted for at amortized cost,
    less provision for impairment. Whenever events or changes in
    circumstances indicated that 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, a
    provision for impairment was recorded to write down the net book
    value of the goodwill to the value in use by reference to
    discounted net future cash flows.                                                                                                                                                                                                                          
|
| | Under US GAAP, following the adoption of SFAS
    No. 142 Goodwill and Other Intangible Assets
    (SFAS No. 142), from July 1, 2002, the accounting for
    goodwill has 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 amortized 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
    amortization of goodwill with a net carrying value of
    £1,084 million. Goodwill was then tested for
    impairment using a two-step process that begins with an
    estimation of the fair value of each reporting unit. The first
    step is a screen for potential impairment, and the second step
    measures the amount of impairment, if any. SFAS No. 142
    does provide that, if certain criteria are met, the requirement
    to test goodwill for impairment annually can be satisfied
    without a remeasurement of the fair value of a reporting unit.
|
| | The initial and annual impairment tests were
    completed during the current year. 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 on the implementation date or when tested during the
    year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-58



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | A reconciliation of the previously reported net
    (loss) profit to the amounts adjusted for the exclusion of
    amortization of goodwill is as follows:

|                                           |  |                     |        |      |  |      |        |      |  |  |       |  |  |  |       | 
|------------------------------------------ |  | ------------------- | ------ | ---- |  | ---- | ------ | ---- |  |  | ----- |  |  |  | ----- | 
|                                           |  |                    
|                                           |  | Year ended June 30,
|                                           |  |                    
|                                           |  | 2001                |        | 2002 |  | 2003 |        | 2003
|                                           |  |                     |        |      |  |      |        |     
|                                           |  | £m                  |        | £m   |  | £m   |        | $m  
|Reported net (loss) profit under US GAAP   |  |                     | (625   | )    |  |      | (1,047 | )    |  |  | 286   |  |  |  | 473   | 
|Add: goodwill amortization                 |  |                     | 129    |      |  |      | 214    |      |  |  |      |  |  |  |      | 
|                                           |  |                     |        |      |  |      |        |      |  |  |       |  |  |  |       | 
|Adjusted net (loss) profit                 |  |                     | (496   | )    |  |      | (833   | )    |  |  | 286   |  |  |  | 473   | 
|Basic (loss) earnings per share:           |  |                     |        |      |  |      |        |      |  |  |       |  |  |  |       | 
|Reported net (loss) profit under US GAAP   |  |                     | (33.8p | )    |  |      | (55.5p | )    |  |  | 14.9p |  |  |  | 24.7c | 
|Add: goodwill amortization                 |  |                     | 7.0p   |      |  |      | 11.3p  |      |  |  |      |  |  |  |      | 
|                                           |  |                     |        |      |  |      |        |      |  |  |       |  |  |  |       | 
|Adjusted (loss) earnings per share         |  |                     | (26.8p | )    |  |      | (44.2p | )    |  |  | 14.9p |  |  |  | 24.7c | 
|Diluted (loss) earnings per share:         |  |                     |        |      |  |      |        |      |  |  |       |  |  |  |       | 
|Reported net (loss) profit under US GAAP   |  |                     | (33.8p | )    |  |      | (55.5p | )    |  |  | 14.7p |  |  |  | 24.3c | 
|Add: goodwill amortization                 |  |                     | 7.0p   |      |  |      | 11.3p  |      |  |  |      |  |  |  |      | 
|                                           |  |                     |        |      |  |      |        |      |  |  |       |  |  |  |       | 
|Adjusted diluted (loss) earnings per share |  |                     | (26.8p | )    |  |      | (44.2p | )    |  |  | 14.7p |  |  |  | 24.3c | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under SFAS No. 142, equity method goodwill
    is no longer amortized. 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 recognized. In the current year, no such loss has been
    recognized.
|
| | Under UK GAAP, provisions for impairment may be
    written back. Under US GAAP, the restoration of a previously
    recognized impairment loss is prohibited. Under UK GAAP, the
    fair value of consideration is determined as at the date the
    acquisition becomes unconditional. Under US GAAP, the fair value
    is based on the share price prior to and post the date of
    agreement and announcement of the acquisition.              

Subsidiaries

Sky Television Limited



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The goodwill of £491.5 million arising
    on the acquisition of Sky Television Limited (Sky)
    on November 3, 1990 (reduced by £20 million for
    the restatement of a shareholder loan to fair value as at the
    date of acquisition and by £33 million from
    July 1, 1993, for the SFAS No. 109 Accounting
    for Income Taxes (SFAS No. 109) treatment of
    acquisition adjustments) was being amortized under US GAAP on a
    straight-line basis over 40 years, from November 4,
    1990. From July 1, 2002, no further amortization has been
    recorded under US GAAP following the adoption of SFAS
    No. 142. 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 £542 million
    under UK GAAP, based on the fair value of the Groups
    shares on May 9, 2001, for the acquisition of the 47.6%
    interest and June 28, 2001, for the acquisition of the
    remaining 19.9% interest. Under US GAAP, the goodwill arising
    was £664 million, based on the fair value of the
    Groups shares on July 17, 2000 for the acquisition of
    the 47.6% interest and May 14, 2001 for the acquisition of
    the remaining 19.9% interest. Under UK GAAP, the goodwill is
    being amortized on a straight-line basis over 7 years from
    the dates of acquisition. Under US GAAP, no amortization has
    been charged from July 1, 2002 following the adoption of
    SFAS No. 142.

F-59



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the year the Group recognized, 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
    has resulted in a reduction of £24 million in the
    current year tax charge. Under US GAAP, the tax benefits of
    BiBs tax losses carried forward that were not recognized
    at the acquisition date of £21 million have been
    applied to reduce goodwill related to the acquisition. The
    remaining £3 million reduced the current year tax
    charge.

Opta Index Limited



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During fiscal 2003, we made a provision of
    £5 million under UK GAAP, included within
    amortization, against goodwill which arose on the acquisition of
    Opta. This provision was made as a result of the Groups
    announcement in December 2002 that it would close Opta and the
    carrying value of this goodwill was reduced to nil. The goodwill
    was not provided against at this time under US GAAP due to the
    fact that the business had not ceased operations at
    December 31, 2002 nor was it considered to be an
    available for sale asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | At June 30, 2003, under US GAAP, we
    determined that the assets of Opta that were held for sale met
    the requirements of SFAS No. 144 Accounting for the
    Impairment or Disposal of Long-Lived Assets, to be
    classified as held for sale. We then measured these assets at
    the lower of the carrying amount and fair value less costs to
    sell, which was determined to be close to nil based on expected
    sales price. As Opta was not classified as a separate reporting
    unit, we determined that Optas recorded assets (primarily
    goodwill) constituted a business under EITF 98-3
    Determining Whether a Nonmonetary Transaction Involves
    Receipt of Productive Assets or of a Business, and
    therefore, under SFAS No. 142, the £5 million of
    goodwill is required to be included in the carrying amount of
    the Opta assets that were held for sale when measuring the gain
    or loss on sale. As a result, we recorded a loss of
    £5 million, consistent with the UK GAAP provision. An
    agreement to sell Opta assets that were held for sale has been
    reached in September 2003.

Joint ventures

Granada Sky Broadcasting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill of £32 million arising on the
    acquisition of an additional 9.5% in Granada Sky Broadcasting in
    March 1998 was being amortized over a 20 year period from
    July 1, 1998. From July 1, 2002, no further
    amortization has been recorded under US GAAP following the
    adoption of SFAS No. 142. 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 April 14, 2000, and £858 million
    under US GAAP, based on the fair value of the Groups
    shares as at December 3, 1999. All such amounts are stated
    net of a deemed disposal of a 1.97% interest which arose in
    August and September 2000. As at December 31, 2001, a
    provision of £985 million was recorded against
    KirchPayTV goodwill under UK GAAP following an impairment review
    under FRS 11, resulting in a carrying value of the investment of
    nil. Under UK GAAP £13.5 million of the provision was
    subsequently released to match the recognition of KirchPayTV
    losses from January 1, 2002 to February 8, 2002 from
    which date no further losses were recognized under UK GAAP.
    Under US GAAP, no such release was made as no further losses
    were recognized after December 31, 2001. At June 30,
    2003 and June 30, 2002, the carrying value of our
    investment in KirchPayTV was nil under both UK and US GAAP.
|
| | From acquisition until April 1, 2001,
    KirchPayTV goodwill was amortized over a period of 20 years
    under both UK and US GAAP. From April 1, 2001 it was
    considered appropriate to revise                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-60



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | KirchPayTVs useful economic life from 20 to
    seven years, and so until December 31, 2001, the goodwill
    was amortized over a period of seven years under both UK and US
    GAAP. Following the impairment review reducing the carrying
    value of the investment to nil at December 31, 2001, there
    has been no further amortization of KirchPayTV goodwill under 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 December 31, 2001,
    the goodwill balance has not been retranslated.

(2)  Employee Share Ownership Plan
(ESOP)



| |                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As at June 30, 2003, the ESOP held
    5.5 million (fiscal 2002: 6.6 million) Ordinary Shares
    in the Company, at an average value of £6.34 per share
    (fiscal 2002: £6.39 per share). Under US GAAP these are
    classified within shareholders funds, whereas they are
    classified within investments under UK GAAP.

(3)  Transition provision



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a provision of
    £58 million was recognized during fiscal 2000, in
    addition to a provision of £450 million recognized
    during fiscal 1999. These provisions were in respect of the net
    costs of the marketing promotion committed to by the Group, to
    transition its existing analog subscribers to its digital
    service. The provision was fully utilized by June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Under UK GAAP, a provision is recognized
    when a legal or constructive obligation exists as a result of a
    past event or action and it is probable that a transfer of
    economic benefit will be required to settle the obligation.
    Under EITF 94-3 Liability Recognition for Certain
    Employees 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 recognized when the company has a legal
    commitment, which we 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 December 31, 2002, and therefore had not been adopted
    by the Group at the time of the provision.

(4)  Employee stock-based
compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a charge is recorded in the profit
    and loss account in relation to options for any difference
    between the market price on the date of grant and the exercise
    price. Where shares have 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 is equal to the difference between the cost of the
    ESOP shares and the exercise price. The charge is allocated on a
    straight-line basis over the vesting period of the options.
    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 is
    known and the exercise price; the cost is recognized over the
    period the employee performs related services. Since the
    ultimate compensation is unknown until the performance
    conditions are satisfied, estimates of compensation expense are
    recorded before the measurement date based on the quoted market
    price of the common shares at the intervening dates, in
    situations where it is probable that the performance conditions
    will be attained. Options that will vest conditional only on
    continued employment 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.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with US GAAP, the cost of
    compensatory stock options is charged against operating income
    in the profit and loss account and recognized within
    shareholders funds in the balance sheet. There is an
    additional US GAAP credit for the year amounting to
    £2 million (fiscal 2002: charge of
    £15 million; fiscal 2001: charge of
    £15 million), as the stock compensation expense was
    less than that recorded under UK GAAP.                                                                                                                                                                                                                        
|
| | Contingent payments to the selling shareholders
    of WAPTV Limited, in the form of the Companys shares, are
    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 are
    being amortized over the period of contingency, between 13 and
    28 months from the date of acquisition. The US GAAP
    stock compensation charge for fiscal 2003 amounts to
    £1 million (fiscal 2002: charge of
    £2 million; fiscal 2001: nil).
|
| | Under UK GAAP, National Insurance is accrued
    over the vesting period of the share options. Under
    EITF 00-16 Recognition and Measurement of Employer
    Payroll Taxes on Employee Stock-Based Compensation of
    US GAAP, the accrual for National Insurance should be
    recognized on the date of the event triggering the measurement
    and payment of tax to the tax authority (i.e. the exercise
    date). The additional US GAAP credit arising for fiscal
    2003 amounts to £3 million (fiscal 2002: credit of
    £3 million; fiscal 2001: nil), as the National
    Insurance paid was less than that accrued under UK GAAP.                                         
|
| | The cumulative balance sheet effect in respect of
    all employee stock-based compensation at June 30, 2003,
    amounts to a decrease in UK GAAP accruals of
    £48 million (fiscal 2002: decrease of
    £26 million). The cumulative effect on
    shareholders funds is greater than the cumulative effect
    of the differences described above as the accrual made for
    stock-based compensation is recorded in liabilities under
    UK GAAP and in shareholders funds under US GAAP.                                                                                                                                                                                           



|    |                      
|--- | ---------------------
|(5) | Derivative accounting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, investments or financial
    derivative instruments accounted for as hedges are structured so
    as to reduce the market risk associated with the underlying
    transaction being hedged and are designated as hedges at the
    inception of the contract. Receipts and payments on interest
    rate instruments are recognized on an accruals basis, over the
    life of the instrument. Gains and losses hedging forecast
    transactional cash flows are recognized in the hedged periods.
    Under UK GAAP, all derivative contracts have been accounted
    for on the basis that they are hedging applicable monetary
    items. Under UK GAAP, commercial activities denominated in
    foreign currencies are recorded in sterling at actual exchange
    rates as at the date of the transaction or at the contracted
    rate if the transaction is covered by a forward foreign exchange
    contract or other hedging 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.
|
| | Under US GAAP, the Group has applied SFAS
    No. 133 Accounting for Derivative Instruments and
    Hedging Activities (SFAS No. 133) as of July 1,
    2000, and is marking all derivatives to market on the basis that
    such derivatives have not been sufficiently designated against
    monetary items to allow the Group to utilize hedge accounting
    under SFAS No. 133. As such, all derivative contracts have
    been recorded in the balance sheet at market value at the year
    end (with changes in fair value being charged to operating
    income) and all monetary assets and liabilities have been
    retranslated at spot rates. The net gain of £2 million
    on the date of adopting SFAS No. 133 as at July 1,
    2000, was recorded as a cumulative change in accounting
    principle in the profit and loss account.                                                                                                                                                                                                                                                                                                                        



|    |                     
|--- | --------------------
|(6) | Capitalized interest



| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the capitalization of interest is
    not required, and the Group expenses interest charges to the
    profit and loss account in the year in which they are incurred.
    Under US GAAP, interest

