##### 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 1934OR



x
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended 30 June 2006

OR



o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period from

to

OR



o
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report

Commission file number:
1-13488

British Sky Broadcasting Group plc

(Exact name of Registrant as specified in its charter)

England & Wales

(Jurisdiction of incorporation or organisation)

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

(Address of principal executive offices)



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

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






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

NONE


NONE




|                                                  |  |  |               | 
|------------------------------------------------- |  |  | ------------- | 
|Ordinary shares (nominal value 50p
    per share) |  |  | 1,791,077,599 | 



x o




o x




x o




x o o




o x


12b-2


o x










---



##### 

TABLE OF CONTENTS

|                                    |                                                   |  |     |     | 
|----------------------------------- | ------------------------------------------------- |  | --- | --- | 
|                                    | Chairmans
    statement                          |  |     | 3   | 
|                                   
|REVIEW OF THE
    BUSINESS          |                                                   |  |     |    
|                                    | Chief
    Executives Statement                   |  |     | 4   | 
|                                    | The business,
    its objectives and its strategy |  |     | 5   | 
|                                    | Corporate
    responsibility                      |  |     | 27  | 
|                                    | People                                            |  |     | 28  | 
|                                    | Risk
    factors                                  |  |     | 30  | 
|                                    | Government
    regulation                         |  |     | 34  | 
|                                   
|FINANCIAL
    REVIEW                |                                                   |  |     |    
|                                    | Introduction                                      |  |     | 46  | 
|                                    | Financial and
    operating review                |  |     | 49  | 
|                                    | Property                                          |  |     | 61  | 
|                                   
|REPORT OF THE
    DIRECTORS         |                                                   |  |     |    
|                                    | Board of
    Directors and senior management      |  |     | 63  | 
|                                    | Directors
    report                             |  |     | 67  | 
|                                    | Corporate
    governance report                   |  |     | 71  | 
|                                    | Report on
    Directors remuneration             |  |     | 78  | 
|                                   
|FINANCIAL
    STATEMENTS            |                                                   |  |     |    
|                                    | Statement of
    Directors responsibilities      |  |     | 89  | 
|                                    | Auditors
    report                              |  |     | 90  | 
|                                    | Consolidated
    financial statements             |  |     | 92  | 
|                                    | Group
    financial record                        |  |     | 182 | 
|                                   
|SHAREHOLDER
    INFORMATION         |                                                   |  | 185 |    
|                                   
|GLOSSARY OF
    TERMS               |                                                   |  | 201 |    
|                                   
|FORM 20-F
    CROSS REFERENCE GUIDE |                                                   |  | 204 |    
|Exhibit 2.4                        
|Exhibit 8                          
|Exhibit 12.1                       
|Exhibit 12.2                       
|Exhibit 13                         
|Exhibit 15                         



1



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##### Table of Contents

This constitutes the Annual Report on Form 20-F (the
20-F) of British Sky Broadcasting Group plc (the
Company) in accordance with the requirements of the
United States (US) Securities and Exchange
Commission (the SEC) and is dated 31 July 2006. This
document contains the information set out within the
Companys Annual Report in accordance with International
Financial Reporting Standards (IFRS) and with those
parts of the Companies Act 1985 applicable to companies
reporting under IFRS, dated 27 July 2006, as updated or
supplemented at the time of filing of the 20-F with the SEC.
References to IFRS refer to the application of International
Financial Reporting Standards, including International
Accounting Standards (IAS) and interpretations
issued by the International Accounting Standards Board
(IASB) and its committees, and as interpreted by any
regulatory bodies applicable to the Group and adopted for use in
the European Union (EU).

FORWARD LOOKING STATEMENTS

This document contains certain forward-looking statements within
the meaning of the United States Private Securities Litigation
Reform Act of 1995 with respect to our financial condition,
results of operations and business, and our strategy, plans and
objectives. These statements include, without limitation, those
that express forecasts, expectations and projections with
respect to the potential for growth of
free-to-air and pay
television, fixed line telephony, broadband and bandwidth
requirements, advertising growth, DTH subscriber growth,
Multiroom, Sky+ and other services penetration, churn, DTH and
other revenues, profitability and margin growth, cash flow
generation, programming and other costs, subscriber acquisition
costs and marketing expenditure, capital expenditure programmes
and proposals for returning capital to shareholders.

These statements (and all other forward-looking statements
contained in this document) are not guarantees of future
performance and are subject to risks, uncertainties and other
factors, some of which are beyond our control, are difficult to
predict and could cause actual results to differ materially from
those expressed or implied or forecast in the forward-looking
statements. These factors include, but are not limited to, the
fact that we operate in a highly competitive environment, the
effects of laws and government regulation upon our activities,
our reliance on technology, which is subject to risk, change and
development, failure of key suppliers, our ability to continue
to obtain exclusive rights to movies, sports events and other
programming content, risks inherent in the implementation of
large-scale capital expenditure projects, our ability to
continue to communicate and market our services effectively, and
the risks associated with our operation of digital television
transmission in the United Kingdom (UK) and Republic
of Ireland (Ireland).

Information on some of the risks and uncertainties associated
with our business are described in Review of the
Business  Risk Factors in this document. All
forward-looking statements in this document are based on
information known to us on the date hereof. Except as required
by law, we undertake no obligation publicly to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.

2



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##### Table of Contents

CHAIRMANS STATEMENT

The story of Skys continued success comes down to a single
factor. Rather than simply ensuring that the company keeps pace
with the tremendous changes that are occurring in broadcasting
and communications, we act as a facilitator of these changes. It
was what launched Sky on the path to growth in 1989 and our
strategic moves over the past 12 months ensure we will
continue to maintain a strong position in the marketplace and
meet the needs of an increasingly demanding audience.

In the past year we took a series of important steps that will
allow us to grow into new segments of the market and add value
to the offering our subscribers receive: we launched
Europes first national high-definition broadcast service,
completed preparations for the roll-out of residential broadband
services and the upgrade of our customer management systems.

The high definition television service, Sky HD, ranks as perhaps
the most significant development in television since the launch
of colour in the 1960s, delivering as it does pictures four
times as vivid as conventional broadcasts. The HD offering,
which involves the purchase of a Sky HD box, a high
definition-compatible TV and HD channels, is being rapidly
embraced by consumers.

This year we also moved beyond the broadcast stream. A package
of live channels can now be watched by consumers on the move via
their mobile phone. Sky by broadband enables premium customers
to download sports and movies to their PCs at no extra cost. A
quarter of a million customers have signed up for the service so
far. At the same time we completed the acquisition of the
broadband provider Easynet that will lead to the eventual
integration of broadband into the core customer offering. By the
end of 2007, we expect that Easynets unbundled local loop
service will have coverage of around 70% of UK homes.

We also successfully completed the implementation of new
customer management systems to help us serve subscribers better
and enable the group to improve sales, increase customer
satisfaction, reduce churn and bring to market new products and
services with greater speed and effectiveness.

Customers continue to be attracted to packages offering the
widest range of viewing choice available. The total number of
subscribers in the UK and Ireland grew 5% to 8.2 million,
representing approximately one in three homes in the UK and
Ireland. One in five of our customers also takes one of our
additional services such as Sky Multiroom or Sky+. The growth in
Sky+ has been a stand-out achievement of the year with 75%
growth to a presence in more than one and a half million homes.

In summary, the robustness of our current offering and the
addition of new and innovative services that give consumers
greater control of the viewing experience pave the way for
Skys continued success.

Having served on the Board of Directors for over 14 years,
Lord St John of Fawsley has decided not to seek re-election at
this years AGM and will retire from the Board. I would
like to thank Lord St John for his contribution to the Board
over many years. He will, however, still be connected with Sky
in his new role of Chairman of the Artsworld Channel, building
on his extensive experience as a patron of the arts.

Finally, I want to thank all my colleagues at
Sky  including those who have recently joined the
Group from Easynet  for their hard work and
dedication and for ensuring that Sky grasps the opportunities
that social and technological trends present to ensure we remain
leaders in the fields of entertainment, information and
communication.

Rupert Murdoch

Chairman

27 July 2006

3



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##### Table of Contents

REVIEW OF THE BUSINESS





CHIEF EXECUTIVES STATEMENT

This has been a year of significant changes  not just
for Sky, but for the entire industry. Throughout the year, our
focus has been on setting the pace of change, and re-affirming
our appetite to continue doing so.

The development and launch of new products and services that are
more flexible and of higher quality and value has been at the
centre of this.

Our new High Definition Television service is one example. It
represents the biggest revolution in TV picture quality in
decades, and once again Sky is leading the field by being the
first company to be able to offer the service nationally, across
the widest range of HD channels, ranging from Sky Sports to
Artsworld. And despite an early hiccup with one of our
suppliers, the vast majority of our very first HD customers were
able to enjoy the World Cup in glorious HD and Dolby 5.1
sound  and they loved it.

The acquisition of Easynet, completed in March, is another
example of our commitment to innovation for our customers. It
has prepared the way for Skys new generation of broadband
services. This is in addition to the already industry-leading
technology that includes the much-loved Sky+ and, more recently,
Sky by mobile.

With Sky Broadband weve designed an incredible product
which both rewards our loyal customers with a quality service
offering simplicity, flexibility, quality, and great value, and
opens up new and substantial growth opportunities for the
Company and all our shareholders. With special features like
free wireless access, security, parental controls and an
optional professional home installation across all packages,
were confident that Sky Broadband will be a simple choice
for millions of our customers  creating a new
dimension to our business whose potential we are only beginning
to see.

Each of Skys offerings sits at the top of the industry in
terms of choice, quality and delivery. In every case, signs
indicate that consumers are eager to take advantage of new
services, allowing us to capitalise on our capabilities and
deliver an unparalleled entertainment and communications
proposition.

This year we also completed the implementation of our new
customer management system. Our levels of customer service have
always led the industry, and it has proven to be a key
differentiator. By raising this bar even higher, we increase our
competitive advantage  and we can bring new
technology to the market faster, improve sales, provide better
service for our existing customers, and increase the efficiency
of our marketing. These and other customer-facing initiatives
are vital to Skys health and competitiveness.

All of the backstage activity that goes on at Sky will only be
effective if we continue to invest in the reason that people
subscribe to Sky  an extraordinary package of
onscreen content. This year we forged new deals with partners
ranging from Disney to the England and Wales Cricket Board. Our
partnership with Disney means we can now offer more family
entertainment to Sky customers, while the advent of legal movie
downloads means our range and accessibility grows every day.

We also became reacquainted with some old friends 
notably the FA Premier League and UEFA, with whom we have
negotiated to continue two of the successful partnerships that
have made Sky Sports the home of football.

These are just a few examples of the enormous activity and
enterprise that Sky people invest every day into making what
goes on screen for our customers the absolute best in its class.

We were busy on other fronts, too. This year we announced that,
through the measurement, reduction, and offsetting of our carbon
dioxide emissions, we have achieved carbon neutral status. It is
the first commitment of this kind by a major media company
anywhere. Caring about what our customers care about is at the
centre of our community activity, and I am personally proud to
be able to take such a firm stand on this issue, which is so
important to all our people at Sky, and is a growing and
important issue for our customers and their families.

The combination of technology, entertainment, and the continuing
dedication of our workforce has improved customer growth,
turnover, and earnings. We are healthy, strong and hungry and I
look forward to the coming year and all of the opportunity it
holds.

4



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##### Table of Contents

Thank you for your involvement.

James Murdoch

Chief Executive Officer





THE BUSINESS, ITS OBJECTIVES AND ITS STRATEGY

Introduction

British Sky Broadcasting Group plc and its subsidiaries operate
the leading pay television broadcast service in the UK and
Ireland. We acquire programming to broadcast on our own channels
and supply certain of those channels to cable operators for them
to retransmit to their subscribers in the UK and Ireland. We
retail channels (both our own and third parties) to
DTH subscribers and to a limited number of
DSL subscribers (references in this Annual Report to
DTH subscribers includes DSL subscribers). We also
make three of our channels available via the UK free-to-air DTT
platform, which markets itself under the brand
Freeview.

At 30 June 2006, there were 8,176,000 DTH subscribers
to our television service, and 3,898,000 subscribers of the
cable operators to whom we supply certain of our channels, in
the UK and Ireland. According to estimates of Broadcasters
Audience Research Board (BARB), as at 30 June
2006, there were 7,326,000 homes in the UK receiving certain of
our channels via DTT. Our total revenues in fiscal 2006 were
£4,148 million (2005: £3,842 million), as
set out in the table below.

|                        |  |      |       |  |      |  |       | 
|----------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                        |  | 2006 |       |  | 2005 | 
|For the year to 30 June |  | £m   |       |  | £m   | 
|                        | 
|DTH subscribers         |  |      | 3,154 |  |      |  | 2,968 | 
|Cable subscribers       |  |      | 224   |  |      |  | 219   | 
|Advertising             |  |      | 342   |  |      |  | 329   | 
|Sky Bet                 |  |      | 37    |  |      |  | 32    | 
|Sky Active              |  |      | 91    |  |      |  | 92    | 
|Other                   |  |      | 300   |  |      |  | 202   | 
|Total Revenues          |  |      | 4,148 |  |      |  | 3,842 | 
|                       












5



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##### Table of Contents

Programming

We provide subscribers with a broad range of programming
options. Our programming is an important factor in generating
and maintaining subscriptions to our channels. With respect to
the channels we own and operate, we incur significant expense to
acquire exclusive UK and Ireland television rights to films,
exclusive UK and Ireland television rights to broadcast certain
sports events live and television rights to other general
entertainment programming. We are dependent upon the licences
which grant us these rights as well as our Television Licensable
Content Service licences, telecommunication licences and
authorisations. We also produce and commission original
entertainment programming and have acquired the rights to market
the television services of third parties to DTH subscribers.
Currently, we own, operate and distribute 18 Sky Channels via
our DTH service (or 31 including multiplex versions of the Sky
Channels, but excluding the business channels SkyVenue and the
Pub Channel). A multiplex of a channel is generally
either a time-shifted version of that channel, or a version that
has predominantly the same theme or content as the primary
channel, but where the content is transmitted at different
times. We also simulcast some of our Channels or programming
from some of our Channels in high definition. A simulcast
channel is a simultaneous transmission of programmes on other
channels. We currently retail to our DTH subscribers 129 Sky
Distributed Channels (including multiplex versions of certain
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 our DTH
subscribers the digital audio services Music Choice and Music
Choice Extra, certain radio services and the Sky Box Office
service (a pay-per-view service offering movies, sporting events
and concerts).

The Sky Channels, and their multiplex versions, as at
27 July 2006, were as follows:

|                |  |                                                             |  |                                                                      |  |                          
|--------------- |  | ----------------------------------------------------------- |  | -------------------------------------------------------------------- |  | -------------------------
|Sky Channel     |  | Multiplex/Multiplexes                                       |  | Simulcasts                                                           |  | Channel Genre            
|               
|Sky Movies 1    |  | Sky Movies 3, Sky
    Movies 5, Sky Movies 7, Sky Movies 9  |  | Sky Movies 9 HD                                                      |  | Movies                   
|Sky Movies 2    |  | Sky Movies 4, Sky
    Movies 6, Sky Movies 8, Sky Movies 10 |  | Sky Movies 10 HD                                                     |  | Movies                   
|Sky Cinema 1    |  | Sky Cinema 2                                                |  |                                                                      |  | Movies                   
|Sky Sports 1    |  |                                                             |  | Sky Sports HD (of programming from
    Sky Sports 1 or Sky Sports 2) |  | Sports                   
|Sky Sports 2    |  |                                                             |  |                                                                      |  | Sports                   
|Sky Sports 3    |  |                                                             |  |                                                                      |  | Sports                   
|Sky Sports Xtra |  |                                                             |  |                                                                      |  | Sports                   
|Sky One         |  | Sky Two, Sky Three                                          |  | Sky One HD                                                           |  | Entertainment            
|Sky Vegas 845   |  |                                                             |  |                                                                      |  | Interactive entertainment
|Sky Vegas 846   |  |                                                             |  |                                                                      |  | Interactive entertainment
|Artsworld       |  |                                                             |  | Artsworld HD                                                         |  | Entertainment            
|Sky News        |  |                                                             |  |                                                                      |  | News                     
|Sky Sports News |  |                                                             |  |                                                                      |  | Sports News              
|Sky Travel      |  | Sky Travel+1, Sky Travel Extra                              |  |                                                                      |  | Entertainment            
|Sky Travel Shop |  |                                                             |  |                                                                      |  | Shopping                 
|Flaunt          |  |                                                             |  |                                                                      |  | Music                    
|Bliss           |  |                                                             |  |                                                                      |  | Music                    
|Scuzz           |  |                                                             |  |                                                                      |  | Music                    
|               

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##### Table of Contents

We retail packages of channels to our DTH
subscribers. These are combinations of channels at varying
prices. Various combinations of the Sky Basic Channels and the
Sky Distributed Channels (other than the Premium Sky Distributed
Channels) are available as basic tiers of programming, which
since 1 September 2005 range from 21 to 89 television
channels (as well as certain music audio and radio services).
These basic packages are collectively called the Basic
Packages.