F-62



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | charges on funds invested in the construction of
    major capital assets are required to be capitalized and
    depreciated over the average life of the assets concerned.                                                                                                                                                                                                                                                                                          
|
| | Cumulative capitalized interest on assets under
    construction as at June 30, 2003 amounted to
    £7 million (fiscal 2002: £8 million). During
    fiscal 2003, interest of £1 million (fiscal 2002:
    £2 million; fiscal 2001: nil) was capitalized in
    respect of assets under construction, and depreciation of
    £2 million (fiscal 2002: £2 million; fiscal
    2001: £1 million) was charged in respect of
    capitalized interest on assets in use.



|    |                  
|--- | -----------------
|(7) | Deferred taxation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, deferred tax is recognized in
    respect of timing differences that have originated but not
    reversed at the balance sheet date, where transactions or events
    that result in an obligation to pay more tax in the future or a
    right to pay less tax in the future have occurred at the balance
    sheet date. A net deferred tax asset is regarded as recoverable
    and therefore recognized only when, on the basis of all
    available evidence, it is regarded as more likely than not that
    there will be suitable taxable profits against which to recover
    carried forward tax losses and from which the future reversal of
    underlying timing differences can be deducted.                                          
|
| | Under US GAAP, deferred 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 realized.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | FRS 19 Deferred tax (FRS 19), the
    current UK accounting standard on deferred taxes, was first
    implemented in fiscal 2001. Subsequent to that date, 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, since June 30,
    2001, the UK and US GAAP accounting for deferred tax has
    been aligned more closely. As a result, since fiscal 2001, the
    net deferred tax asset recognized under UK and US GAAP has
    primarily differed only in respect of deferred tax on other UK
    to US GAAP adjustments. There has been an exception to this
    in the current year as described in note (ii) to the table
    below.
|
| | Under UK GAAP, as at June 30, 2003, there is
    a deferred tax asset of £190 million (2002:
    £39 million), which arose principally as a result of
    carried forward trading losses. In addition, under UK GAAP,
    there is an Advance Corporation Tax (ACT) debtor of
    £40 million (2002: £85 million). Under
    US GAAP, the ACT debtor is treated as a deferred tax asset.                                                                                                                                                                                                                                                                                                                                                                         
|
| | Under US GAAP, at June 30, 2003, there is a
    gross deferred tax asset of £790 million (2002:
    £833 million); offset by a valuation allowance of
    £565 million (2002: £699 million). In
    determining the appropriate level of valuation provision we
    considered guidance set out in SFAS No. 109, including the
    use of prudent and feasible tax planning strategies, and other
    relevant literature. The net deferred tax asset is comprised as
    follows:                                                                                                                                                                                                                                                                                 

|                                     |  |                    |     |                    |  |       |      |       |  |           |     |       |  |  |     |  |  |  |      |   |  |  |     | 
|------------------------------------ |  | ------------------ | --- | ------------------ |  | ----- | ---- | ----- |  | --------- | --- | ----- |  |  | --- |  |  |  | ---- | - |  |  | --- | 
|                                     |  |                    |     |                   
|                                     |  | Deferred tax asset |     | Deferred tax asset
|                                     |  | June 30, 2002      |     | June 30, 2003     
|                                     |  |                    |     |                   
|                                     |  | Gross              |     | Valuation          |  | Net   |      | Gross |  | Valuation |     | Net  
|                                     |  | asset              |     | provision          |  | asset |      | asset |  | provision |     | asset
|                                     |  |                    |     |                    |  |       |      |       |  |           |     |      
|                                     |  | £m                 |     | £m                 |  | £m    |      | £m    |  | £m        |     | £m   
|ACT(i)                               |  |                    | 85  |                    |  |       |     |       |  |           | 85  |       |  |  | 40  |  |  |  |     |   |  |  | 40  | 
|Future tax depreciation              |  |                    | 31  |                    |  |       | (5   | )     |  |           | 26  |       |  |  | 41  |  |  |  | (13  | ) |  |  | 28  | 
|Operating losses carried forward(ii) |  |                    | 225 |                    |  |       | (202 | )     |  |           | 23  |       |  |  | 222 |  |  |  | (76  | ) |  |  | 146 | 
|Fixed asset investments(iii)         |  |                    | 478 |                    |  |       | (478 | )     |  |           |    |       |  |  | 471 |  |  |  | (471 | ) |  |  |    | 
|Other temporary differences          |  |                    | 14  |                    |  |       | (14  | )     |  |           |    |       |  |  | 16  |  |  |  | (5   | ) |  |  | 11  | 
|                                     |  |                    |     |                    |  |       |      |       |  |           |     |       |  |  |     |  |  |  |      |   |  |  |     | 
|                                     |  |                    | 833 |                    |  |       | (699 | )     |  |           | 134 |       |  |  | 790 |  |  |  | (565 | ) |  |  | 225 | 
|                                     |  |                    |     |                    |  |       |      |       |  |           |     |       |  |  |     |  |  |  |      |   |  |  |     | 

F-63



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | During fiscal 2003, £45 million of ACT
    brought forward was utilized to reduce the Groups cash tax
    liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (ii)  | At June 30, 2003, a valuation allowance was
    provided for a deferred tax asset of £12 million
    arising from 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 be carried forward
    indefinitely under current law. A valuation allowance has also
    been provided for deferred tax assets of £64 million
    in respect of trading losses in the Groups German holding
    companies of KirchPayTV. Included within the movement of the
    valuation provision in 2003 is a provision of
    £24 million against a deferred tax asset that resulted
    from the acquisition of BiB. As described in
    Goodwill above, £21 million of the total
    amount of £24 million has been applied to reduce
    goodwill on acquisition under US GAAP. Under UK GAAP,
    this has resulted in a reduction of £24 million in the
    current year tax charge.
|
| | (iii) | At June 30, 2003, a valuation allowance was
    provided for a deferred tax asset of £450 million in
    respect of potential capital losses related to the Groups
    holding of KirchPayTV. A valuation allowance has also been
    provided for deferred tax assets of £21 million in
    respect of potential capital losses related to the
    mark-to-market adjustments of the Groups holdings in
    certain fixed asset investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The US GAAP tax charge (benefit), which wholly
    relates to UK corporation tax on continuing operations,
    comprises:

|                                    |                             |      |       |      |   |      |       |      |   |  |       |     | 
|----------------------------------- | --------------------------- | ---- | ----- | ---- | - | ---- | ----- | ---- | - |  | ----- | --- | 
|                                    |                             | 2001 |       | 2002 |   | 2003
|                                    |                             |      |       |      |   |     
|                                    |                             | %    |       | %    |   | %   
|UK corporation tax rate             |                             |      | 30.0  |      |   |      | 30.0  |      |   |  | 30.0  |    
|Permanent differences:              |                             |      |       |      |   |      |       |      |   |  |       |    
|                                    |  Goodwill  subsidiary     |      |       | (2.6 | ) |      |       | (4.6 | ) |  |       | 0.6 | 
|                                    |  Goodwill  joint ventures |      |       | (3.2 | ) |      |       | (2.6 | ) |  |       |    | 
|                                    |  Other                     |      |       | (1.6 | ) |      |       | (1.0 | ) |  |       |    | 
|Fixed asset investments             |                             |      |      |      |   |      | (20.1 | )    |   |  | 2.1   |    
|Joint venture losses                |                             |      | (15.9 | )    |   |      | (2.8  | )    |   |  | 1.2   |    
|Charges relating to prior periods   |                             |      | (0.1  | )    |   |      |      |      |   |  | 1.9   |    
|Valuation provision                 |                             |      | (1.3  | )    |   |      | (10.2 | )    |   |  | (46.7 | )  
|Other                               |                             |      |      |      |   |      |      |      |   |  | 0.5   |    
|                                    |                             |      |       |      |   |      |       |      |   |  |       |    
|US GAAP income tax charge (benefit) |                             |      | 5.3   |      |   |      | (11.3 | )    |   |  | (10.4 | )  
|                                    |                             |      |       |      |   |      |       |      |   |  |       |    

F-64



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(8)  Per share data



| |                                                                      
| | ---------------------------------------------------------------------
| | The equivalent earnings (loss) per ADS
    outstanding is as follows:

|                                                                                                   |  |                     |         |             |  |      |         |      |  |  |       |  |  |  |       | 
|-------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ----------- |  | ---- | ------- | ---- |  |  | ----- |  |  |  | ----- | 
|                                                                                                   |  |                     |         |            
|                                                                                                   |  | Year ended June 30, |         | Convenience
|                                                                                                   |  |                     |         | translation
|                                                                                                   |  | 2001                |         | 2002        |  | 2003 |         | 2003
|                                                                                                   |  |                     |         |             |  |      |         |     
|                                                                                                   |  | £                   |         | £           |  | £    |         | $   
|Basic (loss) earnings per ADS under US GAAP
    (before cumulative effect of accounting change)*   |  |                     | (135.8p | )           |  |      | (221.9p | )    |  |  | 59.7p |  |  |  | 98.6c | 
|Basic (loss) earnings per ADS under US GAAP
    (after cumulative effect of accounting change)*    |  |                     | (135.4p | )           |  |      | (221.9p | )    |  |  | 59.7p |  |  |  | 98.6c | 
|Diluted (loss) earnings per ADS under US GAAP
    (before cumulative effect of accounting change)* |  |                     | (135.8p | )           |  |      | (221.9p | )    |  |  | 58.9p |  |  |  | 97.4c | 
|Diluted (loss) earnings per ADS under US GAAP
    (after cumulative effect of accounting change)*  |  |                     | (135.4p | )           |  |      | (221.9p | )    |  |  | 58.9p |  |  |  | 97.4c | 






|  |                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------
|* | Accounting change referred to is cumulative
    effect on prior years (to June 30, 2000) of implementation
    of SFAS No. 133.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In prior period reporting, the (loss) earnings
    per ADS have been calculated using the weighted average number
    of ADSs outstanding on the basis of 1 ADS for 6 Ordinary
    Shares. On December 23, 2002 the ratio was revised to
    reflect a new ratio of 1 ADS representing 4 Ordinary
    Shares. Therefore, the current and prior period (loss) earnings
    per ADS have been calculated using a weighted average number of
    ADSs outstanding on the basis of 1 ADS for 4 Ordinary
    Shares. (Loss) earnings per ADS is not exactly four times (loss)
    earnings per share due to rounding differences.

(9)  Provision for loss on disposal
of subsidiary



| |                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, in fiscal 2001 the
    £10 million provision for the disposal of Surrey
    Sports was taken below operating profit. Under US GAAP,
    this amount has been reclassified within operating profit. In
    fiscal 2002, the provision was reversed under UK GAAP.
    Under US GAAP this reversal is prohibited.

(10) Fixed asset investments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a fixed asset investment in a
    publicly traded entity, which is not equity accounted or
    consolidated on a group basis, is recorded at cost, less any
    provision for permanent diminution in value. Amounts provided
    against these investments are charged to the profit and loss
    account below operating profit.                                                                                                                                                                                                                                                                                                                                                 
|
| | Under US GAAP, the Group has accounted for
    these investments as available for sale 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 realized. Market value must be
    determined by reference to quoted market prices irrespective of
    the size of the Groups interest. Provisions for other than
    temporary impairments are charged to operating profit and the
    restoration of a previously recognized impairment loss is
    prohibited. Any premium to market value of investments acquired
    is charged to the profit and loss account.
|
| | 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 profit is recorded.                                                                                                                                                                                                                                                                                                                                                                             

F-65



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | The US GAAP reconciling adjustments to fixed
    asset investments, within operating profit, are summarized as
    follows:

|                                               |  |                     |     |             |  |      |     |      |  |  |     |   |  |  |     |  
|---------------------------------------------- |  | ------------------- | --- | ----------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                               |  |                     |     |            
|                                               |  | Year ended June 30, |     | Convenience
|                                               |  |                     |     | translation
|                                               |  | 2001                |     | 2002        |  | 2003 |     | 2003
|                                               |  |                     |     |             |  |      |     |     
|                                               |  | £m                  |     | £m          |  | £m   |     | $m  
|Write-down of football club
    investments(i) |  |                     | (19 | )           |  |      | (41 | )    |  |  | (21 | ) |  |  | (35 | )
|Write-down of other investments(ii)            |  |                     | (39 | )           |  |      |    |      |  |  | (3  | ) |  |  | (5  | )
|Other                                          |  |                     | (1  | )           |  |      | 4   |      |  |  | 6   |   |  |  | 10  |  
|                                               |  |                     |     |             |  |      |     |      |  |  |     |   |  |  |     |  
|                                               |  |                     | (59 | )           |  |      | (37 | )    |  |  | (18 | ) |  |  | (30 | )
|                                               |  |                     |     |             |  |      |     |      |  |  |     |   |  |  |     |  






| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | In fiscal 2001, under US GAAP, a provision
    of £19 million was taken against football club
    investments (no such write-down was taken under UK GAAP).
    In fiscal 2002, a £60 million provision was taken
    against football club investments under UK GAAP as an
    exceptional item below operating profit. Under US GAAP,
    this was reduced by the £19 million provision taken in
    fiscal 2001, and was reclassified within operating profit. As at
    December 31, 2002, a further £21 million
    provision was taken against football club investments under
    UK GAAP as an exceptional item below operating profit. This
    provision was made due to the continued decline over the
    previous months in the market value of the investments, leading
    us to believe that an other than temporary diminution in value
    had occurred. Subsequently, in fiscal 2003, under UK GAAP,
    this provision was reduced by £3 million, following
    the agreement to sell our minority interest in Chelsea Village
    plc in July 2003. Under US GAAP, the reversal of a
    previously recognized impairment is not permitted, and the full
    £21 million provision has been recorded as a loss
    within operating profit.
|
| | (ii) | In fiscal 2001, under UK GAAP, a
    £39 million provision was taken against new media
    investments as an exceptional item below operating profit. Under
    US GAAP, the provision was reclassified within operating
    profit. In fiscal 2003, under UK GAAP, a
    £3 million provision was taken against the investment
    in Open TV shares, as an exceptional item below operating
    profit. Under US GAAP, the provision was reclassified
    within operating profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | The US GAAP reconciling adjustments to fixed
    asset investments, within net income, are summarized as follows:

|                                                              |  |                     |     |             |  |      |    |      |  |  |    |   |  |  |    |  
|------------------------------------------------------------- |  | ------------------- | --- | ----------- |  | ---- | -- | ---- |  |  | -- | - |  |  | -- | -
|                                                              |  |                     |     |            
|                                                              |  | Year ended June 30, |     | Convenience
|                                                              |  |                     |     | translation
|                                                              |  | 2001                |     | 2002        |  | 2003 |    | 2003
|                                                              |  |                     |     |             |  |      |    |     
|                                                              |  | £m                  |     | £m          |  | £m   |    | $m  
|Movements on provisions against football club
    investments |  |                     | (19 | )           |  |      | 19 |      |  |  | (3 | ) |  |  | (5 | )
|Other                                                         |  |                     | (1  | )           |  |      | 1  |      |  |  |   |   |  |  |   |  
|                                                              |  |                     |     |             |  |      |    |      |  |  |    |   |  |  |    |  
|                                                              |  |                     | (20 | )           |  |      | 20 |      |  |  | (3 | ) |  |  | (5 | )
|                                                              |  |                     |     |             |  |      |    |      |  |  |    |   |  |  |    |  

F-66



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | The US GAAP reconciling adjustments to fixed
    asset investments, within assets and shareholders funds,
    are summarized as follows:

|                                            |  |            |    |             |  |      |    |   |  |  |    |  
|------------------------------------------- |  | ---------- | -- | ----------- |  | ---- | -- | - |  |  | -- | -
|                                            |  |            |    |            
|                                            |  | Year ended |    |            
|                                            |  | June 30,   |    | Convenience
|                                            |  |            |    | translation
|                                            |  | 2002       |    | 2003        |  | 2003
|                                            |  |            |    |             |  |     
|                                            |  | £m         |    | £m          |  | $m  
|Mark-to-market of football club investments |  |            | (7 | )           |  |      | 11 |   |  |  | 18 |  
|Mark-to-market of new media investments     |  |            | (2 | )           |  |      |   |   |  |  |   |  
|Write-back of football club investments     |  |            |   |             |  |      | (3 | ) |  |  | (5 | )
|                                            |  |            |    |             |  |      |    |   |  |  |    |  
|                                            |  |            | (9 | )           |  |      | 8  |   |  |  | 13 |  
|                                            |  |            |    |             |  |      |    |   |  |  |    |  

(11) Share of joint ventures loss
on sale of investment



| |                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the Groups share in
    KirchPayTVs loss on the sale of its holding of shares in
    the Company was recognized in the profit and loss account in
    fiscal 2001. Under US GAAP, the Groups share of
    KirchPayTVs loss on the sale of its holding of such shares
    was treated as a capital transaction and taken through equity in
    fiscal 2001.

(12) 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 recognized once the installation is complete.
    Under US GAAP, these revenues are recognized over the
    period that a customer is expected to subscribe to the related
    service. For set-top boxes and related equipment, the churn rate
    varies according to the product purchased. Under US GAAP,
    where installation or set-top boxes and related equipment costs
    for a particular product exceed revenues, the excess costs are
    charged in the profit and loss account immediately upon
    installation. All other costs directly attributable to the
    income deferred are recognized over the same period as the
    revenues under US GAAP.                                                                                                                                                                                                                                                                                                                                                                   
|
| | In the year ended June 30, 2003, under
    UK GAAP, installation, set-top boxes and related equipment
    revenues of £61 million (2002: £44 million;
    2001: £80 million) were recognized. Under
    US GAAP, deferred revenue recorded on the balance sheet in
    respect of installations, set-top boxes and related equipment
    revenues amounted to £219 million (2002:
    £185 million). Under US GAAP, installation,
    set-top boxes and related equipment costs, which are expensed
    immediately under UK GAAP, have been deferred to match the
    period over which revenues are recognized; therefore at
    June 30, 2003, deferred costs held on the balance sheet in
    respect of installations, set-top boxes and related equipment
    amounted to £217 million (2002:
    £185 million). Installation, set-top boxes and related
    equipment revenues that have been recognized during the year
    amount to £27 million (2002: £22 million;
    2001: £15 million). Related costs of
    £27 million (2002: £22 million; 2001:
    £15 million) for installation, set-top boxes and
    related equipment were recognized during the year.
|
| | The net impact on both operating profit and net
    income of these US GAAP adjustments is a reduction of
    £2 million in fiscal 2003 (2002: nil; 2001: nil). This
    was a result of the profit on sale of Sky+ set-top boxes in the
    current year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

(13) Deferred consideration



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In fiscal 2001, deferred consideration of
    £253 million, relating to the Groups acquisition
    of BiB, was to be issued as shares or loan notes, as was to be
    determined on the settlement date. The Board determined that
    there was no genuine commercial possibility that loan notes
    would be issued and therefore, under UK GAAP, this deferred
    consideration was included in shareholders funds within
    shares to be issued. Under US GAAP, it was classified
    within liabilities.

F-67



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The deferred consideration was settled on
November 11, 2002 by the issue of shares.

(14) Share of results of joint
ventures



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, we recognized KirchPayTVs
    losses for the period from January 1, 2002, to
    February 8, 2002. By February 8, 2002, we considered
    that our relationship with KirchPayTV had irrevocably changed
    and that we have not exercised significant influence since that
    date. Therefore, from February 8, 2002, it was no longer
    appropriate to account for our investment in KirchPayTV as a
    joint venture under UK GAAP, and we 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 we have no intention of providing any future
    funding to KirchPayTV, an amount of £13.5 million was
    released from the provision against the carrying value of the
    investment made at December 31, 2001, matching our share of
    KirchPayTVs losses for the period from January 1,
    2002 to February 8, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Under US GAAP, when the carrying amount of an
    equity-accounted investment is reduced to zero, the investor
    ordinarily should discontinue applying the equity method and
    should not provide for additional losses unless the investor has
    guaranteed obligations of the investee or is otherwise committed
    to provide further financial support for the investee. If the
    investee subsequently reports net income, the investor should
    resume applying the equity method only after its share of that
    net income equals the share of net losses not recognized during
    the period equity accounting was suspended, or where there is an
    expectation that the investee will return to a profit-making
    position in the foreseeable future. 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 December 31,
    2001, as a result of the impairment in carrying value at that
    date and therefore under US GAAP we ceased to recognize losses
    from December 31, 2001. As no losses were recognized in the
    period from January 1, 2002 to February 8, 2002 under
    US GAAP, the £13.5 million write-back of losses under
    UK GAAP appears as a US GAAP net income reconciling item. This
    investment is no longer accounted for as a joint venture using
    the equity method as we no longer exercise 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 summarized financial information
    for KirchPayTV provided to the Group was at September 30,
    2001, and is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                             |  |                    |        |  
|-------------------------------------------- |  | ------------------ | ------ | -
|                                             |  | Groups share of  
|                                             |  | KirchPayTV        
|                                             |  | (as adjusted)     
|                                             |  | Six months to     
|                                             |  | September 30, 2001
|                                             |  |                   
|                                             |  | £m                
|Turnover                                     |  |                    | 57.0   |  
|                                             |  |                    |        |  
|Operating loss                               |  |                    | (57.1  | )
|Net interest payable                         |  |                    | (3.0   | )
|                                             |  |                    |        |  
|Loss before taxation                         |  |                    | (60.1  | )
|                                             |  |                    |        |  
|Fixed assets                                 |  |                    | 134.3  |  
|                                             |  |                    |        |  
|Current assets                               |  |                    | 45.2   |  
|                                             |  |                    |        |  
|Liabilities due within one year              |  |                    | (104.8 | )
|                                             |  |                    |        |  
|Liabilities due after more than one
    year |  |                    | (131.9 | )
|                                             |  |                    |        |  

F-68



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(15) 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 £12 million (2002: £15 million; 2001:
    £55 million) and amounts receivable in respect of
    provision to third party broadcasters of spare transponder
    capacity of £26 million (2002: £24 million;
    2001: £54 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 £108 million (2002:
    £88 million; 2001: £75 million) from all
    other betting are shown within operating expenses,
    net. Under US GAAP, all betting costs are offset against
    betting revenues within turnover.                                                                                                                

Exceptional
items



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, exceptional items are material
    items which derive from events or transactions that fall within
    the ordinary activities of a reporting entity and which
    individually or, if of a similar type 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.

Non-operating
profits



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, profits or losses on disposals of
    operations and fixed assets, and provisions for fixed asset
    investments are recognized below operating profit under FRS 3
    Reporting Financial Performance. Under US GAAP, such
    items would be presented as components of discontinued
    operations, if certain criteria are met, or within operating
    profit. Under UK GAAP, the share of joint ventures
    operating results excludes our share of joint ventures
    interest, our share of joint ventures exceptional items
    and our share of joint ventures tax. These amounts are
    included within interest payable and similar charges
    or interest receivable and similar income,
    exceptional Items and taxation charge
    respectively. Under US GAAP, all of these amounts are included
    within equity in earnings (losses) of affiliates.

(16) Consolidated Balance Sheet



| |                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, long-term debtors (including
    prepaid program rights and transponder rentals) are classified
    as debtors falling due after more than one year
    within current assets. Under US GAAP, long-term debtors are
    classified within other non-current assets.                                                                                                         
|
| | Under UK GAAP, deferred tax assets are classified
    within debtors falling due within one year or
    debtors falling due after more than one year. Under
    US GAAP, deferred tax assets are classified within other
    current assets or other non-current assets.                                                                                                             
|
| | Under UK GAAP, fixed asset investments are
    classified under the heading investments within
    fixed assets. Under US GAAP, fixed asset investments are
    classified within other non-current assets, 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 are
    classified under the heading investments within
    fixed assets. Under US GAAP, investments in joint ventures are
    classified as investments in equity affiliates.                                                                                                                                                              
|
| | Under UK GAAP, 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                                                                                                                                                                              

F-69



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 July 12,
    2000, where consideration was paid by the issue of equity shares
    in BSkyB.

2. BiB



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consideration was paid in BSkyB shares on
    June 28, 2001 and on November 11, 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 held 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 amortization of the associated goodwill.
    Accordingly, the £79.2 million that was transferred
    from the merger reserve to the profit and loss reserve in fiscal
    2003 (fiscal 2002: £74.1 million) equals the aggregate
    amortization charge in that period relating to SIG goodwill and
    the goodwill recognized 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.                                                                                                                                                                                                                                                                                                       

(17) Consolidated Statement of Cash
Flows



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Consolidated Statement of Cash Flows prepared
    under UK GAAP in accordance with FRS 1 (Revised) 
    Cash Flow Statements, presents substantially the same
    information as that required under US GAAP. Under US GAAP
    however, there are certain differences from UK GAAP with regard
    to classification of items within the cash flow statement and
    with regard to the definition of cash and cash equivalents. Cash
    flow under UK GAAP represents increases or decreases in
    cash, which comprises cash in hand and deposits
    repayable on demand and overdrafts. Under US GAAP, cash flow
    represents increases or decreases in cash and cash
    equivalents, which includes short-term, highly liquid
    investments with original maturities of less than three months,
    and excludes overdrafts.
|
| | Under UK GAAP, cash flows are presented
    separately for operating activities, returns on investments and
    servicing of finance, taxation, capital expenditure and
    financial investment, acquisitions and disposals, equity
    dividends, management of liquid resources and financing
    activities. Under US GAAP only three categories of cash flow
    activity are reported, being cash flows relating to operating
    activities, investing activities and financing activities. Cash
    flows from taxation and returns on investments and servicing of
    finance are, with the exception of servicing of shareholder
    finance, included as operating                                                                                                                                                                    

F-70



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | activities under US GAAP. The servicing of
    shareholder finance would be included under financing activities
    under US GAAP.        
|
| | A reconciliation between the consolidated
    statements of cash flows presented in accordance with UK and US
    GAAP is presented below:

|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|------------------------------------------------------------------------------------ |  | ------------------- | ---- | ----------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ----- | -
|                                                                                     |  |                     |      |            
|                                                                                     |  | Year Ended June 30, |      | Convenience
|                                                                                     |  |                     |      | translation
|                                                                                     |  | 2001                |      | 2002        |  | 2003 |      | 2003
|                                                                                     |  |                     |      |             |  |      |      |     
|                                                                                     |  | £m                  |      | £m          |  | £m   |      | $m  
|Operating Activities                                                                 |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Cash flow from operating activities under
    UK GAAP                                |  |                     | 39   |             |  |      | 250  |      |  |  | 664  |   |  |  | 1,098 |  
|Dividends received from joint ventures                                               |  |                     |     |             |  |      |     |      |  |  | 4    |   |  |  | 7     |  
|Interest received and similar income                                                 |  |                     | 5    |             |  |      | 9    |      |  |  | 3    |   |  |  | 5     |  
|Interest paid and similar charges on external
    finance                            |  |                     | (119 | )           |  |      | (141 | )    |  |  | (127 | ) |  |  | (210  | )
|Interest element of finance lease payments                                           |  |                     | (2   | )           |  |      | (1   | )    |  |  | (1   | ) |  |  | (2    | )
|Corporation tax (paid) received                                                      |  |                     | (16  | )           |  |      | 23   |      |  |  | (18  | ) |  |  | (30   | )
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Net cash (used in) provided by operating
    activities under US GAAP                |  |                     | (93  | )           |  |      | 140  |      |  |  | 525  |   |  |  | 868   |  
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Investing activities                                                                 |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Net cash outflow from capital expenditure and
    financial investment under UK GAAP |  |                     | (158 | )           |  |      | (127 | )    |  |  | (97  | ) |  |  | (160  | )
|Acquisitions, net of new cash acquired                                               |  |                     | (16  | )           |  |      |     |      |  |  |     |   |  |  |      |  
|Funding to joint ventures                                                            |  |                     | (137 | )           |  |      | (12  | )    |  |  | (15  | ) |  |  | (25   | )
|Repayments of funding from joint ventures                                            |  |                     |     |             |  |      | 5    |      |  |  | 5    |   |  |  | 8     |  
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Net cash used in investing activities under
    US GAAP                              |  |                     | (311 | )           |  |      | (134 | )    |  |  | (107 | ) |  |  | (177  | )
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Financing activities                                                                 |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Cash inflow (outflow) from financing under
    UK GAAP                               |  |                     | 347  |             |  |      | (180 | )    |  |  | (422 | ) |  |  | (698  | )
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Net cash provided by (used in) financing
    activities under US GAAP                |  |                     | 347  |             |  |      | (180 | )    |  |  | (422 | ) |  |  | (698  | )
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Net decrease in cash and cash equivalents under
    US GAAP                          |  |                     | (57  | )           |  |      | (174 | )    |  |  | (4   | ) |  |  | (7    | )
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  
|Cash and cash equivalents under US GAAP at
    the beginning of the period           |  |                     | 281  |             |  |      | 224  |      |  |  | 50   |   |  |  | 83    |  
|Cash and cash equivalents under US GAAP
    at the end of the period                 |  |                     | 224  |             |  |      | 50   |      |  |  | 46   |   |  |  | 76    |  
|                                                                                     |  |                     |      |             |  |      |      |      |  |  |      |   |  |  |       |  



|     |                               
|---- | ------------------------------
|(ii) | Additional US GAAP Disclosures



|    |                         
|--- | ------------------------
|(a) | Stock-based compensation