We introduced a new style of packaging for new DTH subscribers
from 1 September 2005. The majority of existing DTH
subscribers at that date were on equivalent packages, and have
had their packages renamed to match the new style packaging. It
is intended that the remaining DTH subscribers, who were not on
equivalent packages, will be transferred across to the new
packaging in the near future. The new packaging offers
subscribers a choice of up to six mixes of both Sky
Basic Channels and Sky Distributed Channels, each mix
representing a genre of interest, to which subscribers have the
option to add a combination of one or more Sky Premium Channels,
and one or more Premium Sky Distributed Channels.

Prior to 1 September 2005, our DTH subscribers subscribed
to one of a number of stand alone Basic Packages, to which they
could have added, if they chose, one or more of the Sky Premium
Channel Packages, and one or more of the Premium Sky Distributed
Channels.

We also offer Sky Box Office to all our DTH subscribers. On
the DTH platform, the Sky Premium Channels, the Sky Basic
Channels (other than Sky News), Sky Box Office, Music
Choice and Music Choice Extra and the Sky Distributed Channels
are encrypted in order to limit access to paying subscribers
only.

ntl:Telewest (the entity formed by the merger of ntl Group
Limited (ntl) and Telewest Communications Plc
(Telewest)) currently carries versions of all of the
Sky Premium Channels (including multiplex channels) and our
PremPlus pay-per-view service (see description in
Pay-Per-View below) on its digital networks (see
Distribution  Cable Distribution below
for details and for details of the merger between ntl and
Telewest).

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

In October 2005, we launched Sky Three on our DTH service which
replaced Sky Travel on DTT. Sky Travel continues to be
available to our DTH subscribers and on ntls digital
network. Simultaneously with the launch of Sky Three, we renamed
Sky Mix as Sky Two.

In May 2006, we launched our High Definition Television
(HDTV) service. The initial Sky HD channel line up
consists of: Sky Sports HD (currently a simulcast of programmes
from Sky Sports 1 or Sky Sports 2), Sky Movies 9 HD
and Sky Movies 10 HD (and two Sky Box Office HD
channels), Sky One HD, Artsworld HD, Discovery HD and National
Geographic HD.

According to surveys produced by BARB, as of 30 June 2006,
an estimated 32% of the estimated 25.2 million television
homes in the UK were equipped with digital satellite reception
equipment; 14% subscribed to a cable television or SMATV
package (single mast antenna television which is primarily for
buildings that receive programming by means of a single
satellite antenna connected to a head end and which distributes
television signals to individual units in the building by
cable); and 29% had digital terrestrial television. The
percentage figures given for each means of delivery include
homes which receive television services via more than one of
such delivery means. According to BARB estimates, during the
52 weeks ended 30 June 2006, the Sky Channels
accounted for an estimated 21% of viewing of all satellite and
cable channels (excluding BBC1, BBC2, ITV1, Channel 4 (and S4C,
not Channel 4, in Wales only) and five (collectively the
traditionally analogue terrestrial channels)) in
homes that are able to receive those channels in the UK
(Multi-Channel Homes) (or an overall 9% viewing
share of all channels (including the traditionally analogue
terrestrial channels) available within Multi-Channel Homes
during the same period). The Sky Distributed Channels accounted
for the majority of the balance of viewing of satellite and
cable channels in such homes.

For the 52 weeks ended 30 June 2006, BARB estimates
that 51% of all viewing in UK homes with digital satellite
reception equipment (digital satellite homes) was of
channels available via the satellite platform other than the
traditionally analogue terrestrial channels. BARB estimates
that, in the same period, Sky Channels accounted for 26% of
multi-channel viewing (i.e. viewing of all channels excluding
the traditionally analogue terrestrial channels)

7



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##### Table of Contents

in UK digital satellite homes, with an overall 13% viewing share
across all channels available (including the traditionally
analogue terrestrial channels) within UK digital satellite homes.

We hold equity interests in ventures that own 15 (not including
time-shifted multiplex versions) of the Sky Distributed Channels
(including certain Premium Sky Distributed Channels) which are
operated and distributed in the UK, Ireland and the Channel
Islands, namely Attheraces, Nickelodeon, Nick Jr., Nick
Jr. 2, Nicktoons TV, National Geographic Channel, National
Geographic HD, Adventure One, Chelsea TV, MUTV, Paramount
Comedy, Paramount Comedy 2, The History Channel, the
Biography Channel, and Crime and Investigation Network. We also
have a 33.33% equity interest in the venture operating the Sky
News Australia Channel, which is based in Australia. In
September 2005, we disposed of our 35.8% equity interest in the
UK listed company which operates the audio services, Music
Choice and Music Choice Extra.

Premium Channels

Sky Premium Channels

Sky Movies 1, Sky Movies 2, Sky Cinema 1 and Sky
Movies HD

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

Sky Cinema 1 operates
24-hours per day, seven
days a week and primarily features library 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
multiplex, Sky Cinema 2, which is available free to DTH and
digital cable subscribers who receive Sky Cinema 1.

There are two Sky Movies HD channels dedicated to movies
broadcast in high definition: Sky Movies 9 HD and Sky
Movies 10 HD. Sky Movies 9 HD is available to
subscribers to our HD service who also subscribe to Sky
Movies 1, and Sky Movies 10 HD is available to
subscribers to our HD service who also subscribe to Sky
Movies 2. Sky Movies 9 HD and Sky Movies 10 HD
are a simulcast of Sky Movies 9 and Sky Movies 10
respectively.

As of 30 June 2006, there were approximately 5 million
UK and Irish DTH and cable subscribers to either Sky
Movies 1 or Sky Movies 2 and over 97% of movie
subscribers subscribed to both Sky Movies 1 and Sky
Movies 2.

Sky Sports 1, Sky Sports 2, Sky Sports 3, Sky
Sports Xtra and Sky Sports HD

Sky Sports 1 and Sky Sports 2 each provide, on
average, 22 hours or more of sports programming per day,
including live coverage of certain popular sports events. As at
30 June 2006, there were approximately 5.8 million UK
and Ireland DTH and cable subscribers to either Sky
Sports 1 or Sky Sports 2 and over 98% of these sports
subscribers subscribed to both Sky Sports 1 and Sky
Sports 2.

Sky Sports 3 currently offers, on average, 18 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.

Sky Sports Xtra is available as a stand alone premium channel as
well as being provided free as an additional channel to DTH and
digital cable subscribers to both Sky Sports 1 and Sky
Sports 2. Sky Sports Xtra currently offers, on average,
16 hours of sports programming per day.

Sky Sports HD is available to subscribers to our HD service who
subscribe to Sky Sports 1 and Sky Sports 2. Sky Sports
HD is currently a simulcast of programming broadcast on Sky
Sports 1 or Sky Sports 2. Sky Sports HD currently
offers live coverage of Englands home test matches, one
day internationals, and county matches in cricket. We intend to
launch a second HD Channel for sport during fiscal 2007 which
will provide simulcasts of additional programming from Sky
Sports 1 and Sky Sports 2. From the start of the
2006/07 season, we intend to

8



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##### Table of Contents

carry HD coverage of Barclays Premiership Football,
Coca-Cola Football
league, Carling Cup and some international games, and coverage
of matches from rugby unions Guinness Premiership and the
Heineken Cup final. We also intend to carry HD coverage of the
Ryder Cup in Ireland in September 2006.

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

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

In May 2006, the Group successfully bid for four of the six
available packages (each of 23 games) of exclusive live UK
audio visual rights to FAPL football, and four of the seven
packages of live audio visual rights for broadcast in Ireland,
from the beginning of the 2007/08 season to the end of the
2009/10 season. In addition, the Group has been awarded
near live long form rights to 242 games per
season of FAPL football in both the UK and Ireland (in the case
of the UK, in a joint bid with British
Telecommunications plc (BT)) from the beginning
of the 2007/08 season to the end of the 2009/10 season. In
July 2006, the Group was also awarded mobile clips rights to
FAPL football for the 2007/08 to 2009/10 seasons in both
the UK and Ireland. The bid for mobile clips rights in the UK
was made in partnership with News Group Newspapers.

The Group has obtained broadcast rights to sporting events
including (i) exclusive live rights to Englands
primary domestic cricket matches and all of Englands home
test matches and one day internationals for the 2006 to 2009
domestic cricket seasons; (ii) exclusive live rights to
Football League matches and the Carling Cup for the 2006/07 to
2008/09 domestic football seasons; (iii) a number of rugby
union matches including autumn international matches, Guinness
Premiership matches, England A Team matches from the 2005/06 to
2009/10 seasons and Heineken Cup matches from 2006/07 to
2009/10; and (iv) broadcast rights to the UEFA Champions
League for a further three seasons from the 2006/07 season.

Since July 2005, the Group has obtained broadcasting rights to a
number of sporting events including (i) exclusive rights to
Horse of the Year Show from 2005 to 2007, (ii) Hickstead
Royal International Horse Show from 2005 to 2007;
(iii) exclusively live rights in English for the
International Cricket Tours of India from 2006 to 2010;
(iv) exclusively live rights for the Cricket World Cup 2007
and ICC Champions Trophy; (v) exclusive rights to all
tri-nations rugby union
matches between Australia, New Zealand and South Africa, plus
all summer tours to these three countries made by England,
Scotland, Wales and Ireland and exclusive rights to domestic
competitions in those territories, including the Super 14
Tournament and Currie Cup; and (vi) exclusively live rights
to the Heineken Cup and the Challenge Cup for the 2006/07 to
2009/10 seasons.

Premium Sky Distributed Channels

Disney Cinemagic

Under an agreement with The Walt Disney Company Limited, we have
the exclusive rights to distribute, via DTH in the UK and
Ireland, Disney Cinemagic and its multiplex channel, as bonus
channels to those of our DTH subscribers receiving both of our
Sky Movies channels, and to other DTH subscribers as a stand
alone premium channel.

Chelsea TV

Chelsea Digital Media Limited (a company in which we own a 35%
equity interest), operates a digital subscription pay television
channel dedicated to showing certain programming relating to
Chelsea Football Club (Chelsea TV). We offer Chelsea
TV to our DTH subscribers solely as a stand alone premium
channel.

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##### Table of Contents

MUTV

We are party to a joint venture, MUTV Limited, with Manchester
United PLC and Granada Media Group Ltd (each party owning a
33.33% equity interest in MUTV Limited) which operates a digital
subscription pay television channel dedicated to showing certain
programming relating to Manchester United Football Club
(MUTV). We offer MUTV to our DTH subscribers solely
as a stand alone premium channel and also act as agent for the
distribution of the channel to cable operators in the UK and
Ireland.

Music Choice Extra

In addition to Music Choice, which is included in certain of our
Basic Packages (see Basic Channels  Basic Sky
Distributed Channels below), we offer Music Choice Extra,
which consists of 30 digital audio channels, to our DTH
subscribers solely as a stand alone premium channel.

Basic Channels

Sky Basic Channels

Sky One is the general entertainment flagship channel of the Sky
Channels. It is targeted primarily at a 16-44 age group audience
and includes first-run US entertainment programmes and
UK-commissioned factual and drama series and is broadcast on a
24-hour per day basis.
According to BARB surveys, during the 52 weeks ended
30 June 2006, Sky One was viewed by approximately 46%
of individuals in all UK television homes. Sky Two (formerly Sky
Mix until renamed in October 2005) is a multiplex version of Sky
One. Sky Three was launched in October 2005. Sky Three includes
a mixed schedule of programming from Sky Ones library as
well as original lifestyle commissions and travel documentaries
from Sky Travel. Sky One is simulcast in HD, available to all
subscribers to our HD service and includes a range of Sky One
programmes in high definition.

Sky News provides national and international news to viewers in
the UK, Ireland and across the globe. The channel is broadcast
unencrypted on Astra satellites (see Satellites
below), and distributed to viewers via cable and satellite
networks in Europe, Africa, the Middle East and Asia. It is also
shown on cable networks in the UK and Ireland and on DTT as part
of the Freeview offering in the UK.

Sky Sports News provides
24-hour national and
international sports news coverage. It is currently available to
our DTH subscribers, to subscribers to ntl:Telewests
digital cable television services, subscribers to certain other
smaller cable operators and in the UK on DTT as part of the
Freeview offering.

Sky Travel is a travel entertainment and retail business
incorporating four travel channels and a web-site. The primary
channel, Sky Travel, broadcasts travel entertainment and
teleshopping programming and is currently available to our DTH
subscribers, and on ntls digital cable television
services. Sky Travel programming also features on Sky Three,
which broadcasts on DTH and on DTT as part of the Freeview
offering. Sky Travel Extra is a multiplex of Sky Travel and is
available on DTH and ntls digital cable television
services. Sky Travel +1 was launched in November 2004 as a
multiplex of Sky Travel and is available on DTH. Viewers of the
teleshopping programming on Sky Travel Shop on DTH and users of
the skytravel.co.uk website are able to purchase a wide range of
flights, hotels and holiday packages by the telephone or
internet.

Flaunt, Bliss (formerly The Amp) and Scuzz are music channels
currently available to our DTH subscribers and to subscribers to
ntls digital cable television services.

In March 2004, we launched Sky Vegas Live, an interactive
entertainment and gambling channel. We have renamed Sky Vegas
Live as Sky Vegas 845 and launched Sky Vegas 846. Both channels
currently broadcast on a 24 hour per day basis and are
currently available to our DTH subscribers.

Artsworld broadcasts arts oriented programming, including
classical music, opera and dance. It is currently available to
our DTH subscribers as part of certain Basic Packages. Artsworld
is simulcast in HD, available to all subscribers to our HD
service.

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##### Table of Contents

Basic Sky Distributed Channels

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

We currently act as an agent for The History Channel, the
Biography Channel and MUTV for the sale of these channels and
their multiplexes (where they exist) to cable operators in the
UK and Ireland. We also have the exclusive rights to distribute,
via DTH in the UK and Ireland, the Disney Channel, its multiplex
and Playhouse Disney. The owners of the Sky Distributed Channels
generally sell their own advertising time on their channels,
although we act as an advertising sales agent for certain of
these channels (see Advertising below).

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

Pay-Per-View

Our Sky Box Office service currently offers our DTH
subscribers over 50 screens of television premieres of
movies and occasional live sports and other special events on a
pay-per-view basis. We have acquired certain exclusive DTH
rights from Hollywood and independent distributors, which enable
us to show their movies on Sky Box Office. Sky
Box Office HD offers at least 10 movies each week in high
definition on a
pay-per-view basis. We
also offer seven screens of adult movies, between 10.00 pm
and 6.00 am, to our DTH subscribers via our 18 Plus
Movies service.

Following our purchase of exclusive rights to all of the four
live television packages of FAPL football (for the seasons
2004/05 to 2006/07 inclusive), 50 additional live matches
(over and above those matches broadcast on our Sky Sports
channels) have been and are available on a pay-per-view basis
via our PremPlus service for the same seasons. We
also wholesale PremPlus to ntl:Telewest, ntl Ireland,
Chorus Communications (Chorus) and Video Networks
Limited (VNL), as well as a number of smaller cable
operators, for them to distribute to subscribers to their
respective networks. Following the end of the 2006/07 season, we
intend to broadcast all of the live matches for which we have
the rights on our Sky Sports channels, and, to cease offering
the PremPlus service.

We also retail to our DTH subscribers eleven third-party adult
services on a pay-per-night basis.

Distribution

We distribute our programming services directly to DTH
subscribers through the packages described above. Cable
subscribers, by contrast, contract with cable operators, which
in turn acquire the rights to distribute certain of the Sky
Channels from us, which they combine with other channels from
third parties and distribute to their subscribers. DTT viewers
must have either an integrated digital television set or an
appropriate set-top box
(see Competition  Digital Terrestrial
Television  Top Up TV below).

|                                 |  |      |        |  |      |  |        | 
|-------------------------------- |  | ---- | ------ |  | ---- |  | ------ | 
|As at 30 June                    |  |      |        | 
|(In thousands)(1)                |  | 2006 |        |  | 2005 | 
|                                 | 
|Distribution of Sky
    Channels |  |      |        |  |      |  |        | 
|DTH homes                        |  |      | 8,176  |  |      |  | 7,787  | 
|Cable homes                      |  |      | 3,898  |  |      |  | 3,872  | 
|Total Sky pay homes              |  |      | 12,074 |  |      |  | 11,659 | 
|DTT homes(2)                     |  |      | 7,326  |  |      |  | 4,940  | 
|                                



|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each of the above figures includes homes that receive Sky
    Channels via more than one means of distribution.                                                                    
|   
|(2) | The number in respect of DTT homes consists of BARBs
    estimate of the number of homes in the UK with access to
    Freeview services some of which will subscribe to Top Up TV.

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##### Table of Contents

DTH DistributionDuring fiscal 2006, there were 1,275,000 new subscribers to Sky
digital, whilst DTH churn in that same period was
886,000 subscribers, resulting in a net
389,000 increase in our DTH subscriber base for the fiscal
year. DTH churn in total was 11.1% in fiscal 2006 (2005: 10.3%).
We define DTH churn as the number of DTH subscribers over a
given period who terminate their subscription in its entirety,
net of former subscribers who reinstate their subscription in
that period (where such reinstatement is within a twelve month
period of the termination of their original subscription). In
fiscal 2006, we derived £3,154 million (76%) of our
revenues from DTH subscription revenues (2005:
£2,968 million).

As at 30 June 2006, we had a total of 8,176,000 DTH
subscribers, with over 45% of subscribers taking the Sky World
with Family Pack package (the channel package option containing
all of the Sky Premium Channels and the largest number of Sky
Basic Channels and Sky Distributed Channels).