The Company accounts for stock-based compensation
under the expense recognition provisions of APB Opinion
No. 25, Accounting for Stock Issued to
Employees (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 profit and loss account for
all the share option schemes under APB No. 25 was a charge
of £13 million, net of tax (2002:
£32 million; 2001: £30 million). The net
difference between the UK GAAP charge and the APB
No. 25 charge in the current year was a

F-71



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


US GAAP credit of £4 million, net
of tax (2002: charge of £17 million; 2001: charge of
£15 million). Had compensation expense for share
options granted under these schemes been determined based on
fair value at the grant dates consistent with the method
required in accordance with SFAS No. 123, the Groups
net income (loss) and earnings per share for 2001, 2002 and 2003
would have been reduced to the pro-forma amounts shown below:

|                                             |                                                                                                                                                     |                     |  |             |    |      |  |        |    |  |  |      |   |  |  |      |  
|-------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- |  | ----------- | -- | ---- |  | ------ | -- |  |  | ---- | - |  |  | ---- | -
|                                             |                                                                                                                                                     |                     |  |            
|                                             |                                                                                                                                                     | Year ended June 30, |  | Convenience
|                                             |                                                                                                                                                     |                     |  | translation
|                                             |                                                                                                                                                     | 2001                |  | 2002        |    | 2003 |  | 2003  
|                                             |                                                                                                                                                     |                     |  |             |    |      |  |       
|                                             |                                                                                                                                                     | £m                  |  | £m          |    | £m   |  | $m    
|Net (loss) income under US GAAP:             |                                                                                                                                                     |                     |  |             |    |      |  |        |    |  |  |      |   |  |  |     
|                                             | As reported                                                                                                                                         |                     |  | (625        | )  |      |  | (1,047 | )  |  |  | 286  |   |  |  | 473  |  
|                                             | Add: APB No. 25 stock-based employee
    compensation expense included in reported net (loss) income, net
    of related tax effects                |                     |  | 30          |    |      |  | 32     |    |  |  | 13   |   |  |  | 21   |  
|                                             | Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects |                     |  | (43         | )  |      |  | (40    | )  |  |  | (68  | ) |  |  | (112 | )
|                                             |                                                                                                                                                     |                     |  |             |    |      |  |        |    |  |  |      |   |  |  |     
|                                             | Pro-Forma                                                                                                                                           |                     |  | (638        | )  |      |  | (1,055 | )  |  |  | 231  |   |  |  | 382  |  
|                                             |                                                                                                                                                     |                     |  |             |    |      |  |        |    |  |  |      |   |  |  |     
|Net (loss) earnings per share under US GAAP: |                                                                                                                                                     |                     |  |             |    |      |  |        |    |  |  |      |   |  |  |     
|                                             | Basic  as reported(i)                                                                                                                              |                     |  | (33.8       | )p |      |  | (55.5  | )p |  |  | 14.9 | p |  |  | 24.7 | c
|                                             | Basic  pro-forma(i)                                                                                                                                |                     |  | (34.6       | )p |      |  | (55.9  | )p |  |  | 12.1 | p |  |  | 19.9 | c
|                                             | Diluted  as reported(i)                                                                                                                            |                     |  | (33.8       | )p |      |  | (55.5  | )p |  |  | 14.7 | p |  |  | 24.3 | c
|                                             | Diluted  pro-forma(i)                                                                                                                              |                     |  | (34.6       | )p |      |  | (55.9  | )p |  |  | 11.9 | p |  |  | 19.7 | c






|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | All net earnings (loss) per share are disclosed
    after cumulative effect on prior years (to June 30, 2000)
    of implementation of SFAS No. 133.

The movement in stock-based awards outstanding
during the three years ended June 30, 2003 is summarized in
the following table:

|                             |  |                  |            |                  |  |   |       | 
|---------------------------- |  | ---------------- | ---------- | ---------------- |  | - | ----- | 
|                             |  | Number of shares |            | Weighted average
|                             |  | under option     |            | exercise price  
|                             |  |                  |            |                 
|Outstanding at June 30, 2000 |  |                  | 19,924,492 |                  |  | £ | 5.65  | 
|Granted during fiscal 2001   |  |                  | 17,232,761 |                  |  | £ | 9.85  | 
|Lapsed during fiscal 2001    |  |                  | (513,319   | )                |  | £ | 10.48 | 
|Cancelled during fiscal 2001 |  |                  | (293,629   | )                |  | £ | 13.54 | 
|Exercised during fiscal 2001 |  |                  | (2,808,136 | )                |  | £ | 5.28  | 
|                             |  |                  |            |                  |  |   |       | 
|Outstanding at June 30, 2001 |  |                  | 33,542,169 |                  |  | £ | 7.69  | 
|Granted during fiscal 2002   |  |                  | 16,280,669 |                  |  | £ | 7.83  | 
|Lapsed during fiscal 2002    |  |                  | (1,639,388 | )                |  | £ | 8.61  | 
|Cancelled during fiscal 2002 |  |                  | (66,170    | )                |  | £ | 8.78  | 
|Exercised during fiscal 2002 |  |                  | (5,104,577 | )                |  | £ | 5.64  | 
|                             |  |                  |            |                  |  |   |       | 
|Outstanding at June 30, 2002 |  |                  | 43,012,703 |                  |  | £ | 7.95  | 
|Granted during fiscal 2003   |  |                  | 15,401,535 |                  |  | £ | 5.31  | 
|Lapsed during fiscal 2003    |  |                  | (2,575,366 | )                |  | £ | 7.23  | 
|Exercised during fiscal 2003 |  |                  | (2,235,488 | )                |  | £ | 7.08  | 
|                             |  |                  |            |                  |  |   |       | 
|Outstanding at June 30, 2003 |  |                  | 53,603,384 |                  |  | £ | 7.26  | 
|                             |  |                  |            |                  |  |   |       | 

F-72



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The awards outstanding can be summarized as
follows:

|                                      |  |                 |            |                 |  |  |            | 
|------------------------------------- |  | --------------- | ---------- | --------------- |  |  | ---------- | 
|                                      |  | Number of       |            | Number of      
|                                      |  | Ordinary Shares |            | Ordinary Shares
|Scheme                                |  | June 30, 2002   |            | June 30, 2003  
|                                      |  |                 |            |                
|Executive Share Option Scheme options |  |                 | 32,522,881 |                 |  |  | 41,052,567 | 
|Sharesave Scheme options              |  |                 | 3,113,822  |                 |  |  | 3,749,134  | 
|LTIP awards                           |  |                 | 6,043,875  |                 |  |  | 7,269,683  | 
|KCP awards                            |  |                 | 1,332,125  |                 |  |  | 1,135,000  | 
|EBP awards                            |  |                 |           |                 |  |  | 397,000    | 
|                                      |  |                 |            |                 |  |  |            | 
|                                      |  |                 | 43,012,703 |                 |  |  | 53,603,384 | 
|                                      |  |                 |            |                 |  |  |            | 

Included within the total awards outstanding as
at June 30, 2003, are 40,518,101 options
(2002: 31,851,759) granted under the Executive Schemes,
7,269,683 options (2002: 6,043,875) granted under the
LTIP and 1,135,000 options (2002: 1,165,000) granted
under the KCP, which may be exercised in the final year before
their lapsing date, regardless of meeting performance criteria,
if applicable, provided that the employee remains in employment
with the Group. As at June 30, 2003 and 2002, all the
Sharesave Scheme options outstanding have no performance
criteria attached. Included within the total outstanding
Executive Schemes options, there are 3,907,213 options
(2002: 4,357,856) to which no performance criteria are
attached. In addition to the awards granted under the Executive
Schemes that may be exercised in the final year before their
lapsing date, regardless of meeting performance criteria, there
are also 534,466 options (2002: 671,122) that vest only if
performance criteria are met. Furthermore, all awards granted
under the EBP vest only if performance criteria are met.

Included within the KCP shares at June 30,
2002 were 167,125 shares awarded under the 2000 KCP award. Under
UK GAAP these are not disclosed within share options, as they
were an award of shares with no option attached. Under US GAAP,
due to their vesting being dependent upon meeting performance
criteria, they were subject to variable plan accounting in
accordance with APB No. 25. These awards were
exercised in the current year.

The weighted average fair value of options
granted in the current year was estimated at approximately
£3.16 (2002: £4.77; 2001: £5.13) as of the date
of grant using the Black-Scholes stock option pricing model,
based on the following weighted average assumptions: no annual
dividend; annual standard deviation (volatility) of 43% (2002:
44%; 2001: 38%); risk free interest rate of 4.39% (2002: 4.31%;
2001: 5.51%); and expected term of 8.9 years (2002:
9.4 years; 2001: 7.5 years).

Additionally, the weighted average exercise price
and fair value for options granted in the current year with an
exercise price below the market price at grant were estimated at
£4.75 and £2.90 (2002: £6.11 and £3.49;
2001: £8.24 and £5.25) 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 £5.40 and
£3.20 (2002: £8.00 and £4.90; 2001: £9.97
and £5.13) respectively.

The exercise prices for options outstanding at
June 30, 2003 ranged from £0.98 to £13.97 (2002:
£0.50 to £16.27; 2001: £0.50 to £16.27).

F-73



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The following table summarizes information about
the stock options outstanding at June 30, 2003:

|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 
|------------------------ |  | ------------------- | ---------- | ----------------------------- |  | -------------- | --------- | ------ |  | -------------- | ------ |  |  |  | ---------- |  |  |  | ------ | 
|                         |  |                     |            |                               |  |               
|                         |  | 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              |  |                     | 1,124      |                               |  |                | 6.3 years |        |  |                | £0.98  |  |  |  | 1,124      |  |  |  | £0.98  | 
|£2.00-£3.00              |  |                     | 172,795    |                               |  |                | 1.4 years |        |  |                | £2.56  |  |  |  | 172,795    |  |  |  | £2.56  | 
|£3.00-£4.00              |  |                     | 326,308    |                               |  |                | 2.0 years |        |  |                | £3.75  |  |  |  | 45,205     |  |  |  | £3.59  | 
|£4.00-£5.00              |  |                     | 2,452,582  |                               |  |                | 3.4 years |        |  |                | £4.72  |  |  |  | 173,376    |  |  |  | £4.43  | 
|£5.00-£6.00              |  |                     | 16,882,167 |                               |  |                | 7.3 years |        |  |                | £5.30  |  |  |  | 4,505,951  |  |  |  | £5.16  | 
|£6.00-£7.00              |  |                     | 6,056,567  |                               |  |                | 4.1 years |        |  |                | £6.36  |  |  |  | 4,771,066  |  |  |  | £6.40  | 
|£7.00-£8.00              |  |                     | 10,635,303 |                               |  |                | 8.4 years |        |  |                | £7.88  |  |  |  | 10,620,303 |  |  |  | £7.88  | 
|£8.00-£9.00              |  |                     | 3,766,582  |                               |  |                | 5.4 years |        |  |                | £8.32  |  |  |  | 1,727,268  |  |  |  | £8.35  | 
|£9.00-£10.00             |  |                     | 10,248,102 |                               |  |                | 7.2 years |        |  |                | £9.86  |  |  |  | 5,984,648  |  |  |  | £9.88  | 
|£10.00-£11.00            |  |                     | 2,550,001  |                               |  |                | 4.1 years |        |  |                | £10.06 |  |  |  | 2,550,001  |  |  |  | £10.06 | 
|£11.00-£12.00            |  |                     | 302,528    |                               |  |                | 7.1 years |        |  |                | £11.40 |  |  |  | 34,993     |  |  |  | £11.43 | 
|£12.00-£13.00            |  |                     | 167,808    |                               |  |                | 7.0 years |        |  |                | £12.75 |  |  |  | 121,731    |  |  |  | £12.90 | 
|£13.00-£14.00            |  |                     | 41,517     |                               |  |                | 6.8 years |        |  |                | £13.97 |  |  |  | 41,517     |  |  |  | £13.97 | 
|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 
|                         |  |                     | 53,603,384 |                               |  |                | 6.6 years |        |  |                | £7.26  |  |  |  | 30,749,978 |  |  |  | £7.82  | 
|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 

(b)  Statement of comprehensive (loss)
income

|                                                                               |  |      |      |      |  |      |        |             |  |  |     |  |  |  |     | 
|------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ------ | ----------- |  |  | --- |  |  |  | --- | 
|                                                                               |  |      |      |      |  |      |        | Convenience
|                                                                               |  |      |      |      |  |      |        | translation
|                                                                               |  | 2001 |      | 2002 |  | 2003 |        | 2003       
|                                                                               |  |      |      |      |  |      |        |            
|                                                                               |  | £m   |      | £m   |  | £m   |        | $m         
|Net (loss) income in accordance with US GAAP                                   |  |      | (625 | )    |  |      | (1,047 | )           |  |  | 286 |  |  |  | 473 | 
|Other comprehensive income, net of tax:                                        |  |      |      |      |  |      |        |             |  |  |     |  |  |  |     | 
|Unrealized (loss) gain on certain fixed asset
    investments                  |  |      | (56  | )    |  |      | 24     |             |  |  | 20  |  |  |  | 33  | 
|Foreign exchange (losses) gains recorded in
    cumulative translation reserve |  |      | (28  | )    |  |      | 11     |             |  |  |    |  |  |  |    | 
|Profit on deemed disposals                                                     |  |      | 14   |      |  |      |       |             |  |  |    |  |  |  |    | 
|                                                                               |  |      |      |      |  |      |        |             |  |  |     |  |  |  |     | 
|Net comprehensive (loss) income in accordance
    with US GAAP                 |  |      | (695 | )    |  |      | (1,012 | )           |  |  | 306 |  |  |  | 506 | 
|                                                                               |  |      |      |      |  |      |        |             |  |  |     |  |  |  |     | 

In fiscal 2003, there was no tax impact on net
comprehensive income (loss) of the above reconciling items
(fiscal 2002 and 2001: nil).

At June 30, 2003, the cumulative effect on
US GAAP shareholders funds was a net gain of
£11 million for fixed asset investments (2002: net
loss of £9 million), a net loss of
£10 million for foreign exchange differences (2002:
net loss of £10 million) and a net profit of
£14 million for deemed disposals (2002: net profit of
£14 million).

(c)  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 BSkyBs consolidated accounts. These
undertakings have been given for at least one year from the date
of the signing of the latest UK statutory accounts of the
subsidiary entity. A payment under these undertakings would only
be required in the event of a subsidiary being unable to

F-74



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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.

As at June 30, 2003, two of the Groups
subsidiary undertakings, British Sky Broadcasting Limited and
Sky Subscribers Services Limited, have given joint and several
guarantees in respect of the Companys obligations under
£200 million and £600 million revolving
credit facilities and the $650 million, $600 million,
$300 million and £100 million Guaranteed Notes.
The term of these guarantees corresponds with the term of the
relevant obligations.

The Company and various 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 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 and various of its subsidiaries have also agreed to
provide additional funding to several of the Companys
investments in both limited and unlimited companies and
partnerships. 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 £15 million.

(d)  Adoption of new standards

SFAS
No. 142, Goodwill and Other intangible
Assets

For a description of the implications of
implementing SFAS No. 142 in the current year see
Note 28  Goodwill.



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 148, Accounting for
    Stock-Based Compensation  Transition and
    Disclosure  an amendment of FASB Statement
    No. 123

In December 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123 (SFAS
No. 148). This Statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. SFAS No. 148 shall be effective for
financial statements for fiscal years ending after
December 15, 2002, and in some cases for interim periods
beginning after December 15, 2002. The Group has adopted
the disclosure provisions of SFAS No. 148 in the current
year and is in the process of evaluating the recognition
provisions.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | SFAS No. 149, Amendments of
    Statement 133 on Derivative Instruments and Hedging
    Activities

In April 2003, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 149, Amendments of Statement 133 on Derivative
Instruments and Hedging Activities (SFAS
No. 149). SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133.
SFAS No. 149 clarifies the circumstances in which a
contract with an initial net investment meets the definition of
a derivative, clarifies when a derivative contains a financing
component that warrants special cash flow reporting, and amends
the definition of an underlying within a derivative.

F-75



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


This statement is effective for contracts entered
into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003.

The Group does not believe that the adoption of
SFAS No. 149 will have a material impact on the Group
results of operations or its financial position.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 150, Accounting for
    Certain Financial Instruments with Characteristics of Both
    Liabilities and Equity

In May 2003, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity (SFAS
No. 150). SFAS No. 150 clarifies the accounting
for certain financial instruments that issuers previously
accounted for as equity, requiring such instruments to be
classified as liabilities in certain situations. SFAS
No. 150 is effective for all financial instruments entered
into or modified after May 31, 2003 and for interim periods
beginning after June 15, 2003.

The Group has adopted SFAS No. 150 in the
current year without a material impact on the Group results of
operations or its financial position.



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | FASB Interpretation No. 45,
    Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others

In November 2002, the Financial Accounting
Standards Board issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN No. 45). This Interpretation
elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. This Interpretation does
not prescribe a specific approach for subsequently measuring the
guarantors recognized liability over the term of the
related guarantee. This Interpretation also incorporates,
without change, the guidance in FIN No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being
superseded.

The provisions related to recognizing a liability
at inception for the fair value of the guarantors
obligation do not apply in several circumstances. One of the
exceptions is in the case of a parents guarantee of a
subsidiarys debt to a third party, and a subsidiarys
guarantee of the debt owed to a third party by either its parent
or another subsidiary of that parent, as is the case for the
Group. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors
fiscal year end. The disclosure requirements in this
Interpretation are effective for financial statements of interim
or annual periods ending after December 15, 2002.

The Group has adopted FIN No. 45 in the
current year without a material impact on the Group results of
operations or its financial position.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | FASB Interpretation No. 46,
    Consolidation of Variable Interest
    Entities

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN
No. 46). This clarification of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, applies
to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN No. 46 explains how to identify
variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to
consolidate that entity. It requires existing unconsolidated
variable interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse

F-76



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


risk among the parties involved. It also requires
certain disclosures by the primary beneficiary of a variable
interest entity and by an enterprise that holds significant
variable interests in a variable interest entity where the
enterprise is not the primary beneficiary.

FIN No. 46 is effective immediately for
variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains
an interest after that date. It applies in the first fiscal year
or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003,
with early adoption encouraged. FIN No. 46 requires an
entity to disclose certain information regarding a variable
interest entity, if, when the Interpretation becomes effective,
it is reasonably possible that an enterprise will consolidate or
have to disclose information about that variable interest
entity, regardless of the date on which the variable interest
entity was created. This Interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date
on which it is first applied or by restating previously issued
financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first
year restated.

The Group has adopted the disclosure provisions
of FIN No. 46 in the current year, has not created any new
variable interest entities after January 31, 2003, and does
not believe that the adoption of FIN No. 46 will have 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, Revenue Arrangement with
Multiple Deliverables. 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, will be presumed to be a package,
and the consideration will be 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 June 15, 2003.

The Group is in the process of evaluating the
requirements of this pronouncement.

29. Financing arrangements

At June 30, 2003, the Groups balance
sheet showed net liabilities of £105.7 million. The
Directors consider that the operating cash flows of the Group,
together with its own bank facilities, will be sufficient to
cover the Groups projected operating requirements and to
settle or refinance the Groups other liabilities as they
fall due, for a minimum period of 12 months from the date
of signing these financial statements. Accordingly the financial
statements are prepared on a going concern basis.

30. Supplemental guarantor
information

From time to time the Company may issue debt
securities which are guaranteed, on a full and unconditional
basis, by the Companys two main wholly owned operating
subsidiaries, British Sky Broadcasting Limited and Sky
Subscribers Services Limited. The Company has issued in the US
public debt market in October 1996 US$300 million of
7.300% Guaranteed Notes repayable in October 2006, and in
February 1999 US$600 million of 6.875% Guaranteed
Notes repayable in February 2009. In July 1999 the Company
issued US$650 million and £100 million of
Regulation S/144A bonds with SEC registration rights
repayable in July 2009 at rates of 8.200% and 7.750%
respectively.

Supplemental condensed consolidating financial
information for the guarantors is presented below prepared in
accordance with the Groups accounting policies set out on
pages F-7 to F-11, except to the extent that investments in
subsidiaries have been accounted for by the equity method and
push down accounting has been applied for subsidiaries as
required by the Securities and Exchange Commission. The
Groups accounting policies are in accordance with UK GAAP.
This supplemental financial information should be read in
conjunction with the Consolidated Financial Statements.

F-77



---



##### Table of Contents





SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE
SHEET

As at June 30,
2002(2)

(£ millions)

|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |      |  
|-------------------------------------------------------------------- | ------------------------------ | ------------ | ------ | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ------ | --- | - |  | ------ | ---- | - |  | ------ | ---- | -
|                                                                     |                                | (3)          |        |              |   |               |        |                   |   |             
|                                                                     |                                | British Sky  |        | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                     |                                | Broadcasting |        | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                     |                                | Group plc    |        | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                     |                                |              |        |              |   |               |        |                   |   |             
|Fixed assets                                                         |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Intangible assets                                                    |                                |              |       |              |   |               |       |                   |   |              | 657    |     |   |  |       |      |   |  | 657    |     
|Tangible assets                                                      |                                |              | 2      |              |   |               | 323    |                   |   |              | 18     |     |   |  |       |      |   |  | 343    |     
|Investments                                                          |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
| Joint ventures                                                     |                                |              |       |              |   |               |       |                   |   |              | 22     |     |   |  |       |      |   |  | 22     |     
| Own shares                                                         |                                |              |       |              |   |               | 42     |                   |   |              |       |     |   |  |       |      |   |  | 42     |     
| Investment in football clubs and new
    media                     |                                |              | 61     |              |   |               | 1      |                   |   |              | 3      |     |   |  |       |      |   |  | 65     |     
| Investments in subsidiary
    undertakings under the equity method |                                |              | 1,392  |              |   |               | 104    |                   |   |              | 580    |     |   |  | (2,076 | )    |   |  |       |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | 1,455  |              |   |               | 470    |                   |   |              | 1,280  |     |   |  | (2,076 | )    |   |  | 1,129  |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Current assets                                                       |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Stocks                                                               |                                |              |       |              |   |               | 365    |                   |   |              | 49     |     |   |  |       |      |   |  | 414    |     
|Debtors: Amounts due after one year                                  |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
| Third party debtors                                                |                                |              | 60     |              |   |               | 85     |                   |   |              | 62     |     |   |  |       |      |   |  | 207    |     
|Debtors: Amounts due within one year                                 |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
| Intragroup debtors                                                 |                                |              | 952    |              |   |               | 603    |                   |   |              | 601    |     |   |  | (2,156 | )    |   |  |       |     
| Third party debtors                                                |                                |              | 4      |              |   |               | 335    |                   |   |              | 62     |     |   |  |       |      |   |  | 401    |     
|Cash at bank and in hand                                             |                                |              |       |              |   |               | 42     |                   |   |              | 8      |     |   |  |       |      |   |  | 50     |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | 1,016  |              |   |               | 1,430  |                   |   |              | 782    |     |   |  | (2,156 | )    |   |  | 1,072  |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Creditors                                                            |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Amounts falling due within one year                                  |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
| Intragroup creditors                                               |                                |              | (418   | )            |   |               | (1,153 | )                 |   |              | (577   | )   |   |  | 2,148  |      |   |  |       |     
| Third party creditors                                              |                                |              | (49    | )            |   |               | (782   | )                 |   |              | (74    | )   |   |  |       |      |   |  | (905   | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | (467   | )            |   |               | (1,935 | )                 |   |              | (651   | )   |   |  | 2,148  |      |   |  | (905   | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Net current assets (liabilities)                                     |                                |              | 549    |              |   |               | (505   | )                 |   |              | 131    |     |   |  | (8     | )    |   |  | 167    |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Total assets less current
    liabilities                            |                                |              | 2,004  |              |   |               | (35    | )                 |   |              | 1,411  |     |   |  | (2,084 | )    |   |  | 1,296  |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Creditors                                                            |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Amounts falling due after one year                                   |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
| Intragroup borrowings                                              |                                |              | (736   | )            |   |               |       |                   |   |              | (211   | )   |   |  | 947    |      |   |  |       |     
| Third party borrowings                                             |                                |              | (1,569 | )            |   |               | (8     | )                 |   |              |       |     |   |  |       |      |   |  | (1,577 | )   
| Other                                                              |                                |              |       |              |   |               | (15    | )                 |   |              | (1     | )   |   |  |       |      |   |  | (16    | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | (2,305 | )            |   |               | (23    | )                 |   |              | (212   | )   |   |  | 947    |      |   |  | (1,593 | )   
|Provisions                                                           |                                |              |       |              |   |               |       |                   |   |              | (4     | )   |   |  |       |      |   |  | (4     | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | (301   | )            |   |               | (58    | )                 |   |              | 1,195  |     |   |  | (1,137 | )    |   |  | (301   | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Capital and reserves 
    equity                                    |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Called-up share capital                                              |                                |              | 947    |              |   |               | 10     |                   |   |              | 877    |     |   |  | (887   | )    |   |  | 947    |     
|Share premium account                                                |                                |              | 2,410  |              |   |               | 242    |                   |   |              | 2,242  |     |   |  | (2,484 | )    |   |  | 2,410  |     
|Shares to be issued                                                  |                                |              | 256    |              |   |               |       |                   |   |              |       |     |   |  |       |      |   |  | 256    |     
|Profit and loss account                                              |                                |              | (4,180 | )            |   |               | (310   | )                 |   |              | (3,491 | )   |   |  | 3,801  |      |   |  | (4,180 | )   
|Application of push down accounting                                  |                                |              |       |              |   |               |       |                   |   |              | 657    |     |   |  | (657   | )    |   |  |       |     
|Other reserves                                                       |                                |              | 266    |              |   |               |       |                   |   |              | 910    |     |   |  | (910   | )    |   |  | 266    |     
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|TOTAL CAPITAL AND RESERVES                                           |                                |              | (301   | )            |   |               | (58    | )                 |   |              | 1,195  |     |   |  | (1,137 | )    |   |  | (301   | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Reconciliation to US GAAP:                                           |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Capital and reserves under UK GAAP                                   |                                |              | (301   | )            |   |               | (58    | )                 |   |              | 1,195  |     |   |  | (1,137 | )    |   |  | (301   | )   
|Adjustments:                                                         |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     | Goodwill                       |              |        | 426          |   |               |        |                  |   |              |        | 426 |   |  |        | (426 | ) |  |        | 426  |  
|                                                                     | ESOP                           |              |        | (42          | ) |               |        | (42               | ) |              |        |    |   |  |        | 42   |   |  |        | (42  | )
|                                                                     | Employee stock-based provision |              |        | 26           |   |               |        | 26                |   |              |        |    |   |  |        | (26  | ) |  |        | 26   |  
|                                                                     | Derivative accounting          |              |        | (6           | ) |               |        | (25               | ) |              |        |    |   |  |        | 25   |   |  |        | (6   | )
|                                                                     | Capitalized interest           |              |        | 8            |   |               |        | 8                 |   |              |        |    |   |  |        | (8   | ) |  |        | 8    |  
|                                                                     | Deferred taxation              |              |        | 10           |   |               |        | 10                |   |              |        |    |   |  |        | (10  | ) |  |        | 10   |  
|                                                                     | Fixed asset investments        |              |        | (9           | ) |               |        |                  |   |              |        | (3  | ) |  |        | 3    |   |  |        | (9   | )
|                                                                     | Deferred consideration         |              |        | (253         | ) |               |        |                  |   |              |        |    |   |  |        |     |   |  |        | (253 | )
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Shareholders (deficit) funds under
    US GAAP                      |                                |              | (141   | )            |   |               | (81    | )                 |   |              | 1,618  |     |   |  | (1,537 | )    |   |  | (141   | )   
|                                                                     |                                |              |        |              |   |               |        |                   |   |              |        |     |   |  |        |      |   |  |        |     

See notes to supplemental guarantor
information.