The price (inclusive of VAT, where applicable) to a residential
DTH subscriber in the UK and Ireland of our post
1 September 2005 basic package containing the largest
number of basic channels (known as the Entertainment
Pack) is currently £21 and
30.50 per month
respectively. The range of prices (inclusive of VAT, where
applicable) to a DTH subscriber in the UK and Ireland of taking
the Entertainment Pack with Sky Premium Channels (which varies
depending upon the number of Sky Premium Channels taken) is
currently £32 to £42.50, and
46.50 to
64.50 respectively.

The prices (inclusive of VAT, where applicable) to a residential
DTH subscriber in the UK and Ireland of our pre 1 September
2005 basic package containing the largest number of basic
channels (known as the Family Pack) are currently
£21 and 30.50
respectively (having ranged between £18.50 and £21,
and 26.99 and
30.50, respectively,
since the beginning of fiscal 2004). The range of prices
(inclusive of VAT, where applicable) to a DTH subscriber of
taking Sky Premium Channels with the Family Pack (which varies
depending upon the number of Sky Premium Channels taken) in the
UK and Ireland are currently £30  £42.50,
and 44.50 
64.50, respectively
(having increased in stages from £27  £38,
and 42 
60, respectively at
the beginning of fiscal 2004).

We also offer a number of our services to commercial DTH
subscribers in the UK and Ireland under a range of contracts.
The types of contract, and the channels, which are available to
any particular commercial subscriber depend primarily upon the
type of business premises within which they wish to show our
services. Our commercial DTH subscribers include offices, retail
outlets, hotels, pubs and clubs. Commercial DTH subscribers also
include those commercial subscribers that operate a SMATV system
(for example in a hotel or office), who are considered as being
one commercial DTH subscriber, rather than a number of cable
subscribers equal to the number of individual units to which the
television signal is distributed. As at 30 June 2006, there
were approximately 47,000 subscribers to our commercial DTH
services in the UK and Ireland (including approximately 5,000
commercial DTH subscribers operating a SMATV system).

The majority of our UK DTH commercial customers are subscribers
under our pubs and clubs subscription agreement. Under that
agreement, the subscription prices range from £66 to
£2,210 per month (exclusive of VAT). In Ireland,
prices to pubs and clubs subscribers range from
209 to
474 per month
(exclusive of VAT). We have recently launched Sky+ and Sky HD
subscription services to our commercial subscribers.



Digital Satellite Reception Equipment

UKIn order to receive our DTH service, subscribers are required to
have a digital satellite system which includes a satellite dish
and LNB (low noise block converter), a digibox and a remote
control. We have worked with a number of manufacturers and
continue to work closely with selected manufacturers to develop
digital satellite digiboxes based upon our specifications. Since
1999, we have generally offered free digital satellite systems
without a requirement to subscribe to one of our services.

Standard installation for all DTH subscribers, during fiscal
2006 was, and is currently, free, whereas non-subscribers to our
services taking up the free digibox offer (which is different to
purchasing our freesat proposition,

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##### Table of Contents

see Distribution 
Free-to-view Satellite
Proposition below) during fiscal 2006 were, and currently
are, charged £120.

The services received by a non-subscriber taking up the free
digibox offer depend upon the number of unencrypted services and
free encrypted services available on the Astra satellite system,
and also on whether they receive encrypted channels from third
party broadcasters on a subscription or pay-per-view basis.

We also offer our subscribers and non-subscribers the
opportunity to purchase up to seven extra digiboxes or three
Sky+ digiboxes for use at the same residence as their original
digibox, which enables them to watch different satellite
programmes in different rooms at the same time using just one
satellite dish (known as Multiroom). As well as the
cost of the extra digibox (which is currently £49 for a
digibox and £89 for a Sky+ digibox), a monthly subscription
charge of £10 is also payable by the subscriber for each
additional digibox purchased. Standard installation of the
additional boxes has been free since 24 September 2004
(having been £60 from 1 July 2004 until that date).
With each additional subscription the subscriber is able to
obtain all the channels included in his or her subscription
package for the original digibox on one extra digibox.

During fiscal 2006, we have continued to offer Sky+, a digibox
that we have developed which contains two satellite tuners and
an integrated personal television recorder allowing programming
to be recorded directly on to a hard-disk contained within the
digibox. This enables DTH subscribers to watch one live
satellite programme (or a previously recorded programme) while
simultaneously recording another or to simultaneously record two
programmes, to pause or rewind live television and to record
automatically some series of programmes. Subscribers pay a
one-off fee for the
Sky+ digibox, currently ranging from £89 to £199
(depending on the promotional offers that we frequently run).
Standard installation for the Sky+ digibox during fiscal 2006
was free for new subscribers and subscribers upgrading to Sky+
and taking a multiroom subscription, £60 for existing
subscribers upgrading to Sky+ without taking multiroom
subscription, and £120 for
non-subscribers. From
1 July 2006, both new and existing subscribers pay £60
for standard Sky+ installation. Subscribers also pay a monthly
subscription fee to use the Sky+ recording features, however, if
a subscriber subscribes to two or more Sky Premium Channels, no
additional monthly subscription fee is charged.

In May 2006, we launched our HDTV service. A television
programme shown in high definition (HD) has
approximately four times as much picture information shown on
the screen as programmes shown in standard definition. This
service is available to customers who take a HD digibox (a
new version of the Sky+ digibox), a HD subscription and the
relevant Sky digital subscription. This HD digibox is capable of
decoding and showing both standard definition channels and
channels in the HDTV format, as well as having standard Sky+
features and providing access to our existing services.
Subscribers pay a one off fee of £299 for the HD digibox
(provided they also take a Sky+ subscription, otherwise the cost
is £399) and a monthly subscription fee of £10 for the
HD service (in addition to the subscription fee for the package
of channels taken and the subscription fee (if applicable) to
use the Sky+ recording features).

Both digital satellite reception equipment and subscriptions to
our DTH services are offered by us directly and through a
variety of retailers. We also provide installation and equipment
repair services. In fiscal 2006, 1.0 million digital
satellite reception systems were installed in the UK by or on
behalf of one of our subsidiaries (2005: 1.0 million; 2004:
0.8 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, EPG and navigation technology, as well as
applications and online return path infrastructure to permit us
to offer interactive television services.



IrelandIn Ireland, both satellite equipment and subscriptions to our
DTH services are offered directly by us and through a large
number of Irish retailers. Some of the channels offered in
Ireland differ from those offered in the UK.

At 30 June 2006, there were approximately 427,000 DTH
subscribers to our services in Ireland (2005: 363,000).

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##### Table of Contents

Sky ActiveOur DTH service allows a broadcaster, such as ourselves, to
develop and offer its viewers enhanced and interactive services.
We offer enhanced broadcast applications behind a number of Sky
Channels, including Sky Movies Active (behind our movie
channels), Sky Sports Active (behind our sports channels), Sky
News Active (behind Sky News) and the interactive betting
service available behind Sky Vegas 845 and Sky Vegas 846. We,
and other broadcasters, are enhancing our channels with
interactive services which can be accessed whilst the
programming on the channel stays in view. In fiscal 2006, we
derived £91 million of Sky Active revenues (2005:
£92 million).

We provide an interactive television platform for the
development and delivery of interactive services. The platform
is also used to deliver the interactive services of third
parties. We currently own and operate five stand alone
interactive portals on our DTH platform (including the main Sky
Active portal) which provide access to a broad range of
interactive services including retail, betting, customer
services and games.

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

Sky Active (in common with other stand alone interactive
portals) is currently offered free of charge to all
DTH viewers and each viewers telephone line is the
return path for these interactive services via a modem in the
digibox. We derive revenues through interactive services
principally from (1) premium rate telephone charges in
connection with viewers usage of our services (such as
pay-per-play games,
voting and entries to quizzes); (2) revenue sharing in
e-commerce transactions
(e.g. retailing or betting) completed on the platform;
(3) advertising; and (4) tenancy and technology fees
charged to content providers who offer services by means of the
platform, including licences of our Wireless Television Mark-Up
Language adapted for television browser technology and backend
infrastructure to third party broadcasters on the digital DTH
platform. In addition, interactive revenues are earned from the
digibox subsidy recovery charges (relating to the Groups
subsidy of the cost to customers of our digiboxes) which are
included within the conditional access, access control charges
and EPG charges made to customers on our DTH platform.

We have continued to develop our interactive advertising
technology, deploying advertising applications from July 2003
that make use of our browser technology with a view to enabling
a wider range of interactive advertising services to be offered.
Since our launch of interactive advertising in April 2000, over
1,000 interactive advertising campaigns have been broadcast by
us and others via our DTH platform. In March 2004, we launched
the new browser Mini DAL (Dedicated Advertiser Location)
template, and to date more than 147 Mini DALs have been
broadcast via our DTH platform.

Third party channels (and third party stand alone interactive
portals such as PlayJam, Teletext Holidays, Directgov,
PlayMonteCarlo & Roulette and NHS Direct Interactive)
make use of the interactive potential of the digital DTH
platform. Third party broadcasters such as the British
Broadcasting Corporation (BBC), ITV, Channel 4,
five, Flextech, UK TV, Discovery, MTV, Nickelodeon, QVC, Cartoon
Network, TV-X and the
Disney Channel have launched interactive services on our DTH
platform, as have a number of third party providers of stand
alone interactive services (which are separate from those
offered in conjunction with any television channel). Third party
channels may offer such interactivity in conjunction with Sky
Interactive or provide their interactive services independently,
including making use of competing interactive infrastructures
connected to our DTH platform.



Sky BetThe Group offers a range of betting and gaming services under
the Sky Bet, Sky Bet Vegas and Sky
Vegas brands in relation to which the Group acts as a
bookmaker. The Sky Bet fixed odds sports betting service is
available across multiple platforms, including by means of Sky
digiboxes (including Sky+ digiboxes), by telephone and on the
internet. An on-line casino, licensed in Alderney in the Channel
Islands, is offered by us on the internet. Sky Bet also
continues to develop a range of popular fixed odds numbers
betting products offered under its UK bookmakers permit on
our DTH platform, through both the Sky Vegas 24/ 7 games
service and the Sky Vegas 845 and Sky Vegas 846 interactive
television channels. In fiscal 2006, we derived
£37 million of Sky Bet revenues (2005:

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##### Table of Contents

£32 million). We take active measures to try to ensure
that persons resident in the US do not participate in our
internet gaming and betting services. Such measures include
geo-blocking software
and credit card checks.



Digital Subscriber Line (DSL)
    Distribution

Sky By BroadbandSky By Broadband is a
PC-application that
provides access to Sky Sports and Sky Movies programming.
Available Sky Sports content includes match highlights,
interviews, programme clips and Sky Sports News bulletins
(Sky Sports Broadband). The equivalent Sky Movies
service (Sky Movies Broadband) is an
on-demand
service that provides a choice of titles from Hollywood and
independent distributors and enables customers to legally
download first run, library and
made-for-television
movies available in the pay tv licence period to a PC registered
in the home.

DTH subscribers who subscribe to Sports Mix (therefore receiving
both Sky Sports 1 and Sky Sports 2), and who have broadband
internet access, are able to access Sky Sports Broadband to
their PC for free. DTH subscribers who subscribe to Movies Mix
(therefore receiving both Sky Movies 1 and Sky
Movies 2), and who have broadband internet access, are able
to access Sky Movies Broadband to their PC for free.



Video Networks Limited (VNL)We began offering subscriptions to certain of the Sky Channels
to households connected to VNLs platform in August 2004.
VNL distributes pay television and broadband access services via
a DSL platform that it has established in Greater London,
marketed under the brand Homechoice.

We have entered into an agreement with VNL which gives us access
to VNLs platform to enable us to retail certain of the Sky
Premium Channels to customers who already subscribe to
VNLs services. In addition, VNL provides us with certain
customer management, billing and sales agency services in
respect of our subscribers receiving Sky Premium Channels via
VNLs platform. In return for these services, we pay VNL a
fixed monthly fee per subscriber who subscribes to a Sky Premium
Channel on the VNL platform (as at April 2006 there were
approximately 4,400 subscribers to our services on the VNL
network).



EasynetIn October 2005, the Group made a recommended cash offer for the
entire share capital of Easynet Group plc (Easynet).
The offer became unconditional in all respects on 6 January
2006. Easynet was de-listed from the London Stock Exchange in
February 2006 and the acquisition of Easynet was completed on
10 March 2006.

Founded in 1994, Easynet is a pan-European networking company,
providing customers with IP based wide area network solutions.
The Easynet network covers eight countries (UK, Spain, France,
Germany, the Netherlands, Belgium, Italy and Switzerland)
enabling companies to connect their European sites to a high
quality, secure and reliable
Multi-protocol Label
Switching (MPLS) network. Easynet offers a portfolio
of IP services including national and cross border IP virtual
private networks (VPN), internet connectivity,
carrier services, hosting and
co-location in purpose
built data centre facilities, and security solutions.

In the UK, Easynet engages in local loop unbundling
(LLU), placing its equipment in BT exchanges
enabling it to offer differentiated services to businesses,
consumers and wholesale to other providers. As at 30 June
2006, it had 370 exchanges unbundled covering
6.7 million homes.

In December 2004, Easynet launched its wholesale LLU offering,
LLUStream, making services from its enabled exchanges available
to telecom carriers, ISPs and system integrators. In April 2005,
UK Online, a subsidiary of Easynet, launched its consumer
broadband offering. UK Online, had approximately 37,000
subscribers at the end of 30 June 2006.

Sky Broadband

In July 2006, we announced the launch of Sky Broadband, our
broadband internet access service. The service is available to
all of our DTH subscribers.

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For DTH subscribers covered by our broadband network, three
different broadband products are available: Sky Broadband Base;
Sky Broadband Mid; and Sky Broadband Max. Sky Broadband Base is
free (although subscribers have to pay a one off £40
connection fee) to DTH subscribers covered by our broadband
network, with download speeds of up to 2Mb/s and
2GB monthly usage. Sky Broadband Mid costs £5 per
month (in addition to a one off £20 connection fee) and
offers download speeds of up to 8Mb/s and 40GB monthly
usage. Sky Broadband Max costs £10 per month (with no
connection fee) and offers download speeds of up to 16Mb/s and
unlimited monthly usage.

As at 27 July 2006, our broadband network covered
approximately 28% of UK households. The network is expanding and
we expect that it will cover approximately 70% of all UK
households by the end of calendar 2007.

We also offer Sky Broadband Connect to our DTH subscribers who
are not covered by our broadband network. Sky Broadband Connect
offers an equivalent service to Sky Broadband Mid and costs
£17 per month (in addition to a one off £40
connection fee). As our broadband network expands, Sky Broadband
Connect customers will be offered Sky Broadband Base, Sky
Broadband Mid or Sky Broadband Max as their area gets covered.



Mobile Networks

Sky By Mobile and Sky Mobile TVSky By Mobile is a mobile phone application that provides access
to Sky Sports, Sky News, Sky One and Sky Movies mobile content
(alerts, live scores, news, statistics and video clips). It is
available at no extra cost to Sky World, Sky Sports World, and
Sky Movies World subscribers and Sky Bet customers. Customers
can also place bets and manage their Sky Bet accounts via Sky By
Mobile. The application is available across all mobile networks
to customers with a compatible handset with mobile internet
access via GPRS or 3G.

In addition, Sky By Mobile customers who have Vodafone 3G,
can subscribe to Sky Mobile TV. Sky Mobile TV offers
over 23 channels streamed direct to the subscribers mobile
phone, including Sky Sports News, Sky News, Sky One, Sky Movies,
MTV, Discovery, National Geographic and others. Sky Mobile TV
costs subscribers £5 per month and can also be bought
from the Vodafone live! 3G portal.



Cable Distribution

United KingdomOn 3 March 2006, it was announced that Telewest Global, Inc
(having been renamed NTL Incorporated) had completed a merger
with NTL Incorporated (having been renamed NTL Holdings, Inc).
It was announced that the combined company, incorporating both
ntl and Telewest, the two major multiple system cable operators
responsible for almost all of the UK broadband cable systems,
will operate under the name of NTL Incorporated. The combined
entity is also referred to as ntl:Telewest. On 4 April
2006, ntl:Telewest and the Independent Board of Virgin Mobile
Holdings (UK) plc (Virgin Mobile) announced that
they had reached agreement on the terms of a recommended offer
to be made by ntl:Telewest to acquire the entire issued and to
be issued share capital of Virgin Mobile. On 4 July 2006,
it was announced that the acquisition of Virgin Mobile by
ntl:Telewest had completed and that ntl:Telewest has also
entered into an exclusive licence agreement with Virgin
Enterprises Limited for the use of the Virgin brand for
ntl:Telewests consumer business.

Currently the television services offered have not been
harmonised across all the cable systems operated by ntl:Telewest
but remain differentiated according to whether they are provided
by means of a former ntl cable system or a former Telewest
system. ntl:Telewest continues to provide both analogue and
digital cable services across its cable systems and accounts for
a substantial proportion of our wholesale revenues, which are
revenues derived from the supply of Sky Channels to UK and Irish
cable platforms. In fiscal 2006, we derived
£224 million in subscription fees from cable operators
(2005: £219 million). We estimate that, as of
30 June 2006, ntl:Telewest subscribers represented
approximately 99% of all cable television subscribers in the UK
(measured by reference to total cable subscribers, as reported
to us by the cable operators).