F-78



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE
SHEET

As at June 30,
2003(2)

(£ millions)

|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     |  
|-------------------------------------------------------------------- | -------------------------------------------------------------- | ------------ | ------ | ------------ | - | ------------ | ------ | ----------------- | - | ------------ | ------ | --- | - |  | ------ | ---- | - |  | ------ | --- | -
|                                                                     |                                                                | (3)          |        |              |   |              |        |                   |   |             
|                                                                     |                                                                | British Sky  |        | (1)(3)       |   | Non-         |        | Reclassifications |   | BSkyB       
|                                                                     |                                                                | Broadcasting |        | Guarantor    |   | Guarantor    |        | and               |   | Group and   
|                                                                     |                                                                | Group plc    |        | Subsidiaries |   | Subsidiaries |        | eliminations      |   | Subsidiaries
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |             
|Fixed assets                                                         |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Intangible assets                                                    |                                                                |              |       |              |   |              |       |                   |   |              | 536    |     |   |  |       |      |   |  | 536    |    
|Tangible assets                                                      |                                                                |              | 2      |              |   |              | 323    |                   |   |              | 19     |     |   |  | 2      |      |   |  | 346    |    
|Investments                                                          |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
| Joint ventures                                                     |                                                                |              |       |              |   |              |       |                   |   |              | 30     |     |   |  |       |      |   |  | 30     |    
| Own shares                                                         |                                                                |              |       |              |   |              | 35     |                   |   |              |       |     |   |  |       |      |   |  | 35     |    
| Investment in football clubs and new
    media                     |                                                                |              | 43     |              |   |              | 1      |                   |   |              |       |     |   |  |       |      |   |  | 44     |    
| Investments in subsidiary
    undertakings under the equity method |                                                                |              | 1,525  |              |   |              | 222    |                   |   |              | 734    |     |   |  | (2,481 | )    |   |  |       |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | 1,570  |              |   |              | 581    |                   |   |              | 1,319  |     |   |  | (2,479 | )    |   |  | 991    |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Current assets                                                       |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Stocks                                                               |                                                                |              |       |              |   |              | 330    |                   |   |              | 41     |     |   |  |       |      |   |  | 371    |    
|Debtors: Amounts due after one year                                  |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
| Third party debtors                                                |                                                                |              | 112    |              |   |              | 51     |                   |   |              | 60     |     |   |  |       |      |   |  | 223    |    
|Debtors: Amounts due within one year                                 |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
| Intragroup debtors                                                 |                                                                |              | 506    |              |   |              | 853    |                   |   |              | 680    |     |   |  | (2,039 | )    |   |  |       |    
| Third party debtors                                                |                                                                |              | 38     |              |   |              | 304    |                   |   |              | 52     |     |   |  |       |      |   |  | 394    |    
|Cash at bank and in hand                                             |                                                                |              |       |              |   |              | 40     |                   |   |              | 6      |     |   |  |       |      |   |  | 46     |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | 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    | )   |   |  |       |      |   |  | (955   | )  
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | (452   | )            |   |              | (1,717 | )                 |   |              | (1,089 | )   |   |  | 2,303  |      |   |  | (955   | )  
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Net current assets (liabilities)                                     |                                                                |              | 204    |              |   |              | (139   | )                 |   |              | (250   | )   |   |  | 264    |      |   |  | 79     |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Total assets less current
    liabilities                            |                                                                |              | 1,774  |              |   |              | 442    |                   |   |              | 1,069  |     |   |  | (2,215 | )    |   |  | 1,070  |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Creditors                                                            |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Amounts falling due after one year                                   |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
| Intragroup borrowings                                              |                                                                |              | (736   | )            |   |              | (214   | )                 |   |              | (45    | )   |   |  | 995    |      |   |  |       |    
| Third party borrowings                                             |                                                                |              | (1,144 | )            |   |              | (8     | )                 |   |              |       |     |   |  |       |      |   |  | (1,152 | )  
| Other                                                              |                                                                |              |       |              |   |              | (21    | )                 |   |              |       |     |   |  |       |      |   |  | (21    | )  
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | (1,880 | )            |   |              | (243   | )                 |   |              | (45    | )   |   |  | 995    |      |   |  | (1,173 | )  
|Provisions                                                           |                                                                |              |       |              |   |              |       |                   |   |              | (3     | )   |   |  |       |      |   |  | (3     | )  
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | (106   | )            |   |              | 199    |                   |   |              | 1,021  |     |   |  | (1,220 | )    |   |  | (106   | )  
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Capital and reserves 
    equity                                    |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Called-up share capital                                              |                                                                |              | 969    |              |   |              | 10     |                   |   |              | 576    |     |   |  | (586   | )    |   |  | 969    |    
|Share premium account                                                |                                                                |              | 2,535  |              |   |              | 242    |                   |   |              | 2,250  |     |   |  | (2,492 | )    |   |  | 2,535  |    
|Shares to be issued                                                  |                                                                |              | 3      |              |   |              |       |                   |   |              |       |     |   |  |       |      |   |  | 3      |    
|Profit and loss account                                              |                                                                |              | (3,912 | )            |   |              | (53    | )                 |   |              | (3,251 | )   |   |  | 3,304  |      |   |  | (3,912 | )  
|Application of push down accounting                                  |                                                                |              |       |              |   |              |       |                   |   |              | 536    |     |   |  | (536   | )    |   |  |       |    
|Other reserves                                                       |                                                                |              | 299    |              |   |              |       |                   |   |              | 910    |     |   |  | (910   | )    |   |  | 299    |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|TOTAL CAPITAL AND RESERVES                                           |                                                                |              | (106   | )            |   |              | 199    |                   |   |              | 1,021  |     |   |  | (1,220 | )    |   |  | (106   | )  
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Reconciliation to US GAAP:                                           |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Capital and reserves under UK GAAP                                   |                                                                |              | (106   | )            |   |              | 199    |                   |   |              | 1,021  |     |   |  | (1,220 | )    |   |  | (106   | )  
|Adjustments:                                                         |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     | Goodwill                                                       |              |        | 522          |   |              |        |                  |   |              |        | 522 |   |  |        | (522 | ) |  |        | 522 |  
|                                                                     | ESOP                                                           |              |        | (35          | ) |              |        | (35               | ) |              |        |    |   |  |        | 35   |   |  |        | (35 | )
|                                                                     | Employee stock-based provision                                 |              |        | 48           |   |              |        | 48                |   |              |        |    |   |  |        | (48  | ) |  |        | 48  |  
|                                                                     | Derivative accounting                                          |              |        | 11           |   |              |        | (29               | ) |              |        |    |   |  |        | 29   |   |  |        | 11  |  
|                                                                     | Capitalized 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  | )
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    
|Shareholders funds under
    US GAAP                                |                                                                |              | 448    |              |   |              | 197    |                   |   |              | 1,541  |     |   |  | (1,738 | )    |   |  | 448    |    
|                                                                     |                                                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |    

See notes to supplemental guarantor
information.

F-79



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended June 30,
2001(2)

(£ millions)

|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |      |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------ | ---- | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ------ | ------ | - |  | ----- | ----- | - |  | ------ | ---- | -
|                                                                      |                                                                                       | (3)          |      |              |   |               |        |                   |   |             
|                                                                      |                                                                                       | British Sky  |      | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                      |                                                                                       | Broadcasting |      | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                      |                                                                                       | Group plc    |      | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |             
|Turnover                                                              |                                                                                       |              |     |              |   |               | 2,314  |                   |   |              | 535    |        |   |  | (543  | )     |   |  | 2,306  |     
|Operating expenses, net                                               |                                                                                       |              |     |              |   |               | (2,136 | )                 |   |              | (626   | )      |   |  | 549   |       |   |  | (2,213 | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Operating profit (loss)                                               |                                                                                       |              |     |              |   |               | 178    |                   |   |              | (91    | )      |   |  | 6     |       |   |  | 93     |     
|Share of results of joint ventures                                    |                                                                                       |              |     |              |   |               | (131   | )                 |   |              | (323   | )      |   |  | 198   |       |   |  | (256   | )   
|Share of losses of subsidiary undertakings                            |                                                                                       |              | (163 | )            |   |               | (39    | )                 |   |              |       |        |   |  | 202   |       |   |  |       |     
|Joint ventures goodwill amortization                                 |                                                                                       |              |     |              |   |               |       |                   |   |              | (101   | )      |   |  |      |       |   |  | (101   | )   
|Provision against investments                                         |                                                                                       |              |     |              |   |               |       |                   |   |              | (10    | )      |   |  |      |       |   |  | (10    | )   
|Loss on sale of fixed asset investment                                |                                                                                       |              |     |              |   |               |       |                   |   |              | (70    | )      |   |  |      |       |   |  | (70    | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|(Loss) profit on ordinary activities before
    interest and taxation |                                                                                       |              | (163 | )            |   |               | 8      |                   |   |              | (595   | )      |   |  | 406   |       |   |  | (344   | )   
|Interest receivable and similar income                                |                                                                                       |              | 82   |              |   |               | 16     |                   |   |              | 120    |        |   |  | (197  | )     |   |  | 21     |     
|Interest payable and similar charges                                  |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
| on external financing                                               |                                                                                       |              | (124 | )            |   |               | (1     | )                 |   |              | (28    | )      |   |  |      |       |   |  | (153   | )   
| intragroup interest                                                 |                                                                                       |              | (60  | )            |   |               | (90    | )                 |   |              | (47    | )      |   |  | 197   |       |   |  |       |     
|Amounts written off investments                                       |                                                                                       |              | (286 | )            |   |               |       |                   |   |              | (1,126 | )      |   |  | 1,373 |       |   |  | (39    | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Loss on ordinary activities before
    taxation                       |                                                                                       |              | (551 | )            |   |               | (67    | )                 |   |              | (1,676 | )      |   |  | 1,779 |       |   |  | (515   | )   
|Taxation                                                              |                                                                                       |              | 12   |              |   |               | (34    | )                 |   |              | (2     | )      |   |  |      |       |   |  | (24    | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Loss for the year                                                     |                                                                                       |              | (539 | )            |   |               | (101   | )                 |   |              | (1,678 | )      |   |  | 1,779 |       |   |  | (539   | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Reconciliation to US GAAP:                                            |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Net loss under UK GAAP                                                |                                                                                       |              | (539 | )            |   |               | (101   | )                 |   |              | (1,678 | )      |   |  | 1,779 |       |   |  | (539   | )   
|Adjustments:                                                          |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|                                                                      | Goodwill                                                                              |              |      | 16           |   |               |        |                  |   |              |        | 16     |   |  |       | (16   | ) |  |        | 16   |  
|                                                                      | Transition provision                                                                  |              |      | (174         | ) |               |        | (174              | ) |              |        |       |   |  |       | 174   |   |  |        | (174 | )
|                                                                      | Employee stock-based compensation                                                     |              |      | (15          | ) |               |        | (15               | ) |              |        |       |   |  |       | 15    |   |  |        | (15  | )
|                                                                      | Derivative accounting                                                                 |              |      | (22          | ) |               |        | (9                | ) |              |        |       |   |  |       | 9     |   |  |        | (22  | )
|                                                                      | Capitalized interest                                                                  |              |      | (1           | ) |               |        | (1                | ) |              |        |       |   |  |       | 1     |   |  |        | (1   | )
|                                                                      | Deferred taxation                                                                     |              |      | 59           |   |               |        | 55                |   |              |        |       |   |  |       | (55   | ) |  |        | 59   |  
|                                                                      | Amounts written off fixed asset investments                                           |              |      | (20          | ) |               |        |                  |   |              |        | (1     | ) |  |       | 1     |   |  |        | (20  | )
|                                                                      | Share of joint ventures loss on sale of
    investment                               |              |      | 69           |   |               |        |                  |   |              |        | 69     |   |  |       | (69   | ) |  |        | 69   |  
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|                                                                      | Net loss before cumulative effect of a change in
    accounting principle             |              |      | (627         | ) |               |        | (245              | ) |              |        | (1,594 | ) |  |       | 1,839 |   |  |        | (627 | )
|                                                                      | Cumulative effect on prior years
    (to June 30, 2000) of implementation of SFAS 133 |              |      | 2            |   |               |        |                  |   |              |        |       |   |  |       |      |   |  |        | 2    |  
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Net loss under US GAAP                                                |                                                                                       |              | (625 | )            |   |               | (245   | )                 |   |              | (1,594 | )      |   |  | 1,839 |       |   |  | (625   | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     

See notes to supplemental guarantor
information.