UK cable subscribers increased in fiscal 2006, from a total of
3,287,000 subscribers to 3,294,000 subscribers as at
30 June 2006 (including broadband, narrowband and SMATV
subscribers) of whom all but a very small proportion take some
programming from us.

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Cable operators pay us a monthly per subscriber fee per channel
in respect of their subscribers to the Sky Basic Channels and a
monthly per subscriber fee per channel package for the Sky
Premium Channels. 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 each cable operator for the carriage of these
channels.

ntl:Telewest currently carries versions of all of the Sky
Premium Channels (including multiplex channels) and our PremPlus
pay-per-view service on
its digital networks (both former ntl networks and former
Telewest networks). Distribution of Sky Premium Channels to
ntl:Telewests remaining analogue cable subscribers is more
limited. ntl:Telewest distributes all of the Sky Basic Channels
other than Artsworld, Sky Travel+1, Sky Travel Shop and the Sky
Vegas channels on its former ntl digital networks, however only
the Sky Basic Channels: Sky One and Sky News and Sky Sports
News, are distributed on the former Telewest digital networks.
Both Sky One and Sky News are distributed on the former ntl and
Telewest analogue networks. Our current agreements with ntl:
Telewest for the distribution of our channels are due to expire
during calendar 2006, however, we expect to renew these
agreements.

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



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

At 30 June 2006, there were approximately 604,000 (2005:
585,000) cable subscribers (including SMATV) to our programming
in Ireland. We currently have arrangements in place with ntl
Ireland and Chorus, previously the two leading Irish cable
operators but which were brought under the common ownership of
Liberty Global Inc. in December 2005, 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 DistributionWe broadcast versions of three of our channels, Sky News, Sky
Sports News and Sky Three (formerly Sky Travel), unencrypted
free-to-air via DTT in
the UK. These channels are broadcast on a DTT multiplex for
which the licence is held by National Grid Wireless (which owns
and operates shared wireless communications and broadcast
infrastructure). The channels broadcast via DTT by us, together
with a number of other channels broadcast
free-to-air via DTT by
other broadcasters, are marketed to consumers under the generic
brand Freeview.



Free-to-view
    Satellite PropositionIn October 2004, we launched a new freesat proposition, offering
purchasers access to over 270
free-to-view television
and radio channels (including regional variants) and interactive
services, without a monthly subscription fee. Consumers can
purchase a package of digital satellite reception equipment,
including a digital satellite viewing card and standard
installation, for £150. The
free-to-view channels
on DTH include Sky News, and a range of television and radio
channels provided by the BBC and ITV. Access to the encrypted
signals of Sky Three, Channel 4 and five is available as a
result of the provision of a digital satellite viewing card
which we provide as part of the package. There is no obligation
for purchasers of this proposition to subscribe to a pay
television service; however, the proposition offers an easy
upgrade path to a DTH subscription with us for those customers
who choose subsequently to add a pay television service to their
viewing options.



Emerging forms of DistributionWe are also evaluating various other possible new means of
distributing our services other than by DTH, cable, DSL and DTT,
such as wireless broadband using Wimax or other similar
technologies, mobile TV using technologies

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such as Digital Audio Broadcasting (DAB), Digital
Video Broadcasting for Handhelds
(DVB-H),
MediaFLO by Qualcomm, the internet, General Packet Radio Service
(GPRS) and UMTS (3G mobile telephony).

We also participate actively in the Digital Video Broadcasting
(DVB) standardisation group both in the various
working groups and at the level of the DVBs Steering
Board, which gives us early exposure to other emerging
technologies.

Seasonality

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

Marketing

The principal types of marketing used by us to promote our
products and services are press (including both national and
regional newspapers and magazines), media inserts, door drops,
direct mailings, outdoor activity (such as billboards and bus
backs), on-air advertising on both national and regional radio
and television channels (on both promotional and commercial
airtime), outbound calling, on-line advertising on both third
party websites and on sky.com, advertising in our customer
magazine and point of sale advertising in retail outlets which
sell our products and services.

Advertising

In fiscal 2006, we derived £342 million of our
revenues from advertising sales revenue (2005:
£329 million).

We sell advertising for all of the 17 Sky Channels (as well as
for their multiplexes) around all programmes that are broadcast
on these channels, irrespective of whether the programming was
produced in-house or licensed from a third party. We also act as
the advertising sales agent for certain third party channels. We
sell advertising time across all of our channels, and tailor
distribution according to the target audience an advertiser is
trying to reach, but can sell on a specific channel basis where
requested.

According to BARB estimates, across all UK Multi-Channel Homes,
our average share (for all of the Sky Channels) of commercial
audiences (excluding those of the BBC) for fiscal 2006 was
13.7%, a decrease from 15.0% at the end of the previous fiscal
year. Our subscribers households tend to be younger and
more affluent than the average UK household and tend to
over-represent the
16-34year old,
ABC1 (i.e. upmarket) and male demographic profiles sought by
many advertisers.

In fiscal 2006, we launched a major new research tool, SkyView,
which combines viewing data collected from digiboxes with data
collected regarding product purchase. It is intended to give
advertisers a greater understanding of viewing patterns and how
to target their consumers in homes that subscribe to our DTH
service.

Sponsorship

In fiscal 2006, we derived £28 million from sponsorship
revenue (2005: £24 million), which is included in
advertising sales revenue.

We acquire programme sponsors for the Sky Channels and work
alongside the sales teams of partner channels (such as National
Geographic Channel, Adventure One, The History Channel and
Hallmark) to help secure broadcast sponsors for their channels.

Programme sponsorship is defined as either title
sponsorship (e.g. Ford Super Sunday or
Gillette Soccer Saturday) or in
association sponsorships (e.g. The Simpsons/
Dominos Pizza or 24/Nissan).

According to our internal estimates and an independent report
into the television sponsorship sector, our share (for all of
the Sky Channels) of the total broadcast sponsorship business
conducted in the UK was approximately 20%, more than any other
broadcast sales house, other than ITV, which trades with
approximately 45% of the sector.

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Competition

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



Competition From Other Television ChannelsThe Sky channels compete with other television channels for the
acquisition of programming, for viewers, for distribution and
for advertising and sponsorship revenue.

In both the UK and Ireland, the television channels with the
largest audience shares are the traditionally analogue
terrestrial channels, which are broadcast
free-to-air. In the UK,
these channels are BBC1, BBC2, ITV1, Channel 4 and five,
while in Ireland these are RTE1 and Network 2, the Irish
language channel TG4, and the commercial channel TV3.
In the UK, as well as being available via analogue terrestrial
television, the five traditionally analogue terrestrial channels
are also available via DTH, cable, DTT and DSL, and, in the case
of DTH and DTT, on a
free-to-air basis.

In addition to these channels we compete with both the Sky
Distributed Channels and with other television channels
broadcast via satellite, cable, DTT and/or via DSL. These other
channels may be broadcast by satellite
free-to-air (either
encrypted or unencrypted) or they may be independently-retailed
pay television channels. The
free-to-air encrypted
and unencrypted channels (which, as at May 2006 amounted to more
than 270 digital satellite channels (including radio services))
can be received by anyone with appropriate satellite reception
equipment (including the necessary conditional access equipment
for the reception of encrypted channels) without payment of a
subscription fee. Other than the digital satellite versions of
the traditionally analogue terrestrial channels, none of these
channels individually has a viewing share in the UK that
approaches the combined Sky Channels share. However, the
popularity of the non-Sky channels available on our DTH platform
can make our DTH offering more attractive to subscribers and
potential customers.

As at 30 June 2006, there were 26 encrypted digital
satellite pay television channels for DTH reception retailed
independently of us available on a subscription basis, and 13
such channels available on a pay-per-view basis. Those channels
available only on a pay-per-view, or a pay-per-view and
subscription basis, were all adult channels except for two
Setanta Sports pay-per-view channels.

As we and other broadcasters all seek a range of attractive
programming to attract viewers, in both the UK and Ireland,
there have been, and may in the future be, bidding competitions
and/or regulatory intervention which could increase our
programming acquisition costs, or which could mean that certain
programming in which we are interested may not be available to
us. For example, in 2006, Setanta Sports secured the live audio
visual rights to two of the six available UK packages of FAPL
football for the 2007/08 to 2009/10 seasons, for which we also
bid. In addition, the PGA Tour has announced a six year deal
starting on 1 January 2007 granting Setanta Sports
exclusive live rights to all PGA Tour events.



Competition From Other Video Distributors and Video
    Distribution ChannelsWe compete in the distribution of video content to consumers
with a range of other distributors and distribution channels.
Such distributors may also compete with us for the acquisition
of programming rights. For example, in 2003, Vodafone UK and 3
UK secured the mobile rights to show near live clips of FAPL
football for the three seasons beginning with the 2004/05
season, for which we also bid, whereas, in 2006, we outbid the
mobile operators for the mobile audio visual rights to FAPL
football for three seasons beginning with the 2007/08 season.
ntl:Telewest has been awarded rights to offer near live clips of
FAPL football matches over the internet for the same three
seasons.



Cable OperatorsCable operators compete with us as an alternative service to DTH
distribution and carry the majority of the Sky Channels.

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In the UK, the principal cable operator is now ntl:Telewest (see
Distribution, above), which was formed as a result of the merger
of ntl and Telewest. ntl:Telewest provides both analogue and
digital cable services in the UK. ntl:Telewest continues to
provide cable services using both the Telewest and ntl brands.
In Ireland cable television services are provided principally by
UPC Broadband via its Chorus and ntl Ireland subsidiaries. ntl
Ireland and Chorus offer both analogue and digital cable and
multipoint microwave distribution system (MMDS)
television services in Ireland.

There are areas in the UK and Ireland where it may not be
economically feasible to offer cable television services,
including some rural areas. Equally, there are also certain
areas in the UK and Ireland, such as conservation areas, where,
due to planning and local regulations, DTH satellite equipment
may not be installed. According to Ofcom, cable networks
currently cover approximately 50% of UK homes, whilst, according
to the Commission for Communications Regulation
(ComReg) (the national communications regulatory
authority in Ireland), cable and MMDS services cover nearly 80%
of Irish homes. Approximately 13% of UK homes currently
subscribe to a cable television service, whilst approximately
40% of Irish homes currently subscribe to cable and MMDS
television services.

In January 2005, ntl and Telewest launched
Video-on-Demand
(VoD) services in the UK. ntls VoD service is
branded ntl On Demand, whilst Telewests
service is branded Teleport. Telewest rolled out
Teleport to all its digital subscriber base in 2005.
ntl:Telewest expects the roll out of VoD services to all ntl
cable subscribers to be completed by 2007. The cable VoD
services include movie and television programme content, and
provide viewers with pause and rewind functionality. Digital
cable subscribers to whom the services are available do not need
to upgrade their equipment to receive the services. Telewest has
also launched TV Drive, a HD digibox which enables its
customers to watch HD programmes and movies with Teleport, as
well as other broadcasters HD channels available on cable.



Top Up TVTop Up TV (which launched in March 2004) offers a pay television
service via DTT. Top Up TV comprises five DTT video streams
between 6pm and 6am, and four video streams at other times, on
which programming from eleven digital channels is broadcast (for
example, programming from one digital television channel is
broadcast on one of Top Up TVs video streams between 6 am
and midday, whilst programming from a different digital
television channel is broadcast on the same DTT video stream
during other hours of the day). In June 2006, five announced it
had bought two of Top Up TVs video streams, in order to
broadcast two new television channels, which will, in the
absence of other developments, reduce the capacity available to
Top Up TV. It is reported that Top Up TV intends to launch an
on-demand video service
(updated every night over the air to a Top Up TV PVR) in the
autumn.

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



Home Videos and DVDsHome video sales and rentals (including DVDs) have historically
been strong in the UK. In addition to offering consumers an
alternative source of programming to terrestrial, cable and
satellite television, the video window (which includes DVDs) for
new films generally starts before both the pay television window
and the pay-per-view television window. The video window
typically commences approximately four to six months following a
films UK cinema release. Currently, the pay-per-view
television window generally commences two to three months
later. We have, to date, been able to develop a significant
customer base for our pay-per-view services and movie channels,
notwithstanding competition from the home video industry and
increased competition from DVDs which may increase further as
DVD prices fall, electronic sell-through grows and a new High
Definition (HD) DVD standard emerges. HD-DVD was released
in the US and Japan in the first half of 2006; there is no
release date yet for the UK.

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Free to air television servicesIt is likely that as a result of the availability of
free-to-air television
channels some consumers will choose to take such
free-to-air services in
preference to a pay television service. In the UK the principal
sources of broadcast
free-to-air television
services are: analogue television services (see
Competition from other Television Channels above),
Digital Terrestrial Television (DTT) and Skys freesat
proposition.



FreeviewIn the UK, free-to-air
channels on the DTT platform are marketed under the
Freeview brand. There are over 40 television
channels available nationally as part of this offering (though a
number of these share the same DTT video stream at different
times of the day), and over 20 radio channels. There are also
several television channels available on a regional basis within
the UK.

Freeview services are currently able to be received by around
75% of UK homes. It is anticipated that this will increase to
around 98% of homes by 2012 as analogue television broadcasting
is discontinued (digital switchover) progressively
in different regions of the UK. In order to receive Freeview
services consumers purchase either a set top box, which is
relatively inexpensive, or a television set with a built in
digital tuner (an Integrated Digital TV, or
IDTV ). Digital switchover (see below) will release
radio spectrum currently used to broadcast analogue television
services, which may be used to expand the number of channels
able to be carried on the DTT platform or may be allocated to
allow HD services to be offered.

Take-up of Freeview
services has grown quickly since its launch in October 2002.
According to BARB estimates, at 30 June 2006 there were
7,326,000 homes in the UK with access to Freeview services.

There is currently no DTT service in Ireland. In 2004, the Irish
Government commenced an evaluation of the options for the
roll-out of a DTT network in Ireland. As part of the process, in
May 2006, it announced the commencement of the roll out of
infrastructure for a pilot DTT service, indicating that the
pilot network is expected to be operational by mid-August 2006.
The pilot is planned to continue over a two year period in the
Dublin region, and the Government has indicated that it should
be seen as a precursor to a national roll out.
Details of the services to be provided as part of this pilot DTT
service have not yet been announced.



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

In September 2005, ITV announced that it is working together
with the BBC to develop a free digital satellite service to
complement Freeview, entitled Freesat which was to
be operational in 2006, but is now planned for autumn 2007. ITV
announced that this new service will enable viewers to access
subscription free digital television via satellite and will be
aimed primarily at people in the UK currently unable to access
Freeview.



DSL networksBroadband-enabled telephone lines, principally using DSL
technology, are being used increasingly in the UK and Ireland to
deliver video content to consumers. This includes content
delivered on an on-demand basis (for example, via
the internet) and, to a lesser extent, broadcast content. It
also includes delivery of content to consumers PCs, and to
their television sets, via compatible set top boxes.

The increase in the average speed of internet connections and
the emergence of new codecs such as MPEG-4 and WM9 means
consumers can increasingly download video over the internet.
Additionally, the use of peer to peer technology for both
legitimate and illegitimate video downloading is growing.

DSL services have grown significantly in the UK in the recent
past, both in terms of the number of providers, and the number
of users. According to BT, as at 31 March 2006, there were
7.9 million subscribers to DSL services in the UK. Only a
very limited number of these subscribers currently use these
services for digital television. Although consumer broadband DSL
access remains focused on the provision of internet access, two
operators developed DSL

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networks with the capacity to deliver digital television
services to homes: Kingston Communications in Kingston-upon-Hull
(which closed its TV platform in April 2006) and VNL in parts of
London and Stevenage.

The latest version of VNLs service was launched
commercially in May 2004 and offers access to a range of
broadcast channels and
video-on-demand
content, including movies packaged together with broadband
internet access. VNL has indicated that it intends, subject to
raising the necessary financing, to extend its DSL platform
throughout the UK.

The private building sector has launched several smaller TV via
DSL networks in the past 12 months.

According to Ofcom, at May 2006 48,545 television homes in the
UK were viewing television via a DSL platform.

We are also aware of other companies continuing to look at TV
via DSL network opportunities. BT has announced plans to launch
a service (BT Vision) which will enable the provision of video
content via DSL. BT Vision is due to launch in autumn 2006. BT
Vision will enable consumers to purchase a set top box which can
receive and view on their television both DTT services via a
households television aerial, and on-demand
video services via a DSL connection. The set top box will also
include PVR functionality.

Broadband

Following the launch of our broadband internet access service in
July 2006, we compete with other providers of broadband internet
access in the UK. These primarily include BT, ntl:Telewest, AOL
UK, Tiscali, Orange and the Carphone Warehouse. We also compete
with providers of dial up internet access, including BT,
ntl:Telewest, AOL UK, Tiscali and Orange. According to the
Office of National Statistics (ONS), in March 2006,
broadband comprised 69% of internet subscriptions in the UK,
with the remaining 31% being dial up. According to Point Topic,
a broadband research company, in March 2006, there were
10.7 million broadband lines in the UK, of which,
9.6 million were consumer broadband lines.

During 2006, several of our competitors updated or relaunched
their broadband services: in April 2006, the Carphone Warehouse
launched its broadband service, TalkTalk; in June 2006, BT
announced a new range of packages, BT Total Broadband, and
broadband provider Wanadoo was rebranded Orange by parent
company France Telecom.

Average broadband download speeds continue to increase.
Currently, our broadband services highest download speed
is up to 16Mb/s, however, the majority of rival packages do not
currently exceed 8Mb/s.

According to Point Topic, as at 31 March 2006, ntl:Telewest
had the largest share of the UK consumer broadband market with
28.7%, followed by BT with 19.6%.



Other TechnologiesOther technologies, such as third generation cellular telephone
networks (3G), provide additional means by which
video content can be delivered to viewers. All major cellular
network operators in the UK and Ireland now offer 3G services to
consumers. However, 3G services have yet to make a significant
impact. Although the volume of subscribers to 3 UK (who only
operate a 3G mobile network) has shown strong growth (increasing
to over 3.6 million at March 2006), 3G penetration amongst
more established operators remains low.

Following a trial period, BT has announced plans to launch a
commercial mobile TV service (branded BT Movio) in
2006. The service will use DAB-IP technology and be offered to
mobile network operators on a wholesale basis. Initially, the
service will be available exclusively to subscribers of Virgin
Mobile (which is owned by NTL Incorporated).



Digital SwitchoverThe UK Government has indicated that it intends to switch off
the transmission of analogue terrestrial television in the UK
between 2008 and 2012. On switching off analogue transmission,
the coverage of the core multiplexes of the existing DTT network
(those carrying digital versions of the main traditionally
analogue terrestrial channels) will rise from its current level
of approximately 73% to an estimated 98.5%. The licence
conditions for Channels 3, 4

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and 5 require those channels to achieve substantially the same
DTT coverage as is currently achieved in analogue. Following a
consultation on planning options for digital switchover which
took place in February 2005, Ofcom issued a statement in June
2005 in which it indicated that DTT coverage for the main
analogue terrestrial channels should match the existing analogue
core coverage of 98.5%. Switching off analogue terrestrial
transmission will, in any event, enable DTT to be made available
to households who cannot currently receive it.

In March 2006, the UK Government published a white paper
entitled A public service for all: the BBC in the digital
age, in which it gave the BBC a new purpose of
building digital Britain. In particular, it proposes
that the BBC will be required to replicate, through digital
switchover, substantially the same coverage for its television
services as in analogue (98.5%), provide information on
switchover to viewers, and help to implement and pay for schemes
to assist the most vulnerable people to switch from analogue to
digital television.

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



AdvertisingOur primary competitors for television advertising sales are ITV
plc (formed by the merger of Granada plc (Granada)
and Carlton Communications plc (Carlton), which
completed in February 2004) which sells advertising on ITV1,
ITV2, ITV3, ITV4, and ITV Play, Channel 4 (which also sells
advertising for E4, More 4 and Film Four and their multiplexes),
five, Interactive Digital Sales (IDS) (which sells
advertising on behalf of the UKTV group of channels and the
Flextech channels (Living, Bravo, Trouble and Challenge)), and
Viacom Brand Solutions (VBS) (which sells
advertising on behalf of Viacom, MTV and Nickelodeon). In
November 2003, the Contract Rights Renewal (CRR)
remedy was introduced to protect media buyers and advertisers
from the increased market power enjoyed by the merged ITV. CRR
allows media buyers and advertisers that contracted directly
with Carlton and Granada to renew the terms of their existing
share deals without change and new advertisers to contract on
fair and reasonable terms. In addition, in respect of agreements
that include a share commitment, the advertisers/media buyers
are able to reduce the share committed to ITV commensurate with
any decline in ITVs share of impacts year on year.

Based upon the latest BARB survey estimates, ITV1 and Channel 4
were available to approximately 25.1 and 25 million
television homes, respectively, in the UK (both digital and
analogue), with approximately 92% of the estimated
25.3 million television homes in the UK receiving an
acceptable five terrestrial analogue signal. In addition,
according to BARB survey estimates, as at June 2006,
approximately 17.7 million UK homes have access to
satellite, cable, or digital terrestrial television. Both ITV1
and Channel 4 have a significantly greater overall UK television
viewing share than any individual Sky Channel. As a result of
the ability of ITV1 and Channel 4 to reach almost all UK
television homes, these channels are able to generate greater
advertising revenues than we do. We also compete with the Sky
Distributed Channels and all other commercial channels for
television advertising sales.

Within UK Multi-Channel Homes, however, the Sky Channels in
aggregate attract viewing levels which are comparable to some of
the traditionally analogue terrestrial channels. This suggests
to us that, as the number of Multi-Channel Homes increases, our
competitive position with respect to advertising revenues may
improve. Additional growth from the
free-to-view offerings,
Freeview and our freesat proposition, should also improve the
revenue share of the Sky Channels which are available as part of
these offerings. The Sky Channels jointly have an overall
viewing share (within Multi-Channel Homes) significantly greater
than each of Channel 4 and five in those homes, although the Sky
Channels combined viewing share is still less than that of
ITV1 in these homes. Based upon BARB surveys for the
52 weeks ended 30 June 2006, the viewing shares in UK
Multi-Channel Homes of the traditionally analogue terrestrial
channels and the combined Sky Channels were, respectively, BBC1
19.5%, BBC2 6.9%, ITV1 18.1%, Channel 4 8.3%, five 5.1%, and the
Sky Channels 8.9% (of which Sky One accounted for 20.6% of the
Sky Channels viewing share (and had an individual viewing
share of 1.5%)). The remaining 33.2% of viewing in UK
Multi-Channel Homes was of other (non-Sky) satellite, cable and
DTT channels.

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Technology and Infrastructure

We control access to DTH channels through the use of a
conditional access system, VideoGuard (see Encryption of
Digital Services below). The satellite reception equipment
provided to DTH customers is owned by them (whether or not they
are subscribers), except for certain aspects such as the smart
card (a credit card size plastic card containing a chip that
provides conditional access functionality), some of the software
in all digiboxes, and a proportion of the hard drive capacity in
some of the Sky+ digiboxes and HD digiboxes. All costs
associated with the acquisition of subscribers, including the
cost of satellite reception equipment, are charged immediately
to the income statement and are therefore not included within
capital expenditure.

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



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

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

In conjunction with NDS, we maintain a policy of refining and
updating the VideoGuard technology in order to restrict
unauthorised DTH reception of our services. We take appropriate
measures to counter unauthorised reception, including
implementing
over-the-air
countermeasures altering authorised smart cards in a manner
which then renders counterfeit smart cards obsolete and seeking
available legal remedies, both civil and criminal, reasonably
available to us. We also periodically replace smart cards in
circulation with smart cards containing progressively more
sophisticated technology. Such replacement has the effect of
rendering useless smart cards then in circulation, whether
genuine or counterfeit. The first periodic replacement of
digital smart cards since our digital launch in October 1998 was
successfully completed in November 2003.

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

ntl: Telewest (together with ntl Ireland in respect of certain
Sky Channels) receives our signal via secure landlines. In
respect of other operators, we generally provide delivery to
cable operators via satellite. To enable reception of the
satellite signal, a smart card is located at the site of the
cable operators feed into its cable transmission system,
permitting decryption of the signal, which the operator in turn
distributes to those of its subscribers who are authorised and
equipped to receive the service.



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

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



SatellitesWe contract for the majority of capacity on the satellite
transponders that we use for digital transmissions for reception
by both DTH viewers and cable operators from SES ASTRA
(SES), the operator of the Astra satellites. SES is
100% owned by SES GLOBAL, a Luxembourg company in which the
Luxembourg State and GE Capital hold interests of 11.58% and
24.58%, respectively, with the balance held by other
international financial institutions, communications groups,
institutional and private investors and Luxembourg public
institutions. We have also contracted, via an agreement with BT,
for capacity on four transponders on the Eurobird satellite,
which is owned and operated by Eutelsat.

For the transmission of our DTH service, we have contracted for
capacity on 31 transponders from SES on SES satellites Astra 2A,
2B and 2D. All but seven of our digital transponder agreements
(on SES satellites) are for a period of ten years with varying
end dates between 2008 and 2011. We have rights to extend
certain of the initial contract periods. Four of the remaining
seven transponder agreements have been extended; three of these
agreements now expire in 2017, and the fourth in 2015. The three
remaining transponder agreements were entered into in calendar
2005 to provide additional capacity to facilitate the launch of
our HD service. These three agreements expire in 2020. The term
of the agreement on the Eurobird satellite expires in 2013.

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

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

We have also put in place disaster recovery plans in the event
that we experience any significant disruption of our transponder
capacity. To date, we have not experienced any such significant
disruption. However, the operation of both the Astra and
Eutelsat satellites is outside our control and a disruption of
transmissions could have a material adverse effect on our
business, depending on the number of transponders affected and
its duration.

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



Capital Expenditure ProgrammeIn addition to the core capital expenditure on information
systems infrastructure, broadcast infrastructure and new product
development (which in fiscal 2006 was £106 million and
in fiscal 2005 was £72 million and is expected to be
approximately £100 million per annum over the next two
years), we continue to invest in our infrastructure, properties
and facilities, required to support our growth strategies, in
accordance with the capital expenditure programme of
approximately £450 million over 4 years announced
in August 2004. The capital expenditure programme includes
further investment in our customer management (previously
referred to as our Customer Relationship Management
(CRM)) centres and systems, increasing contact
centre capacity, and building and/or acquiring new facilities
and properties. We expect to finance the programme from
operating cash flows.

In addition, in July 2006, we announced expected capital
expenditure of approximately £250 million in the first
two years in relation to our broadband network and services.

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Capital expenditure on our customer management centres and
systems and on our Advanced Technology Centre (ATC)
is described in further detail below. The remaining expenditures
are required in order to service future subscriber growth more
effectively, as well as maintain and enhance our broadcasting
facilities. In fiscal 2005, the cost incurred in relation to the
refurbishment of existing properties and facilities was
approximately £75 million. Included in this cost was
the acquisition of buildings at our Osterley campus, the
creation of a Sky News Centre and the refurbishment of new
office headquarters. In fiscal 2006, the cost incurred in
relation to the refurbishment of existing properties and
facilities was approximately £16 million.

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



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

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

During the course of the last six fiscal years, we have invested
more than £261 million in our customer management
centres. This expenditure has been focused principally on
completely replacing the centres existing customer
management and billing systems with new applications and also on
improving the existing physical infrastructure of the centres.
The replacement of the customer management and billing systems
was completed in March 2006. We have now migrated all existing
customer data onto the new applications. The cut-over to the new
system was completed in two phases, the first commenced on
1 September 2005 and related only to new customers. The
second involved the migration of remaining customers, commencing
30 March 2006. Both phases have been completed with minimal
disruption to normal business operations and the applications
are now functioning in line with expectations.



Playout and Uplink FacilitiesOur 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. This is backed up by a second facility which was
completed in 2003.

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 fibre link, which is backed up by a diversely
routed secondary link in case of any malfunction in the primary
fibre route. This route passes through the second facility so
that, in the case of Chilworth being unavailable, the services
can be uplinked directly from the second facility. In the event
of failure of our primary playout site, we have alternative
facilities available, though at the present time, the
restoration of services would not be immediate. However, we have
completed, and brought into live use in the last fiscal year,
the ATC which provides a complete alternative playout facility.
Over the course of the next 12 months, we will increase the
amount of live operation carried out in the ATC facility and
deploy server based playout fully across both playout sites,
enabling diversification of the playout of our channels.

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

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Minority Equity Investments

During the year we held 49% of the share capital of Mykindaplace
Limited. In June 2006, we acquired the remaining share capital
of Mykindaplace Limited for cash consideration of
£4 million, bringing our total shareholding to 100%.

In September 2005, we disposed of our 35.8% equity interest in
Music Choice Europe plc for £1 million.

From September 2003, to March 2005, we held 50% of the share
capital of Artsworld Channels Limited. In March 2005, we
acquired the remaining 50% of the share capital of Artsworld
Channels Limited for cash consideration of £1 million,
bringing our total shareholding to 100%.

In November 2004, we disposed of our 49.5% investment in Granada
Sky Broadcasting Limited (GSB) for
£14 million.

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

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





CORPORATE RESPONSIBILITY

The Group has developed a two-tier Corporate Responsibility
governance structure. At a board and executive level, the CR
Steering Group (CRSG) provides leadership and
drives corporate responsibility practices. The CRSG comprises
Senior Executives and two non-executive Board Directors and
meets quarterly. The CRSG is supported by a taskforce of senior
operational managers that works to embed responsible business
practices throughout the Group.

The management of environmental issues is overseen by two
working groups, Energy and Waste, which report to the CRSG.
Other groups are in place to oversee health and safety and human
resources policy, and Skys employees can communicate their
views on corporate responsibility via the Sky Forum of elected
Sky employees.

The Group runs an annual risk workshop on corporate
responsibility issues and maintains a corporate responsibility
risk register. The Group also undertakes consultation with
stakeholders that assists in corporate responsibility risk
identification. The Group is a member of the FTSE4Good Index and
the Dow Jones Sustainability Index and is included in the Global
100 Most Sustainable Companies index and the Business in the
Community Top 100 Companies That Count Index.
The annual Corporate Responsibility Review provides full details
of corporate responsibility activities. This information can
also be found on the web at www.sky.com/responsibilities.

Customers

Offering the best choice in entertainment to our
customers  entertainment that is great quality, great
value, flexible and simple to use  is central to the
Groups customer offering. The Group has technology to
control access including parental control features. The Group
has also implemented its Code of Practice for Interactive
Gambling, developed with GamCare, an organisation that promotes
responsible gambling. Accessibility to programming is provided
through on-screen subtitling, audio description and signing.

Environment

In May 2006, the Group announced it had become the worlds
first major media company and one of the first FTSE
100 companies to be CarbonNeutral. The Group has set
targets for reducing its energy consumption, carbon dioxide
(CO2)
emissions, waste and water consumption. Progress against these
targets will be documented in the Groups Corporate
Responsibility Review to be published later in the year.

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Community investment

The Group continues to align its community investment activities
to the wider goals of the business and its customers and
utilises its brand, platform and technology in community
investment. Current initiatives include Living for Sport; Make a
Difference, the staff community involvement scheme; and the
three year charity partnership with the Chicken Shed Theatre
Company.





PEOPLE

Organisation

At Sky we aim to offer the best choice in entertainment to our
customers  entertainment that is great quality, great
value, flexible and simple to use. This relies on our employees,
who contribute their ideas, knowledge and skills to help make
this happen. To ensure we keep delivering to our customers we
need to attract and retain the very best talent, and help them
to deliver to their full potential. We do this by developing our
employee proposition and brand which is distinctive. It focuses
on making Sky a great place to work  challenging,
innovative and fun.

Sky is committed to developing a flexible, motivated and
resilient workforce which supports its business goals. To
achieve this, we aim to align the culture, organisational
development, recognition and reward to the Groups business
strategy and values. We are also committed to providing a
culture of opportunity for our employees. Our values are
embedded in everything we do for our people and are designed to
engage our employees. These values provide clarity on how we
achieve our goals and deliver our customer experience.

Sky is a place where everyone can contribute. We are dedicated
to ensuring that no one is subjected to less favourable
treatment because of their age, gender, gender reassignment,
sexual orientation, race, religious beliefs, marital status or
disability. We value the same diversity within our business as
we do in our content and services, and provide a culture of
enterprise and opportunity for all.

While we strive to make opportunities equal for all our
employees we recognise the particular needs of the disabled
community. Applications for employment by disabled persons are
always fully considered bearing in mind the aptitudes of the
applicant concerned. Assistance is offered to applicants during
the process to accommodate any disabilities. Those attending for
interviews are asked whether any assistance is required, whether
that would be in the form of the timing or physical adjustments
to the space in which the interview takes place.

All new employees are asked again to identify whether they have
any particular needs that should be accommodated in the work
place to assist with any potential disabilities. This
information is kept under annual review and staff are asked on
an annual basis to self identify any disability which would
require adjustments to be made to their workspace. This is
undertaken on a voluntary basis. In addition, our process for
managing absence means early Occupational Health intervention
where absences become long term or are frequent. This enables us
to discuss at an early stage with those who may have developed a
disability any necessary steps for rehabilitation for return to
work, or ongoing adjustments to their workplace on their return.

We believe in equal opportunity for all employees, regardless of
race, sex, sexual orientation, age or disability. We offer a
broad range of development opportunities both on and off the
job, and development feedback through a Performance Development
Review Process.

The average monthly number of full-time equivalent persons
employed by the Group during the year was 11,216 (2005: 9,958).

Involvement

The views of Sky people are important and valuable. We have a
variety of ways in which we encourage the involvement of our
people in helping to shape Skys future.

The Sky Forum is an elected group of 70 employees who
communicate and represent the views and ideas of all employees,
and consult on health and safety. Issues ranging from the work
environment and practices to training and development are
discussed at the Forum. Forum members are also included in focus
groups such as Corporate Responsibility, and in department focus
groups to improve a range of areas, from products to teamwork.
The Chief

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Executive Officer, other Senior Executives and other managers
regularly attend Forum meetings to talk about Skys
strategic priorities.

In March 2006, Sky hosted the second Whats
Next? event for 500 employees, outlining our vision and
strategy for growth. The event was the beginning of a Sky-wide
cascade of information and materials about Skys goals and
our focus on customers.