F-80



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended June 30,
2002(2)

(£ millions)

|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |     |  
|--------------------------------------------------------------------- | ----------------------------------------------- | ------------ | ------ | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ------ | --- | - |  | ----- | ---- | - |  | ------ | --- | -
|                                                                      |                                                 | (3)          |        |              |   |               |        |                   |   |             
|                                                                      |                                                 | British Sky  |        | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                      |                                                 | Broadcasting |        | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                      |                                                 | Group plc    |        | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |             
|Turnover                                                              |                                                 |              |       |              |   |               | 2,745  |                   |   |              | 616    |     |   |  | (585  | )    |   |  | 2,776  |    
|Operating expenses, net                                               |                                                 |              |       |              |   |               | (2,538 | )                 |   |              | (780   | )   |   |  | 597   |      |   |  | (2,721 | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Operating profit (loss)                                               |                                                 |              |       |              |   |               | 207    |                   |   |              | (164   | )   |   |  | 12    |      |   |  | 55     |    
|Share of results of joint ventures                                    |                                                 |              |       |              |   |               |       |                   |   |              | (76    | )   |   |  |      |      |   |  | (76    | )  
|Share of (losses) profits of subsidiary
    undertakings              |                                                 |              | (43    | )            |   |               | 69     |                   |   |              |       |     |   |  | (26   | )    |   |  |       |    
|Joint ventures goodwill amortization                                 |                                                 |              |       |              |   |               |       |                   |   |              | (1,070 | )   |   |  |      |      |   |  | (1,070 | )  
|Release of provision against investments                              |                                                 |              |       |              |   |               |       |                   |   |              | 10     |     |   |  |      |      |   |  | 10     |    
|Profit on sale of fixed asset investment                              |                                                 |              |       |              |   |               |       |                   |   |              | 2      |     |   |  |      |      |   |  | 2      |    
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit on ordinary activities before
    interest and taxation |                                                 |              | (43    | )            |   |               | 276    |                   |   |              | (1,298 | )   |   |  | (14   | )    |   |  | (1,079 | )  
|Interest receivable and similar income                                |                                                 |              | 97     |              |   |               | 19     |                   |   |              | 41     |     |   |  | (146  | )    |   |  | 11     |    
|Interest payable and similar charges                                  |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
| on external financing                                               |                                                 |              | (142   | )            |   |               | (1     | )                 |   |              | (5     | )   |   |  |      |      |   |  | (148   | )  
| intragroup interest                                                 |                                                 |              | (26    | )            |   |               | (110   | )                 |   |              | (10    | )   |   |  | 146   |      |   |  |       |    
|Amounts written off investments                                       |                                                 |              | (1,206 | )            |   |               |       |                   |   |              |       |     |   |  | 1,146 |      |   |  | (60    | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit on ordinary activities before
    taxation              |                                                 |              | (1,320 | )            |   |               | 184    |                   |   |              | (1,272 | )   |   |  | 1,132 |      |   |  | (1,276 | )  
|Taxation                                                              |                                                 |              | (63    | )            |   |               | (30    | )                 |   |              | (14    | )   |   |  |      |      |   |  | (107   | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit for the year                                            |                                                 |              | (1,383 | )            |   |               | 154    |                   |   |              | (1,286 | )   |   |  | 1,132 |      |   |  | (1,383 | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Reconciliation to US GAAP:                                            |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Net (loss) profit under UK GAAP                                       |                                                 |              | (1,383 | )            |   |               | 154    |                   |   |              | (1,286 | )   |   |  | 1,132 |      |   |  | (1,383 | )  
|Adjustments:                                                          |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|                                                                      | Goodwill                                        |              |        | 331          |   |               |        |                  |   |              |        | 331 |   |  |       | (331 | ) |  |        | 331 |  
|                                                                      | Transition provision                            |              |        | (19          | ) |               |        | (19               | ) |              |        |    |   |  |       | 19   |   |  |        | (19 | )
|                                                                      | Employee stock-based compensation               |              |        | (14          | ) |               |        | (14               | ) |              |        |    |   |  |       | 14   |   |  |        | (14 | )
|                                                                      | Derivative accounting                           |              |        | 14           |   |               |        | (16               | ) |              |        |    |   |  |       | 16   |   |  |        | 14  |  
|                                                                      | Provision for loss on disposal of subsidiary    |              |        | (10          | ) |               |        |                  |   |              |        | (10 | ) |  |       | 10   |   |  |        | (10 | )
|                                                                      | Amounts written back to fixed asset investments |              |        | 20           |   |               |        |                  |   |              |        | 1   |   |  |       | (1   | ) |  |        | 20  |  
|                                                                      | Share of results of joint ventures              |              |        | 14           |   |               |        |                  |   |              |        | 14  |   |  |       | (14  | ) |  |        | 14  |  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Net (loss) profit under US GAAP                                       |                                                 |              | (1,047 | )            |   |               | 105    |                   |   |              | (950   | )   |   |  | 845   |      |   |  | (1,047 | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    

See notes to supplemental guarantor
information.

F-81



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended June 30,
2003(2)

(£ millions)

|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |     |  
|--------------------------------------------------------------------- | ------------------------------------------- | ------------ | ---- | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ---- | --- | - |  | ---- | ---- | - |  | ------ | --- | -
|                                                                      |                                             | (3)          |      |              |   |               |        |                   |   |             
|                                                                      |                                             | British Sky  |      | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                      |                                             | Broadcasting |      | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                      |                                             | Group plc    |      | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                      |                                             |              |      |              |   |               |        |                   |   |             
|Turnover                                                              |                                             |              |     |              |   |               | 3,179  |                   |   |              | 580  |     |   |  | (573 | )    |   |  | 3,186  |    
|Operating expenses, net                                               |                                             |              | (5   | )            |   |               | (2,804 | )                 |   |              | (698 | )   |   |  | 575  |      |   |  | (2,932 | )  
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Operating (loss) profit                                               |                                             |              | (5   | )            |   |               | 375    |                   |   |              | (118 | )   |   |  | 2    |      |   |  | 254    |    
|Share of results of joint ventures                                    |                                             |              |     |              |   |               |       |                   |   |              | 3    |     |   |  |     |      |   |  | 3      |    
|Share of profits (losses) of subsidiary
    undertakings              |                                             |              | 135  |              |   |               | (21    | )                 |   |              |     |     |   |  | (114 | )    |   |  |       |    
|Amounts written off fixed asset investments, net                      |                                             |              | (18  | )            |   |               | (91    | )                 |   |              |     |     |   |  | 94   |      |   |  | (15    | )  
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) on ordinary activities before
    interest and taxation |                                             |              | 112  |              |   |               | 263    |                   |   |              | (115 | )   |   |  | (18  | )    |   |  | 242    |    
|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              |                                             |              | 68   |              |   |               | 317    |                   |   |              | (119 | )   |   |  | (138 | )    |   |  | 128    |    
|Taxation                                                              |                                             |              | 122  |              |   |               | (58    | )                 |   |              | (2   | )   |   |  |     |      |   |  | 62     |    
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) for the year                                            |                                             |              | 190  |              |   |               | 259    |                   |   |              | (121 | )   |   |  | (138 | )    |   |  | 190    |    
|Dividends                                                             |                                             |              |     |              |   |               |       |                   |   |              | (116 | )   |   |  | 116  |      |   |  |       |    
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Transfer to (from) reserves                                           |                                             |              | 190  |              |   |               | 259    |                   |   |              | (237 | )   |   |  | (22  | )    |   |  | 190    |    
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Reconciliation to US GAAP:                                            |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Net profit (loss) under UK GAAP                                       |                                             |              | 190  |              |   |               | 259    |                   |   |              | (121 | )   |   |  | (138 | )    |   |  | 190    |    
|Adjustments:                                                          |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|                                                                      | Goodwill                                    |              |      | 117          |   |               |        |                  |   |              |      | 117 |   |  |      | (117 | ) |  |        | 117 |  
|                                                                      | Employee stock-based compensation           |              |      | 4            |   |               |        | 4                 |   |              |      |    |   |  |      | (4   | ) |  |        | 4   |  
|                                                                      | Derivative accounting                       |              |      | 17           |   |               |        | (4                | ) |              |      |    |   |  |      | 4    |   |  |        | 17  |  
|                                                                      | Capitalized interest                        |              |      | (1           | ) |               |        | (1                | ) |              |      |    |   |  |      | 1    |   |  |        | (1  | )
|                                                                      | Deferred taxation                           |              |      | (36          | ) |               |        | (3                | ) |              |      | (20 | ) |  |      | 23   |   |  |        | (36 | )
|                                                                      | Amounts written off fixed asset investments |              |      | (3           | ) |               |        |                  |   |              |      |    |   |  |      |     |   |  |        | (3  | )
|                                                                      | Sky+ set-top boxes profit on sale           |              |      | (2           | ) |               |        |                  |   |              |      | (2  | ) |  |      | 2    |   |  |        | (2  | )
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    
|Net profit (loss) under US GAAP                                       |                                             |              | 286  |              |   |               | 255    |                   |   |              | (26  | )   |   |  | (229 | )    |   |  | 286    |    
|                                                                      |                                             |              |      |              |   |               |        |                   |   |              |      |     |   |  |      |      |   |  |        |    

See notes to supplemental guarantor
information.

F-82



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended June 30,
2001(2)

(£ millions)

|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------- | ---- | ----------------- |  | ------------ | ---- | - |  |  | -- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |      | (1)          |  |               |      | Reclassifications |  | BSkyB       
|                                                                                   |  | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | and               |  | Group and   
|                                                                                   |  | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | eliminations      |  | Subsidiaries
|                                                                                   |  |              |      |              |  |               |      |                   |  |             
|Operating activities                                                               |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Operating profit (loss)                                                            |  |              |     |              |  |               | 178  |                   |  |              | (91  | ) |  |  | 6  |   |  |  | 93   |  
|Depreciation charges                                                               |  |              |     |              |  |               | 59   |                   |  |              | 12   |   |  |  |   |   |  |  | 71   |  
|Amortization charges                                                               |  |              |     |              |  |               |     |                   |  |              | 44   |   |  |  |   |   |  |  | 44   |  
|Increase in stock                                                                  |  |              |     |              |  |               | (39  | )                 |  |              | (4   | ) |  |  |   |   |  |  | (43  | )
|Decrease (increase) in debtors                                                     |  |              | 2    |              |  |               | (43  | )                 |  |              | 18   |   |  |  |   |   |  |  | (23  | )
|Increase (decrease) in creditors                                                   |  |              | 6    |              |  |               | 140  |                   |  |              | (82  | ) |  |  |   |   |  |  | 64   |  
|Deferred revenue released                                                          |  |              |     |              |  |               | (4   | )                 |  |              |     |   |  |  |   |   |  |  | (4   | )
|Movement on provisions                                                             |  |              |     |              |  |               | (174 | )                 |  |              | 11   |   |  |  |   |   |  |  | (163 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash inflow (outflow) from operating
    activities                            |  |              | 8    |              |  |               | 117  |                   |  |              | (92  | ) |  |  | 6  |   |  |  | 39   |  
|Returns on investments and servicing of
    finance                                |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Interest received and similar income                                               |  |              |     |              |  |               | 5    |                   |  |              |     |   |  |  |   |   |  |  | 5    |  
|Interest paid and similar charges                                                  |  |              | (119 | )            |  |               | (2   | )                 |  |              |     |   |  |  |   |   |  |  | (121 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (outflow) inflow from returns on
    investments and servicing of finance |  |              | (119 | )            |  |               | 3    |                   |  |              |     |   |  |  |   |   |  |  | (116 | )
|Taxation                                                                           |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Consortium relief paid                                                             |  |              |     |              |  |               | (16  | )                 |  |              |     |   |  |  |   |   |  |  | (16  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Capital expenditure and financial
    investment                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Payments to acquire fixed assets                                                   |  |              |     |              |  |               | (127 | )                 |  |              | (6   | ) |  |  |   |   |  |  | (133 | )
|Payments to acquire fixed asset investments                                        |  |              | (25  | )            |  |               | (1   | )                 |  |              |     |   |  |  |   |   |  |  | (26  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              | (25  | )            |  |               | (128 | )                 |  |              | (6   | ) |  |  |   |   |  |  | (159 | )
|Acquisitions and disposals                                                         |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Purchase of subsidiary undertakings                                                |  |              | (27  | )            |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | (27  | )
|Net cash acquired with subsidiary undertakings                                     |  |              |     |              |  |               |     |                   |  |              | 12   |   |  |  |   |   |  |  | 12   |  
|Funding to joint ventures                                                          |  |              |     |              |  |               |     |                   |  |              | (137 | ) |  |  |   |   |  |  | (137 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow from acquisitions and
    disposals                               |  |              | (27  | )            |  |               |     |                   |  |              | (125 | ) |  |  |   |   |  |  | (152 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow before management of liquid
    resources and financing           |  |              | (163 | )            |  |               | (24  | )                 |  |              | (223 | ) |  |  | 6  |   |  |  | (404 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Management of liquid resources                                                     |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Decrease in short term deposits                                                    |  |              |     |              |  |               | 85   |                   |  |              |     |   |  |  |   |   |  |  | 85   |  
|Financing                                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Proceeds from issue of ordinary shares                                             |  |              | 7    |              |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | 7    |  
|Increase in total external debt                                                    |  |              | 358  |              |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | 358  |  
|Loans (to) from group companies                                                    |  |              | (198 | )            |  |               | (20  | )                 |  |              | 224  |   |  |  | (6 | ) |  |  |     |  
|Payments made on the issue of ordinary shares                                      |  |              | (4   | )            |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | (4   | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 163  |              |  |               | (20  | )                 |  |              | 224  |   |  |  | (6 | ) |  |  | 361  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Increase in cash                                                                   |  |              |     |              |  |               | 41   |                   |  |              | 1    |   |  |  |   |   |  |  | 42   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Increase in net debt                                                               |  |              | (160 | )            |  |               | (25  | )                 |  |              | (223 | ) |  |  | 6  |   |  |  | (402 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Reconciliation to US GAAP                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (used in) provided by operating
    activities                            |  |              | (111 | )            |  |               | 104  |                   |  |              | (92  | ) |  |  | 6  |   |  |  | (93  | )
|Net cash used in investing activities                                              |  |              | (52  | )            |  |               | (128 | )                 |  |              | (131 | ) |  |  |   |   |  |  | (311 | )
|Net cash provided by (used in) financing
    activities                            |  |              | 163  |              |  |               | (34  | )                 |  |              | 224  |   |  |  | (6 | ) |  |  | 347  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net (decrease) increase in cash and cash
    equivalents                           |  |              |     |              |  |               | (58  | )                 |  |              | 1    |   |  |  |   |   |  |  | (57  | )
|Cash and cash equivalents under US GAAP at
    the beginning of the year           |  |              |     |              |  |               | 276  |                   |  |              | 5    |   |  |  |   |   |  |  | 281  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Cash and cash equivalents under US GAAP
    at the end of the year                 |  |              |     |              |  |               | 218  |                   |  |              | 6    |   |  |  |   |   |  |  | 224  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  

See notes to supplemental guarantor
information.