In May 2006, we again asked all our employees to share their
opinions in a Group-wide People Survey, the results of which
will be used to develop plans and initiatives going forward.

We encourage our employees to get involved in the community
through the Make a Difference programme. This
includes:




    Sky Volunteers  an opportunity for employees to
    develop new skills and be paid for up to 16 hours working
    for a cause they believe in;
    Sky Givers  where employees make a regular donation
    to charity via payroll, and Sky matches the donation; and
    Sky Fundraisers  where employees undertaking a
    fundraising activity are given match-funding for their chosen
    charity.Reward

The Group offers an attractive and competitive reward and
benefits package. This includes the BSkyB Pension Plan, life
cover and disability benefits, the Sharesave scheme, a
healthcare plan and complimentary Sky+ for all employees. Awards
under the Management Long Term Incentive Plan share scheme are
made to selected employees. The Sky Choices programme allows
employees to make significant tax and National Insurance savings
in areas such as childcare payments and a bicycle for travel to
work. The Sky Benefits Extra programme offers negotiated
discounts on a variety of products and services for Sky
employees.

Recognition

In September 2005, Sky launched its first annual recognition
awards Team Sky that enabled all employees to
nominate and acknowledge their colleagues for demonstrating the
Sky values of being tuned in, inviting, irrepressible and fun.
This encouraged people to learn more about Skys values and
demonstrate behaviour which reflected them.

Training and development

Our training and development portfolio includes an introduction
programme, including a health and safety
e-learning module;
workplace training; a management essentials programme for all
managers; and coaching, leadership, broadcasting and
professional skills development. We also had a major roll out of
HD training in 2006 with over 1,200 employees trained in this
area.

We offer Sky News and Finance traineeship schemes, and support
our employees in working towards external
qualifications  including modern apprenticeships and
SVQ qualifications.

Externally, the Group is represented at board level on Skillset
and within the TV Sector Skills Committee, which develops
training strategy and development opportunities across the
industry, has worked with the Broadcasting Standards Training
Regulator to create an appropriate evaluation grid for the
industry for training identified in the TV Skills strategy, and
has served on the Diploma Development Partnership to help shape
the design of the Creative and Media Diploma for 14-19 year
olds. Additionally, Sky has developed partnerships with
media-based academic and training bodies, schools and colleges
to provide guidance and support.

We have started an International Work Experience Development
Programme where high performing individuals are able to gain
experiences in other organisations globally for 1-2 weeks
and return with information and skills to share with colleagues.

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At Sky, employees also have the opportunity through Sky
Talent to develop careers in television presenting or
programme writing. In 2006, Skys employees were again
offered the opportunity to broaden their potential and win
either of these categories. Sky presenters, producers and
programme commissioning specialists make up the judging panel,
and winners will be offered TV presenting courses, slots on Sky
programmes or the development of their programme idea with an
independent production company.

Occupational Health

We continue to foster a culture of safety and wellbeing amongst
all employees. We have strengthened support services and health
and wellbeing initiatives and include safety responsibilities in
job descriptions.

Skys Occupational Health team has worked collaboratively
with the Sky Forum to ensure matters of health, safety and
wellbeing are addressed. We have revitalised interest in a range
of wellbeing subjects using an Employee Health and
Wellbeing guide which was distributed to all employees,
along with the launch of a new wellbeing intranet site for all
Sky employees to access health-related information easily.

The Group has also launched a new 24/7 employee assistance
programme, as well as a comprehensive external confidential
website that provides access to health information and fact
sheets on a wide range of topics. We also provide free
counselling and continue to provide stress risk and workstation
assessments. We have people working a range of shifts, whom we
proactively support by increasing employees and
managers knowledge about the different demands that
working shifts brings.

We began a programme to offer each engineer the option of a
personalised health assessment with a feedback profile to help
target problem areas.

Communication

We are continually seeking ways of engaging with our employees,
which ensures we focus on the issues that matter to the business
and our people. The key focus of our communication is to share
the business vision and goals in a way which involves our
people. The recent Whats Next? event gave 500
leaders, communicators and key contributors the opportunity to
meet over 200 Sky customers directly and hear what really
matters to them. This was the beginning of a cascade on
Skys vision and goals to all our people.

Along with the Sky Forum, which enables two-way communication
between management and people at all levels from across Sky, we
communicate through a variety of channels to reach our diverse
locations and job roles, including the Groups employee
magazines Vision and Digitalk (for Sky
engineers); our re-launched intranet; global e-mails; leadership
forums; and department road shows.





RISK FACTORS

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

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

We are subject to regulation primarily under UK and European
Union legislation. The regimes which affect our business include
broadcasting, telecommunications, competition (anti-trust),
gambling and taxation 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

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regulations relating to one or more of licensing requirements,
access requirements, programming transmission and spectrum
specifications, consumer protection, taxation, or other aspects
of our business, or that of any of our competitors, could have a
material adverse effect on our business and the results of our
operations.

The European Commissions investigation into the joint sale
of broadcasting rights to FAPL football matches concluded with
the European Commissions adoption, in March 2006, of a
decision rendering certain commitments offered by the FAPL to
the European Commission legally binding. The commitments are to
remain in force until June 2013 and relate to the auction of
media rights by the FAPL for the 2007/08 to 2009/10 seasons and
its subsequent auction of rights. The commitments provide, among
other things, for the FAPL to sell live TV rights in six
balanced packages, with no one bidder being allowed to buy all
six packages, and for packages to be sold to the highest
standalone bidder. The Group has been awarded four of the six
packages of rights to show live coverage of FAPL football
matches in the UK for the 2007/08 to 2009/10 seasons.

The Commissions decision is binding on the FAPL for the
duration of the commitments, but does not bind national
competition authorities or national courts. The decision does
not address competition issues which may arise from contracts
for rights in relation to FAPL matches from the 2007/08 seasons
onwards; any such issues could be assessed separately under the
competition rules at either European or national level. We are
not yet able to assess whether, or the extent to which, these
developments will have a material effect on the Group.

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

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

We face competition from a broad range of companies engaged in
communications and entertainment services, including cable
television providers, digital and analogue terrestrial
television providers, telecommunications providers, internet
service providers, home entertainment products companies,
betting and gaming companies, companies developing new
technologies and other suppliers of news, information, sports
and entertainment, as well as other providers of interactive
services. Our competitors increasingly include communication and
entertainment providers who are offering services beyond those
with which they are traditionally associated, either through
engaging in new areas or due to the trend towards convergence of
the means of delivery of different communication and
entertainment services. Our competitors include organisations
which are publicly funded, in whole or in part, and which fulfil
a public service broadcasting mandate. Were such mandate to be
changed, this could lead to an increase in the strength of
competition from these organisations. Although we have continued
to develop our services through technological innovation and in
licensing, acquiring and producing a broad range of content, we
cannot predict with certainty the changes that may occur in the
future which may affect the competitiveness of our businesses.
In particular, the means of delivering various of our (and/or
competing) services may be subject to rapid technological
change. Our competitors positions may be strengthened by
an increase in the capacity of, or developments in, the means of
delivery which they use to provide their services.

Viewers with a Sky+ digibox (or any other personal video
recorder) or viewers of
on-demand programming
may choose not to view advertising including that on Sky
Channels and Sky Distributed Channels. We therefore cannot
assure you that our advertising revenues will not be negatively
impacted by this behaviour. We also cannot assure you that
advertising revenues for Sky Channels currently offered on other
platforms will not be negatively impacted in the future by the
offering of similar devices by other operators.

Our ability to compete successfully will depend on our ability
to continue to acquire, commission and produce, programming
content that is attractive to our subscribers. The programme
content and third party programme services we have licensed from
others are subject to fixed term contracts which will expire or
may terminate early. We cannot assure you that programme content
or third party programme services (whether on a renewal or
otherwise) will be available to us at all or on acceptable
financial or other terms (including in relation to technical
matters such as encryption, territorial limitation and copy
protection). Similarly, we cannot assure you that such programme
content or programme services will be attractive to our
customers, even if so available.

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The future demand and speed of take up of our DTH service, and
our proposed broadband and telephony services will depend upon
our ability to offer them to our customers at competitive
prices, competitive pressures from competing services (which
include both paid-for and
free-to-air offerings),
and our ability to create demand for our products and to attract
and retain customers through a wide range of marketing
activities. The future demand and speed of take up of our
services will also depend upon our ability to package our
content attractively. In addition, we operate in a geographic
region which has experienced sustained economic growth for a
number of years. The effect of a possible slowdown in the rate
of economic growth and/or a decline in consumer confidence on
our ability to continue to attract and retain subscribers, is
uncertain. We therefore cannot assure you that the current or
future marketing and other activities we undertake will succeed
in generating sufficient demand to achieve our operating targets.

On 3 March 2006, it was announced that ntl and Telewest had
completed a merger. On 4 July 2006, it was announced that
the acquisition of Virgin Mobile by ntl:Telewest had completed.
ntl:Telewest has also entered into an exclusive licence
agreement with Virgin Enterprises Limited for the use of the
Virgin brand for ntl:Telewests consumer business. At this
stage, we are not yet able to assess whether the merger of ntl
and Telewest, the acquisition by ntl:Telewest of Virgin Mobile,
or the rebranding of the ntl:Telewest consumer business under
the Virgin brand, will have a material effect on our business.

We cannot guarantee that the anticipated implementation and
operation of our broadband services and network will be fully
achieved, including within the proposed timescale or budget.

Following our acquisition of Easynet in January 2006 for
£223 million, in July 2006, we announced the launch of
our broadband service, to include capital expenditure investment
in our broadband network and services of approximately
£250 million in the first two years. It is intended
that our broadband network, which currently covers 28% of UK
households, will be expanded to cover approximately 70% of all
UK households by the end of calendar 2007. In common with other
projects of this scale, there is a risk that the implementation
and future operation of our broadband services, and operation
and expansion of our broadband network, may not be carried out
as currently envisaged, including within the proposed timescale
or budget.

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

We are dependent upon satellites which are subject to
significant risks that may prevent or impair proper commercial
operations, including defects, destruction or damage, and
incorrect orbital placement. If we, or other broadcasters who
broadcast channels on our DTH platform, were unable to obtain
sufficient satellite transponder capacity in the future, or our
contracts with satellite providers were terminated, this would
have a material adverse effect on our business and results of
operations. Similarly, loss of the transmissions from satellites
that are already operational, or failure of our transmission
systems or uplinking facilities, could have a material adverse
effect on our business and operations.

We are dependent on complex technologies in other parts of our
business, including our CRM systems, broadcast and conditional
access systems, advertising sales, supply chain management
systems and our telecoms network infrastructure, including WAN,
LLU, CISCO core IP network, Marconi/ Alcatel optical network and
complex application servers.

In terms of the delivery of our broadcast services, we are
reliant on a third party telecommunications infrastructure to
distribute the content between Osterley and our primary and
secondary uplink sites at Chilworth and Fair Oak.

In addition, our network and other operational systems are
subject to several risks that are outside our control, such as
the risk of damage to software and hardware resulting from fire
and flood, power loss, natural disasters, and general
transmission failures caused by a number of additional factors.

Any failure of our technologies, network or other operational
systems or hardware or software that results in significant
interruptions to our operations could have a material adverse
effect on our business.

There is a large existing population of digital satellite
reception equipment used to receive our services, including
digiboxes and ancillary equipment, in which we have made a
significant investment and which is owned by our customers
(other than the smart cards and the software in the digiboxes,
to which we retain title). Were a

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significant proportion of this equipment to suffer failure, or
were the equipment to be rendered either redundant or obsolete
by other technology or other requirements or by the mandatory
imposition of incompatible technology, or should we need to or
wish to upgrade significantly the existing population of
digiboxes and/or ancillary equipment with replacement equipment,
this could have a material adverse effect on our business.

The deployed digiboxes contain finite memory resources that are
used by the operating system and other software components such
as the conditional access system, EPG, and interactive
applications. We have, to date, been able to carry out software
downloads from time to time to reconfigure the memory
utilisation in these digiboxes in order to accommodate
additional and increasingly complex services. If this course of
action was not available to us, we may be limited in our ability
to upgrade the services available via our digiboxes, such as
interactive services and the EPG.

Failure of key suppliers could affect our ability to operate
our business.

We are reliant on a consistent and effective supply chain to
meet our business plan commitments and to continue to maintain
our network. A failure to meet our requirements or delays in
products from suppliers, discontinuance of products or services,
or deteriorating support quality, may impact on our ability to
deliver our products and services. No assurance can be made that
a broad economic failure or decline in quality of equipment
suppliers in our industry will not occur. Any such occurrence
could have a material adverse effect on our business.

We use a series of BT Openreach products within our LLU plans.
These are the colocation space and associated facilities to
house the central office equipment (co-mingling), backhaul
circuits to connect that equipment to our network (BES) and
finally individual copper lines that go between the central
office equipment and the end users house (SMPF/ MPF
lines). We purchase these from BT Openreach under terms and
conditions outlined within the Ofcom Telecoms Strategic Review
(OTSR) settlement between Ofcom and BT. The OTSR
settlement stipulates that we buy these products on a fully
equivalent basis when compared to other operators who supply
broadband, telephony and network products and services. Ofcom
has set up an Equivalence of Access Board whose role
is to monitor and ensure that all Equivalence of Input
requirements under the OTSR Settlement are being enacted.
Despite the requirements of the OTSR Settlement, failure by BT
Openreach to provide its products to us on a fully equivalent
basis could have a material adverse effect on our business.

We are reliant on encryption and other technologies to
restrict unauthorised access to our services.

Direct access to our services via DTH is restricted through a
combination of physical and logical access controls, including
smart cards which we provide to our individual DTH subscribers.
Unauthorised viewing and use of content may be accomplished by
counterfeiting the smart cards or otherwise overcoming their
security features. A significant increase in the incidence of
signal piracy could require the replacement of smart cards
sooner than otherwise planned. We continue to work with our
technology suppliers to ensure that our encryption and other
protection technology is as resilient to hacking as possible,
however, there can be no assurance that it will not be
compromised in the future. We are reliant also upon the
encryption or equivalent technologies employed by the cable and
other platform operators for the protection of access to the
services which we make available.

Our network and other operational systems rely on the operation
and efficiency of our computer systems. Although our systems are
protected by firewalls, there is a risk that our business could
be disrupted by hackers or viruses gaining access to our
systems. Any such disruption, and any resulting liability to our
customers, could have a material adverse effect on our business.

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

In July 2006, we announced expected capital expenditure of
approximately £250 million in the first two years in
relation to our broadband network and services. In August 2004,
we announced an incremental capital expenditure programme of
approximately £450 million, which was to be incurred
over four years in support of our growth strategy. This
expenditure is in addition to core capital expenditure, which is
expected to be approximately £100 million per annum.
As is common with capital expenditure projects of this scale,
there is a risk that they may not be completed as envisaged,
either within the proposed timescale or budget, or that the
anticipated business benefits of the projects may not be fully
achieved.

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We, in common with other services providers that include
third party services which we retail, rely on intellectual
property and proprietary rights, including in respect of
programming content, which may not be adequately protected under
current laws or which may be subject to unauthorised use.

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

We generate wholesale revenues from a limited number of
customers.

Our wholesale customers, to whom we offer the Sky Channels and
from whom we derive our cable revenues, have comprised
principally ntl and Telewest. On 3 March 2006, it was announced
that ntl and Telewest had completed a merger. On 4 July
2006, it was announced that the acquisition of Virgin Mobile by
ntl:Telewest had completed. Economic or market factors, or
regulatory intervention, or a change in strategy by ntl:Telewest
as it relates to the distribution of our channels, may adversely
influence the wholesale revenue we receive from ntl:Telewest,
which may negatively affect our business.

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

We are party to a number of medium and long-term agreements and
other arrangements (including in respect of programming and
transmission, for example, our transponder agreements) 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.





GOVERNMENT REGULATION

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

Broadcasting and telecommunications regulation

UK



Communications Act 2003The Communications Act 2003 (the Communications Act)
forms the basis of the communications regulatory regime in the
UK which is enforced by a single unified regulator, Ofcom (which
replaced the five previous regulatory bodies responsible for the
sector, including the Office of Telecommunications
(Oftel) and the Independent Television Commission
(ITC)).



SpectrumUnder the Communications Act Ofcom is introducing a new system
for the management of spectrum. This is intended to enhance the
efficiency of spectrum use through liberalisation of use and
trading in spectrum, whilst protecting the quality of spectrum.
This new regime may include a voluntary system of Recognised
Spectrum Access (RSA) which would afford some
protection from interference for satellite downlinks and would
include a charging mechanism for the use of relevant spectrum.
Ofcom has announced that it intends to consult the public on the
application of RSA to satellite downlinks, for which no date is
currently set.

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Ofcom review of public service broadcastingOfcom has undertaken, under the Communications Act, a review of
public service broadcasting. In September 2004, Ofcom published
its second report on this review in which it considered the
position of public service broadcasting after digital
switchover. In the report, Ofcom makes a number of proposals,
one of which is the creation of a Public Service
Publisher (PSP), a new publicly-funded
service, which Ofcom considers would ensure a continued
plurality in the provision of public service broadcasting. Ofcom
published its final report on this review in February 2005 in
which it expanded on the PSP concept.