F-83



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended June 30,
2002(2)

(£ millions)

|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------- | ---- | ----------------- |  | ------------ | ---- | - |  |  | --- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |      | (1)          |  |               |      | Reclassifications |  | BSkyB       
|                                                                                   |  | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | and               |  | Group and   
|                                                                                   |  | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | eliminations      |  | Subsidiaries
|                                                                                   |  |              |      |              |  |               |      |                   |  |             
|Operating activities                                                               |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Operating profit (loss)                                                            |  |              |     |              |  |               | 207  |                   |  |              | (164 | ) |  |  | 12  |   |  |  | 55   |  
|Depreciation charges                                                               |  |              |     |              |  |               | 70   |                   |  |              | 11   |   |  |  |    |   |  |  | 81   |  
|Amortization charges                                                               |  |              |     |              |  |               |     |                   |  |              | 118  |   |  |  |    |   |  |  | 118  |  
|(Increase) decrease in stock                                                       |  |              |     |              |  |               | (12  | )                 |  |              | 22   |   |  |  |    |   |  |  | 10   |  
|Decrease in debtors                                                                |  |              |     |              |  |               | 88   |                   |  |              | 13   |   |  |  |    |   |  |  | 101  |  
|Decrease in creditors                                                              |  |              |     |              |  |               | (39  | )                 |  |              | (41  | ) |  |  |    |   |  |  | (80  | )
|Deferred revenue released                                                          |  |              |     |              |  |               | (1   | )                 |  |              |     |   |  |  |    |   |  |  | (1   | )
|Movement on 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 fixed assets                                                   |  |              |     |              |  |               | (96  | )                 |  |              | (5   | ) |  |  |    |   |  |  | (101 | )
|Receipt from sales of intangible assets                                            |  |              |     |              |  |               |     |                   |  |              | 1    |   |  |  |    |   |  |  | 1    |  
|Purchase of own shares                                                             |  |              |     |              |  |               | (27  | )                 |  |              |     |   |  |  |    |   |  |  | (27  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              |     |              |  |               | (123 | )                 |  |              | (4   | ) |  |  |    |   |  |  | (127 | )
|Acquisitions and disposals                                                         |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Funding to joint ventures                                                          |  |              |     |              |  |               |     |                   |  |              | (12  | ) |  |  |    |   |  |  | (12  | )
|Repayment of funding from joint ventures                                           |  |              |     |              |  |               |     |                   |  |              | 5    |   |  |  |    |   |  |  | 5    |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash outflow from acquisitions and
    disposals                               |  |              |     |              |  |               |     |                   |  |              | (7   | ) |  |  |    |   |  |  | (7   | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (outflow) inflow before management of
    liquid resources and financing  |  |              | (140 | )            |  |               | 171  |                   |  |              | (37  | ) |  |  | 12  |   |  |  | 6    |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Management of liquid resources                                                     |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Decrease in short term deposits                                                    |  |              |     |              |  |               | 70   |                   |  |              |     |   |  |  |    |   |  |  | 70   |  
|Financing                                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Proceeds from issue of ordinary shares                                             |  |              | 14   |              |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | 14   |  
|Decrease in total external debt                                                    |  |              | (190 | )            |  |               | (2   | )                 |  |              |     |   |  |  |    |   |  |  | (192 | )
|Loans from (to) group companies                                                    |  |              | 318  |              |  |               | (345 | )                 |  |              | 39   |   |  |  | (12 | ) |  |  |     |  
|Payments made on the issue of ordinary shares                                      |  |              | (2   | )            |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | (2   | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 140  |              |  |               | (347 | )                 |  |              | 39   |   |  |  | (12 | ) |  |  | (180 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|(Decrease) increase in cash                                                        |  |              |     |              |  |               | (106 | )                 |  |              | 2    |   |  |  |    |   |  |  | (104 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|(Increase) decrease in net debt                                                    |  |              | (128 | )            |  |               | 171  |                   |  |              | (37  | ) |  |  | 12  |   |  |  | 18   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Reconciliation to US GAAP                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (used in) provided by operating
    activities                            |  |              | (140 | )            |  |               | 294  |                   |  |              | (26  | ) |  |  | 12  |   |  |  | 140  |  
|Net cash used in investing activities                                              |  |              |     |              |  |               | (123 | )                 |  |              | (11  | ) |  |  |    |   |  |  | (134 | )
|Net cash provided by (used in) financing
    activities                            |  |              | 140  |              |  |               | (347 | )                 |  |              | 39   |   |  |  | (12 | ) |  |  | (180 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net (decrease) increase in cash and cash
    equivalents                           |  |              |     |              |  |               | (176 | )                 |  |              | 2    |   |  |  |    |   |  |  | (174 | )
|Cash and cash equivalents under US GAAP at
    the beginning of the year           |  |              |     |              |  |               | 218  |                   |  |              | 6    |   |  |  |    |   |  |  | 224  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Cash and cash equivalents under US GAAP
    at the end of the year                 |  |              |     |              |  |               | 42   |                   |  |              | 8    |   |  |  |    |   |  |  | 50   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  

See notes to supplemental guarantor
information.

F-84



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended June 30,
2003(2)

(£ millions)

|                                                                                   |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |    | 
|---------------------------------------------------------------------------------- | --------------------------------- | ------------ | ---- | ------------ |  | ------------- | ---- | ----------------- |  | ------------ | ---- | - |  |  | -- | - |  |  | ---- | -- | 
|                                                                                   |                                   | British Sky  |      | (1)          |  |               |      | Reclassifications |  | BSkyB       
|                                                                                   |                                   | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | and               |  | Group and   
|                                                                                   |                                   | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | eliminations      |  | Subsidiaries
|                                                                                   |                                   |              |      |              |  |               |      |                   |  |             
|Operating activities                                                               |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   
|Operating (loss) profit                                                            |                                   |              | (5   | )            |  |               | 375  |                   |  |              | (118 | ) |  |  | 2  |   |  |  | 254  |   
|Depreciation charges                                                               |                                   |              |     |              |  |               | 93   |                   |  |              | 5    |   |  |  |   |   |  |  | 98   |   
|Amortization charges                                                               |                                   |              |     |              |  |               |     |                   |  |              | 122  |   |  |  |   |   |  |  | 122  |   
|Decrease in stock                                                                  |                                   |              |     |              |  |               | 36   |                   |  |              | 8    |   |  |  |   |   |  |  | 44   |   
|Decrease in debtors                                                                |                                   |              |     |              |  |               | 60   |                   |  |              | 28   |   |  |  |   |   |  |  | 88   |   
|Increase (decrease) in creditors                                                   |                                   |              |     |              |  |               | 75   |                   |  |              | (15  | ) |  |  |   |   |  |  | 60   |   
|Profit on sale of fixed assets                                                     |                                   |              |     |              |  |               | (1   | )                 |  |              |     |   |  |  |   |   |  |  | (1   | ) 
|Movement on provisions                                                             |                                   |              |     |              |  |               |     |                   |  |              | (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                                                                           |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   
|Corporation tax paid                                                               |                                   |              |     |              |  |               | (18  | )                 |  |              |     |   |  |  |   |   |  |  | (18  | ) 
|                                                                                   |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   
|Capital expenditure and financial
    investment                                   |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   
|Payments to acquire tangible fixed assets                                          |                                   |              |     |              |  |               | (90  | )                 |  |              | (9   | ) |  |  |   |   |  |  | (99  | ) 
|Receipts from sales of tangible fixed assets                                       |                                   |              |     |              |  |               | 1    |                   |  |              |     |   |  |  |   |   |  |  | 1    |   
|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                                                     |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   
|Decrease in short term deposits                                                    |                                   |              |     |              |  |               | 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                |  |              |      | 8 |  |  |    |  |  |  |      | 50 | 
|                                                                                   |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   
|Cash and cash equivalents under US GAAP at the
    end of the year                 |                                   |              |     |              |  |               | 40   |                   |  |              | 6    |   |  |  |   |   |  |  | 46   |   
|                                                                                   |                                   |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |   

See notes to supplemental guarantor
information.

F-85



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##### Table of Contents



Notes to Supplemental Guarantor
Information

(1) The Guarantors are:



|                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|British Sky Broadcasting 
     Limited |  | Operates one of the leading pay TV broadcasting
    services in the United Kingdom and Ireland. The Companys
    principal activities consist of the operation and distribution
    of twenty-five wholly-owned television channels in digital
    including the following fifteen channels and their multiplex
    versions: Sky Premier, Sky MovieMax, Sky Cinema, Sky
    Sports 1, Sky Sports 2, Sky Sports 3, Sky Sports
    Xtra, Sky One, Sky News, Sky Sports News, Sky Travel, Sky Travel
    Shop, 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 TV 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 elimination entries
relate to investments in subsidiaries and intercompany balances.

(3) Investments in Group subsidiaries are
accounted for by their parent company under the equity method of
accounting for the purposes of the supplemental combining
presentation only. Under the equity method, earnings of
subsidiary undertakings are reflected in the parent
companys investment account and earnings.

Separate financial statements of the subsidiary
guarantors are not included herein because the Company has
determined that such financial statements are not material to
investors.

31. Subsequent events

On July 22, 2003, the Group entered into a
binding agreement for the sale of its 9.9% equity investment in
Chelsea Village plc for consideration in cash of
£5.9 million.

On August 8, 2003, it was announced that the
Group had successfully bid for all four packages of exclusive
live UK rights to FA Premier League football from the beginning
of the 2004/05 season to the end of the 2006/07 season. The
total cost of the new agreement for the four UK live packages is
£1,024 million over three years. The Group has
received a request for information from the European Commission
concerning the bidding process in relation to these rights,
among others, as described in note 26.

On October 6, 2003, the Group entered into a
binding agreement for the sale of its 9.9% equity investment in
Manchester United PLC for consideration in cash of
£62.0 million.

F-86



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##### Table of Contents








GLOSSARY OF TERMS




|                                 |  |                                                                                                                                                                                                                                                                                                        
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ADR                              |  | American Depositary Receipt                                                                                                                                                                                                                                                                            
|                                
|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                                                                                                                                                                                                                                           
|                                
|BiB                              |  | British Interactive Broadcasting Holdings
    Limited  a subsidiary of the Group, which was a joint
    venture until May 9, 2001, and whose subsidiary, Sky
    Interactive Limited, delivers digitally-transmitted interactive
    services to TV viewers in the UK and Ireland                     
|                                
|bonus channel                    |  | A channel provided to a subscriber in addition to
    one or more subscription channels, but at no incremental cost to
    the subscriber                                                                                                                                                              
|                                
|BSkyB or the Company             |  | British Sky Broadcasting Group plc                                                                                                                                                                                                                                                                     
|                                
|DTH                              |  | Direct to home (i.e. the transmission of
    satellite services for reception by a viewer with satellite
    reception equipment)                                                                                                                                                                      
|                                
|DTT                              |  | Digital terrestrial television                                                                                                                                                                                                                                                                         
|                                
|EPG                              |  | Electronic program guide                                                                                                                                                                                                                                                                               
|                                
|fiscal year or fiscal            |  | Refers to the 12 months ended on the Sunday
    nearest to June 30, 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 |  | Disney Channel (including the three Disney
    multiplex channels, Toon Disney, Playhouse
    Disney and Disney Channel +1 hour),
    FilmFour (including the FilmFour multiplex channels,
    FilmFour +1 and FilmFour Weekly),
    MUTV, Chelsea TV, Artsworld, Star Plus and
    Star News
|                                
|Pub Channel                      |  | a wholly owned business to business television
    channel available only to the licensed retail trade                                                                                                                                                                                                 
|                                
|Sky Basic Channels               |  | Sky One, Sky One Mix, Sky News,
    Sky Travel, Sky Travel Extra, Sky Travel Shop,
    Sky Sports News, 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).                                                                           
|                                
|Sky Distributed Channels         |  | Television channels owned and broadcast by third
    parties, retailed by the Group to DTH viewers                                                                                                                                                                                                     
|                                
|Sky Premium Channels             |  | Sky Movies 1 and 2, Sky Sports 1,
    Sky Sports 2 and Sky Sports Xtra                                                                                                                                                                                                                                 
|                                
|Sky Venue                        |  | 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                                                                                                                                                                                                                                    
|                                
|VAT                              |  | Value Added Tax