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

The Government has confirmed (in the white paper entitled
A public service for all: the BBC in the digital age
published in March 2006) that a review of whether there is a
case for providing funding to recipients beyond the BBC (such as
Ofcoms proposed PSP) will take place towards the end of
the process of digital switchover with the option of conducting
an earlier review before 2010 (see Competition 
Digital Switchover section above).



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

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



Ofcom PowersIn common with all television licences issued by Ofcom, our
licences impose on us an obligation to comply with the Codes and
Directions issued by Ofcom from time to time. The Codes include
requirements as to impartiality and accuracy of news
programming, requirements as to harm and offence and the
portrayal of sex and violence, and restrictions on the quantity
and distribution of advertisements. Ofcoms Broadcasting
Code came into force in July 2005 replacing the six Codes it
inherited from the ITC and other legacy regulators (the
Broadcasting Standards Commission (BSC) Code on
Fairness and Privacy, the BSC Code on Standards, the ITC
Programme Code, the ITC Code of Programme Sponsorship, the Radio
Authority (RA) News and Current Affairs Code and
Programme Code, and the sponsorship rules contained in the RA
Advertising and Sponsorship Code). Ofcom has residual powers in
relation to the regulation of the content of broadcast
advertising. It has devolved this responsibility to the
Advertising Standards Authority, a self regulatory body. In May
2006, Ofcom published a new Cross Promotion Code, replacing the
previous ITC Code. The rules contained in the new Ofcom Code are
designed to ensure cross-promotions on television are distinct
from advertising (which is subject to rules on maximum per hour
minutage) and to inform viewers of services likely to be of
interest to them as viewers. The new Code allows broadcasters
only to promote broadcasting-related services in
promotional airtime subject to the requirement that the
promotion is provided for no consideration. The new Code
provides non-binding guidance that no consideration will be
presumed to have passed where the promoting channel has a
shareholding of 30% or more in the promoted channel (or vice
versa). The new Code also contains additional rules, applicable
only to ITV1, Channel 4 and five, requiring all references to
digital retail television services or digital television
broadcasting platforms to be on an equal and impartial basis.
The new Code came into effect on 10 July 2006.

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Ofcom may revoke a licence in a range of circumstances,
including licence breach, in order to enforce the restrictions
contained in the Broadcasting Acts (as amended by the
Communications Act) on the ownership of media companies, or in
the event that the characteristics of the licensee change so
that it would not be granted a new licence. In addition, the
amended Broadcasting Acts prohibit disqualified
persons from holding certain licences. Disqualified
persons include any bodies whose objects are wholly or mainly of
a political nature and advertising agencies. Religious bodies
are prohibited from holding certain licences but can seek
Ofcoms prior approval to hold other types of licences
(including a TLCS or DPS licence).



Media OwnershipThe UKs rules in respect of media ownership, which are
contained in the Broadcasting Acts and the Communications Act,
currently preclude us (for as long as the Group is ultimately
owned as to over 20% by News Corporation or another member of
the same group) from acquiring more than a 20% interest in any
Channel 3 licence (which covers the 15 regional ITV1
licences and GMTV). Certain restrictions also apply to the
ownership of local radio businesses by persons that own local
newspapers in the same area (or to persons who are connected to
such persons). There are also certain restrictions on the
ownership of multiple radio multiplex licences. The
Communications Act has also introduced a plurality
test for media mergers (see Competition (Anti-trust)
Law  UK Competition Law Regime  Enterprise
Act 2002  Mergers below). In April 2006 Ofcom
published guidance on the definition of control of media
companies. This guidance sets out the matters which Ofcom
will take into consideration when assessing control
in this context, and the procedure it will follow when
investigating whether control exists.



Digital Terrestrial TelevisionThe Broadcasting Act 1996 established a framework for DTT
broadcasting in the UK. Certain multiplex
frequencies are currently used to transmit public service and
other channels. In August 2002, the ITC confirmed its
conditional decision to award three multiplex licences to the
BBC and National Grid Wireless Limited (formerly Crown Castle UK
Limited) for an initial twelve year term. As part of an
agreement with National Grid Wireless Limited, we have agreed to
supply versions of three channels, namely Sky News, Sky Sports
News and Sky Three (as well as Sky Text), unencrypted
free-to-air via the DTT
platform marketed under the brand Freeview (see
History and Development of the Group and Business
Overview  Distribution  DTT
Distribution above). When these multiplex licences were
awarded in 2002, Ofcom included a requirement in three of the
six multiplex licences that all of the services they carry
shall be provided on a free to air basis save with the
prior consent of Ofcom. This free to air only
restriction was contained in the licences for multiplex B
(operated by BBC Free to View Ltd) and multiplexes C and D (both
operated by National Grid Wireless Limited). Skys services
are currently carried on multiplex C. Following consultation
earlier this year, in April 2006 Ofcom published a statement
concluding that the free to air only restriction is
no longer necessary and so can be removed from the relevant
licences, in response to a request from the relevant multiplex
licence holder.



Listed Events  Limits on Exclusive Distribution
    RightsThe Broadcasting Act 1996 (as amended by the Communications Act)
provides that no UK broadcaster may undertake the exclusive live
broadcast of certain sporting or other events of national
interest designated by the Secretary of State from time to time
(listed events), whether on a
free-to-air or
subscription basis, without the previous consent of Ofcom. The
effect of these rules is that many leading sports events cannot
be shown exclusively live on pay television in the UK. In August
2004, Ofcom published a consultation on a draft Code on listed
events which largely seeks to formalise the listed events regime
as previously applied by the ITC. Ofcom has not yet published
the final Code. In September 2005, the Secretary of State for
Culture, Media and Sport indicated that a review of listed
events is likely to take place around 2008/09.

A list of designated events in Ireland has also been defined,
under the Irish Broadcasting (Major Events Television Coverage)
Act 1999 (Designation of Major Events) Order 2003. The effect of
these rules is that many leading sports events cannot be shown
exclusively live on pay television in Ireland. In early 2006,
the Irish Government conducted a review of its list of
designated events; in April 2006, it announced that, following
consultation undertaken as part of this review, it did not
propose to make any changes to its list.

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Television Access ServicesThe Communications Act prescribes certain annual targets for
television access services (subtitling, audio description and
signing) broadcasters licensed channels must meet. Ofcom
has set out its guidance on broadcasters compliance with
these requirements in its Code on Television Access Services
which applies to all licensed channels. Under this Code, Ofcom
requires broadcasters to provide quarterly returns to Ofcom
reporting on their licensed channels compliance over the
previous quarter; Ofcom then publishes quarterly reports on
broadcasters compliance. In 2005, all of Skys
channels met their relevant access services targets. In the
first quarter of 2006, all of Skys channels exceeded their
relevant targets, except Sky Box Office for audio
description, in relation to which we explained to Ofcom that, as
the targets are designed to be measured against transmission
time on linear services, the targets do not truly reflect the
commitment made to access services on programming broadcast on
pay-per-view services, and that around 25% of titles on Sky
Box Office had actually been audio described. Ofcom has not
advised us that, in relation to the Sky Box Office service,
any remedial measures are necessary.

In June 2006, Ofcom consulted on a review of its Code on
Television Access Services: it did not propose any significant
changes to the provision and reporting of subtitling and audio
description but, in relation to signing (and in light of
evidence it had received that signing on television is not
meeting the needs of sign language users), Ofcom has proposed
consulting further on possible alternative options to the
present signing targets set per channel. Sky indicated its
support for such a further review in its response to this
consultation. Ofcom has not yet published the outcome of the
present consultation. At this stage, the Group is unable to
ascertain the outcome of this consultation process.



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

Broadband and Telephony

As a Communications Provider under the Communications Act, the
Group is regulated in relation to the supply of broadband
internet access services and public telephony services. All
Communications Providers are subject to a set of basic
conditions (the General Conditions of Entitlement):
in relation to the provision of electronic communications
services (which includes the provision of broadband internet
access services and public telephony services), these conditions
include the following:




    a requirement to ensure that any end-user can access the
    emergency services
    a requirement to support number portability for customers
    wishing to switch to or from another network provider
    a requirement that customers are offered contracts that satisfy
    certain minimum standards
    a requirement to ensure that any end-user can access directory
    enquiry and operator assistance services
    a requirement to publish up-to-date price and tariff information
    a requirement to provide accurate billing, itemized on request
    from each customer
    a requirement to publish codes of practice concerning the
    services provided and the handling of customer complaints and
    resolving disputes.As a network operator, Easynet is also subject to requirements
to negotiate network interconnection, to comply with relevant
compulsory standards and to take all reasonable steps to
maintain (to the greatest extent possible) the proper and
effective functioning of its public telephone network.

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The Group has published a Code of Practice dealing with Sky Talk
products, services and customer care procedures, and a Code of
Practice concerning the sales and marketing practices for the
Sky Talk telephony service. The Group will also publish a Code
of Practice dealing with customer complaints procedures for the
provision of Sky Broadband and has also signed up to the
industry-led Broadband Service Provider Migration Code of
Practice which establishes a process for the switching of
broadband customers between ISPs. The Sky Talk and Sky Broadband
services are registered with the telecommunications ombudsman
service Otelo.

Ofcom can also impose various specific conditions on
Communications Providers under the Act, for example where a
provider has been determined as having significant market power
(which equates with the competition law concept of dominance).
The only such specific conditions to which we are currently
subject relate to call termination services (to ensure that
calls originated on one fixed network can be terminated on all
other fixed networks): we are required under a specific
condition to provide fixed geographic call termination services
on Easynets network on fair, reasonable and
non-discriminatory terms. The same condition is applied to all
operators of fixed public electronic communications networks in
the UK.

Any breach of these conditions could result in Ofcom issuing a
direction against us to rectify the breach, and/or lead to the
imposition of a fine or, ultimately, to the suspension of the
Groups right to provide such electronic communications
services.

The Group is a member of the Internet Watch Foundation which
provides a UK hotline for users to report potentially illegal
content, specifically child abuse images hosted anywhere in the
world or content hosted in the UK which is either criminally
obscene or could incite racial hatred.

The European Commission has proposed, as part of its current
consultation, to extend certain terms of the Television Without
Frontier Directive to non-linear services (see
European Union  The Television Without Frontiers
Directive below), which could result in the Group being
required to meet certain standards in relation to the provision
of non-linear content relating to the protection of
minors and human dignity.

Betting and Gaming

We carry out our betting and gaming activities through two Group
companies, Hestview Limited (Hestview) and Bonne
Terre Limited (Bonne Terre). Hestview carries out
its betting activities under a UK bookmakers permit issued
in accordance with the Betting, Gaming and Lotteries Act 1963
and is regulated by the (UK) Gambling Commission. When the new
Gambling Act 2005 is brought into force (expected to take place
in calendar 2007) Hestview will be required to operate under the
new act.

Bonne Terre, a company registered in Alderney, carries out its
gambling activities under a licence granted by the Alderney
Gambling Control Commission under the terms of The Gambling
(Interactive Gaming) (Alderney) Ordinance 2001 and is regulated
by that body.

European Union



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

The European Commission is currently consulting on the
provisions of the TWF Directive and put forward proposed
legislation to amend the TWF Directive in December 2005. A
principal issue is whether to extend the scope of the TWF
Directive, which currently only applies to broadcasting, to
include all audiovisual content delivered by electronic means
(but excluding private communications). This could mean that
non-linear services (such as services delivered
using the internet) would be required to meet certain minimum
standards including in relation to the protection of minors and
human dignity, and certain (limited) restrictions in
relation to advertising (notably concerning alcohol advertising
and advertising to minors and prohibiting
surreptitious advertising). Other issues

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for consultation include stricter monitoring and enforcement of
the certain programme and independent production quotas; new
provisions in relation to cross-border access to rights to short
programme extracts for use in informational programmes (such as
news programmes); and increasing the (minimum) period
between advertising breaks for childrens, religious and
news programmes from 20 minutes to 35 minutes. The
proposals also contemplate the acceptance of product placement
(as long as it is clearly signalled). If the Commissions
proposals are adopted, amendments to the TWF Directive are
unlikely to come into effect for several years. At this stage,
the Group is unable to ascertain the outcome of this
consultation process.



Programme and Independent Productions QuotasArticles 4 and 5 of the TWF Directive require Member States
to ensure where practicable and by appropriate means
that (a) broadcasters reserve a majority proportion of
their transmission time for European works, and
(b) broadcasters reserve at least 10% of their transmission
time or, at the discretion of the Member State, at least 10% of
their programming budget for European works created by producers
who are independent of broadcasters (in relation to (b) an
adequate proportion of such works should be produced within the
five years preceding their transmission). The term where
practicable and by appropriate means is not defined in the
TWF Directive and is left for the interpretation of each Member
State. In applying these requirements, broadcast time covering
news, games, advertisements, sports events, teletext and
teleshopping services are excluded.

A condition requiring licensees to comply with these
requirements of the TWF Directive, where practicable, and having
regard to any guidance issued by Ofcom for the purpose of giving
effect to the relevant provisions of the TWF Directive, was
introduced by Ofcom into all Broadcasting Act licences
(including TLCS and DPS licences) in December 2003. On
10 February 2005, Ofcom published guidance in relation to
compliance with Articles 4 and 5 of the TWF Directive.

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

A number of our channels currently meet the relevant quota
requirements for both European works and European independent
productions. Some of our channels only meet one of the relevant
quotas and some do not meet either quota. For those channels
that do not currently reserve the relevant proportion of
relevant transmission time to European works or to European
independent productions, it may not be practicable to do so, in
which case those channels would still comply with the condition
in their Broadcasting Act licences. Ofcom has not advised that
any remedial measures are necessary in respect of these
channels, nor has it advised that it does not accept that it is
not practicable for any of these channels to meet the relevant
quota requirements.



Electronic Communications DirectivesThe EC Electronic Communications Directives, which include the
Access Directive, Authorisation Directive, Framework Directive
and Universal Services Directive, (together the EC
Directives) provide a framework for the regulation of
electronic communications networks and services and associated
facilities within the European Union. The EC Directives, notably
the Framework and Access Directives, apply to us in relation to
the regulation of conditional access services, access control
services, EPGs and standards for the transmission of television
signals. Their provisions were implemented in the UK by the
Communications Act in July 2003 and which conferred the
regulatory function in the UK on Ofcom. In December 2005, the
European Commission commenced a periodical review of the
functioning of the EC Directives which will remain ongoing in
the course of 2006. At this stage, the Group is unable to
ascertain the outcome of this consultation process.

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Conditional Access Services and TechnologyThe regulation of conditional access for digital television
services is carried out in the UK under the Communications Act,
the principal requirements of which include:




    that the provision of conditional access services to other
    broadcasters should be on fair, reasonable and
    non-discriminatory terms;
    that providers of conditional access services should co-operate
    with cable operators regarding transcontrol (the process of
    changing a conditional access system) at cable
    head-ends; and
    that, where conditional access technology is licensed to
    manufacturers of digital decoders, such licences should be on
    fair, reasonable and non-discriminatory terms.These requirements have been applied as conditions imposed under
the Communications Act on our subsidiary Sky Subscribers
Services Limited (SSSL), which has been identified
as a provider of conditional access services.

In May 2002, Oftel published its guidelines entitled The
pricing of conditional access services and related issues
and in October 2002 published revised guidelines on the pricing
of conditional access services. These guidelines set out
Oftels policy towards the regulation of the supply of
conditional access (and access control) sources (including the
structure of tariffs charged for such services). Ofcom continued
to apply these guidelines after it replaced Oftel. In May 2005,
Ofcom started a review of these guidelines which led to the
publication of its two consultation documents on the
Provision of Technical Platform Services. We are
actively participating in this review which remains ongoing. At
this stage, we are unable to determine whether the review will
have a material effect on the Group.



Access Control ServicesThe provision of access control services (which include
services, other than conditional access and EPG services, that
control access to digital television services) is also
regulated. Our subsidiary, SSSL, is currently designated a
regulated supplier in respect of its activities in providing
access control services to third parties on our DTH platform and
it is, among other things, subject to the obligation to provide
such access control services on fair, reasonable and
non-discriminatory terms and not to favour related companies.
This designation, set out in a continuation notice issued by
Oftel under the Communications Act in July 2003, will remain in
place for as long as SSSL is considered to have significant
market power. In November 2003, Oftel commenced a review under
the Communications Act to determine whether any provider of
access control services has (or, in the case of SSSL, continues
to have) significant market power. The deadline for comments on
the consultation document was in January 2004. Ofcom has yet to
publish its conclusions to this consultation; in the meantime,
SSSL continues to be subject to the regulatory regime under this
continuation notice.

Ofcom has indicated in its present review of the Provision of
Technical Platform Services that the general principles of cost
recovery set out in its proposed guidelines would, once in
force, also apply to the provision of access services.

Regulation of Electronic Programme Guides

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

Ofcoms proposed guidelines being consulted on as part of
its present review of the Provision of Technical Platform
Services would, once in force, also extend to the provision of
EPG services.

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

Transmission Standards

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

Interoperability

Under the terms of the Framework Directive, the European
Commission published its review of progress towards facilitating
access for content providers to multiple platforms in July 2004.
The European Commission found that there was no case for
mandating the use of technical standards for the delivery of
interactive services at present, but that Member States should
continue to promote open and interoperable standards for
interactive digital television. The European Commission issued a
communication in February 2006 in which it concluded that there
remained no case for mandating any technical standard, stating
that mandation would not contribute significantly to the growth
of interactive digital television in Europe and, in fact, could
have significant negative effects.

Ireland

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

Environmental

We are subject to environmental regulations that require our
compliance. Failure to meet the requirements of such regulations
may lead to fines being incurred or damage to our brand image.

Recent regulations based on European Union Directives, notably
the Waste Electrical and Electronic Equipment Directive
(WEEE Directive) and the Restriction on the use of
certain Hazardous Substances in electrical and electronic
equipment Directive (RoHS Directive) necessitate the
removal of stipulated hazardous substances from products placed
on the market after mid 2005 within set timeframes and the
recovery and recycling of electrical products to specified
levels. Both Directives apply to our purchase and supply of
digiboxes and related equipment and require registrations to be
completed by us, our suppliers and retailers.

Other changes in the categorisation, segregation, storage and
removal of certain hazardous wastes require us to register sites
that produce such wastes. Without registration, hazardous wastes
are not able to be removed from site for disposal. Incorrect
disposal may lead to regulatory action.

We track draft environmental directives and regulations to
establish their applicability to the business and enable an
appropriate response to be planned and implemented.

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Competition (anti-trust) law

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

UK Competition Law Regime

The Competition Act 1998

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

Anti-Competitive Agreements

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

Agreements which fall within the scope of the Chapter I
prohibition will not be prohibited where they meet specific
statutory criteria, that is, where they produce beneficial
effects in improving production or distribution or promoting
technical or economic progress, provided that consumers receive
a fair share of the benefit, that competition will not be
substantially eliminated and that no unnecessary restrictions
are accepted by the parties.

Abuse of a Dominant Position

The Chapter II prohibition of the Competition Act prohibits
abusive behaviour by dominant firms.

Effect on Our Affairs

In November 2001, the arrangements relating to the Attheraces
(ATR) joint venture (made between Arena Leisure plc,
the Group, Channel Four Television Corporation and The
Racecourse Association Limited (RCA)) were notified
to the Office of Fair Trading (OFT) seeking either a
clearance or exemption under Chapter I of the Competition
Act. In April 2004, the OFT issued its decision in which it
found that the Chapter I prohibition of the Competition Act
had been infringed to the extent that the notified arrangements
entailed the collective sale by the 49 racecourses of
certain of their media rights to ATR. The OFT did not impose a
penalty on the notifying parties. The RCA and the British
Horseracing Board appealed the OFTs decision to the
Competition Appeal Tribunal (CAT) which issued its
judgment in August 2005. The CAT found that the OFT had erred in
its decision and was wrong to find an infringement of the
Chapter I prohibition. The OFTs infringement decision
was therefore set aside.

Enterprise Act 2002

Mergers

The merger provisions of the Enterprise Act 2002
(Enterprise Act) provide that the OFT has a duty to
refer relevant merger situations (i.e. transactions which
involve a change in control between previously distinct
enterprises) to the Competition Commission (CC)
where it has a reasonable belief that they will result in a
substantial lessening of competition (and it has not been
possible to agree a remedy).

The CC would then decide whether the relevant merger situation
would substantially lessen competition and, if so, decide
appropriate remedies. A relevant merger situation qualifies for
investigation where it satisfies either a share of
supply or turnover test contained in the Enterprises Act.

The Communications Act has amended the Enterprise Act merger
control provisions to introduce (among other things) a
plurality test for mergers between broadcasters (or
involving broadcasters and newspaper enterprises). Under the
plurality test, the Secretary of State is able to intervene in,
and take certain decisions concerning, mergers involving
broadcasters, on the basis of the plurality test. The Government
issued guidance in May 2004

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stating, however, that its policy is to consider intervention in
mergers involving media enterprises only where the media
ownership rules have been removed by the Communications Act,
save in exceptional circumstances (which would be where the
Secretary of State considers that the merger would give rise to
serious public interest concerns).

Market Investigations

The market investigation provisions of the Enterprise Act
provide that the OFT may make a market investigation reference
to the CC where it has reasonable grounds for suspecting that
any feature, or combination of features, of a market in the UK
for goods or services prevents, restricts, or distorts
competition in connection with the supply or acquisition of any
goods or services in the UK or a part of the UK. Ofcom has
market investigation powers, concurrent with the OFT, in
relation to the communications sector. Instead of making a
reference to the CC, the OFT or Ofcom may accept remedial
undertakings from the companies concerned.

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

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

Effect on our Affairs

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

Ofcom Competition Jurisdiction

In addition to its concurrent powers under the Competition Act
in relation to the communications sector, under the
Communications Act Ofcom has (among others) a duty to further
the interests of consumers, where appropriate, by promoting
competition in relevant markets. It also has powers to use
Broadcasting Act licence conditions to ensure fair and effective
competition in the provision of licensed services and connected
services.

Ofcom has not made any rulings using either its concurrent
Competition Act powers or powers to ensure fair and effective
competition under the Communications Act that have had a
material adverse effect on our business during fiscal 2006.

Irish Competition Law Regime

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

European Union Competition Law Regime

Anti-Competitive Agreements

Article 81(1) of the EC Treaty renders unlawful agreements
and concerted practices which may affect trade between Member
States and which have as their object or effect the prevention,
restriction or distortion of competition within the Common
Market (that is, the Member States of the European Union
collectively). An agreement may infringe Article 81 only if
it is likely to have an appreciable effect on competition.
Agreements which fall within the scope of Article 81(1) EC
Treaty will not be prohibited where they meet specified
statutory criteria, that is, where they produce beneficial
effects in improving production or distribution or promoting
technical or economic progress, 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

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

Mergers

The European Commission regulates mergers, full function joint
ventures (i.e. ones which perform on a lasting basis all the
functions of an autonomous economic entity) and the acquisition
of holdings which confer decisive influence over an enterprise
and which meet certain turnover thresholds specified in the EC
Merger Regulation. Such transactions may not 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.

Infringement under the UK or European Union Competition Law
Regimes

Infringement of the Chapter I or Chapter II
prohibitions, or Article 81 or Article 82, may result
in significant consequences including fines, voidness or
unenforceability of all or part of infringing agreements,
prohibition of infringing conduct, potential liability to
affected third parties (notably for damages), and/or the
potential for involved directors to be disqualified. In the case
of the cartel offence (which was introduced to the UK
competition law regime by the Enterprise Act) individuals found
guilty of that offence could be imprisoned for up to
5 years and/or fined.

Effect On Our Affairs

Regulatory update

European Commission Investigation  Football
Association Premier League Limited (FAPL)

The European Commissions investigation into the
FAPLs joint selling of exclusive broadcast rights to
football matches concluded with the European Commissions
adoption, in March 2006, of a decision making commitments
offered by the FAPL legally enforceable. These commitments (a
non-confidential version of which has been made available to
third parties) are to remain in force until June 2013 and thus
applied to the FAPLs auction of media rights for the
2007/08 to 2009/10 seasons and will apply to subsequent auction
of rights. Among other things, the commitments provide for the
FAPL to sell a number of packages of media rights, showcasing
the League as a whole throughout each season. They provide for
live TV rights to be sold in six balanced packages, with no one
bidder being allowed to buy all six packages and packages being
sold to the highest standalone bidder. The commitments also
create more evenly balanced packages of rights and increase the
availability of rights to broadcast via mobile phones.

The Group has been awarded four of the six packages of rights to
show live coverage of FAPL football matches in the UK for the
2007/08 to 2009/10 seasons.

The decision is binding on the FAPL for the duration of the
commitments, but does not bind national competition authorities
or national courts. The Commissions decision does not
address competition issues which may arise from contracts for
rights in relation to FAPL matches from the 2007/08 season
onwards: any such issues could be assessed separately under the
competition rules at either European or national level.

European Commission Sector Inquiry  New
Media Sports Rights

In September 2005, the European Commission published its
concluding report on its sector inquiry into the provision of
audio-visual content from sports events over 3G networks, which
it had initiated in January 2004.

The European Commission has identified a number of commercial
practices which it considers raise competition concerns in
relation to the availability of mobile sports content and on
which it states that it will focus in the future. Among others,
these include: (i) the sale of what the European Commission
considers to be bundled audiovisual rights for various retail
platforms to one or a few operators, in relation to which the
European Commission has said that it will target situations
where rights to premium sports remain under-exploited through
such bundled sale of

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rights and subsequent warehousing of rights by powerful
operators; and (ii) restricting the length and timing of 3G
transmissions of sports coverage, which the European Commission
considers may have a negative impact on the value of 3G rights
and the take-up of 3G
sports services by consumers.

The European Commission has stated that it will take account of
the findings of the sector inquiry in future proceedings in this
area. It has also stated that it will further review, together
with the relevant national competition authorities of Member
States, potentially harmful situations identified during the
sector inquiry, and that procedures will be initiated in cases
where behaviour is not adjusted to comply with the requirements
of competition law.

The European Commission has not announced any proceedings
arising from situations identified in the sector inquiry or
publicly indicated which individual companies might be the
subject of proceedings. At this stage, the Group is unable to
determine whether the European Commissions concluding
report or any subsequent proceedings might have a material
effect on the Group.

Ofcom review of conditional access guidelines

In May 2005, Ofcom initiated a review of its guidelines entitled
The pricing of conditional access services and related
issues. These guidelines, which were originally adopted by
Oftel in May 2002, set out Ofcoms policy towards the
regulation of the supply of conditional access (and access
control) services (including the structure of tariffs charged
for such services).

In November 2005, Ofcom published a consultation document as
part of this review entitled Provision of Technical
Platform Services  a consultation on proposed
guidance as to how Ofcom may interpret the meaning of
fair, reasonable and non-discriminatory and other
regulatory conditions when assessing charges and terms offered
by regulated providers of Technical Platform Services. The
services to which this review extends include conditional access
services, EPG services and access control services. The Group
submitted a response to this consultation.

In April 2006, Ofcom issued a further document containing draft
revised guidelines and an explanatory statement concerning the
provision of Technical Platform Services (encompassing all of
conditional access services, EPG services and access control
services). This document was subject to consultation, the
deadline for which was 16 June 2006. The Group submitted a
response to this further consultation. Ofcom has indicated that
it intends to publish final guidelines during the summer of
2006. The Group continues to participate actively in this review
and at this stage is unable to determine whether the review will
have a material effect on the Group.

Material contracts

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

Revolving Credit Facility (RCF)

In November 2004, the Group entered into a £1 billion
RCF to refinance our existing facilities and for general
corporate purposes.

Bond issue

In October 2005, the Group entered into an indenture in respect
of the issue by the Group of $750 million 5.625% unsecured
notes due 2015, $350 million 6.500% unsecured notes due
2035 and £400 million 5.750% unsecured notes due 2017.

These agreements have been included as an exhibit as part of
this Annual Report and are also described in note 21 of the
consolidated financial statements.

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FINANCIAL REVIEW





INTRODUCTION

The following discussion and analysis is based on, and should be
read in conjunction with, the consolidated financial statements,
including the related notes, included within this Annual Report.
The financial statements have been prepared in accordance with
IFRS, which differs in certain respects from US GAAP.
Note 32 to our consolidated financial statements provides a
description of the significant differences between IFRS and US
GAAP as they relate to our business, and provides a
reconciliation from IFRS to US GAAP. The consolidated financial
statements included within this Annual Report are our first full
financial statements prepared in accordance with IFRS.

Overview and recent developments

During the year ended 30 June 2006 (the current
year) total revenues increased by 8% compared to the year
ended 30 June 2005 (the prior year) to
£4,148 million. Operating profit for the current year
was £877 million, resulting in an operating profit
margin of 21%, consistent with the prior year. Profit after tax
for the year was £551 million, generating basic
earnings per share of 30.2 pence, in line with the prior
year.

At 30 June 2006, the total number of DTH digital satellite
subscribers in the UK and Ireland was 8,176,000, representing a
net increase of 389,000 subscribers in the current year.

At 30 June 2006, the total number of Sky+ households was
1,553,000, 19% penetration of total subscribers. The significant
growth in Sky+ households  665,000 in the current
year  demonstrates the value that customers place on
easy to use technology which enables them to better manage their
time and control their viewing. The number of Multiroom
households also continued to grow strongly, increasing by
402,000 in the current year to 1,047,000, 13% penetration of
total DTH subscribers.

Sky launched high definition TV services on 22 May 2006 and
there were 38,000 Sky HD subscribers at 30 June 2006. The
total number of bookings to date is around 90,000 and, after
some initial delays, the Group currently expects to install all
of these orders by September 2006. Sky Sports HD has covered
more than 50 days of live cricket including three England
Test matches, five England One-Day Internationals and 24
domestic matches.

DTH churn for the current year was 11.1% (2005: 10.3%). We
define DTH churn as the number of DTH subscribers over a given
period that terminate their subscription in its entirety, net of
former subscribers who reinstate their subscription in that
period (where such reinstatement is within a twelve month period
of the termination of their original subscription).

In May 2006, the Group successfully bid for four of the six
available packages (each of 23 games) of exclusive live UK
audio visual rights to FAPL football, and four of the seven
packages of live audio visual rights for broadcast in Ireland,
from the beginning of the 2007/08 season to the end of the
2009/10 season. In addition, the Group has been awarded
near live long form rights to 242 games per
season of FAPL football in both the UK and Ireland (in the case
of the UK, in a joint bid with BT) from the beginning of the
2007/08 season to the end of the 2009/10 season. In July
2006, the Group was also awarded mobile clips rights to FAPL
football for the 2007/08 to 2009/10 seasons in both the UK
and Ireland. The bid for mobile clips rights in the UK was made
in partnership with News Group Newspapers.

The Group also concluded a number of other content agreements as
part of its commitment to invest in programming. On
27 February 2006, Sky and Disney announced a wide ranging
series of agreements covering childrens entertainment,
sports and movies. Under the agreements, Sky Movies customers
will also be able to enjoy these movies via the Sky by Broadband
service and Sky HD. The Group also secured live coverage of UEFA
Champions League football until the 2008/09 season on 13
September 2005, and both National Geographic and Discovery
launched HD channels during the year which form part of the Sky
HD offering. The launch of The Crime and Investigation
Network channel, coverage of the Americas Cup and A1
Grand Prix racing also demonstrate the Groups commitment
to widen the range and depth of programming within its wholly
owned channels and with channel partners.

On 31 March 2006, Sky completed the implementation of its
new customer management systems. These new systems will support
the projected growth in Skys subscriber base and a greater
number of products, as Sky continues to launch new entertainment
and communications services. These systems also integrate key
parts of the

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customer service chain, such as the contact centres and field
engineers, which will enable the Group to offer a more tailored,
flexible and immediate response when dealing with customer
requests.

Corporate

Having served on the Board of Directors for over 14 years,
Lord St John of Fawsley has decided not to seek
re-election at this
years AGM and will retire from the Board on
3 November 2006. The Group would like to thank Lord St John
for his contribution to the Board over many years. He will,
however, still be connected with Sky in his new role of Chairman
of the Artsworld Channel, building on his extensive experience
as a patron of the arts.

On 20 October 2005, the Group made a recommended cash offer
for the entire share capital of Easynet Group plc. The offer
became unconditional in all respects on 6 January 2006.
Easynet was de-listed from the London Stock Exchange in February
2006 and the acquisition of Easynet was completed on
10 March 2006. On 14 October 2005, the Group announced
a private placement with institutional investors which raised
net proceeds of approximately £1,014 million from the
issuance of Guaranteed Notes by its wholly owned subsidiary,
BSkyB Finance UK plc.

The Board of Directors are proposing a final dividend of
6.7 pence per ordinary share, resulting in a total dividend
for the year of 12.2 pence and consistent with the
Boards statement in February 2006 that it intended to
reduce target dividend cover from approximately 3.0 times
to approximately 2.5 times underlying earnings.

In light of the continued cash generative nature of the Group,
it remains the Boards aim to maintain a progressive
dividend policy throughout the investment phase of the recently
announced broadband strategy. It is therefore the Boards
current intention to reflect the underlying growth in earnings
when setting future dividends, resulting in continued real
growth in dividend per share.

The ex-dividend date will be 25 October 2006 and, subject
to shareholder approval at the Companys Annual General
Meeting, the dividend will be paid on 17 November 2006 to
shareholders of record on 27 October 2006.

During the year the Group repurchased for cancellation
76.4 million shares for a total consideration of
£408 million, including stamp duty and commissions.
This comprised 22.7 million shares which completed the
authority granted on 12 November 2004 and 53.7 million
under the current authority granted on 4 November 2005.

Operating results

Revenues

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

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

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

Our advertising revenues are mainly a function of the number of
commercial impacts, defined as individuals watching one
thirty-second commercial on a Sky Channel, together with the
quality of impacts delivered, and overall advertising market
conditions. Advertising revenues also include commissions earned
by us from the sale of advertising on those third-party channels
for which we act as sales agent.

Our Sky Bet revenues represent our income in the period for
betting and gaming activities, defined as amounts staked by
customers less betting payouts.

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Our Sky Active revenues include income from online advertising,
e-mail, telephony
income from the use of interactive services (e.g. voting),
interconnect, text services and digibox subsidy recovery
revenues earned through conditional access and access control
charges made to customers on the Sky digital platform.

Other revenues principally include income from installations,
digibox sale revenues (including the sale of Sky+ and Multiroom
digiboxes), Sky Talk revenues, service call revenue, warranty
revenue, Easynet wholesale revenues, customer management service
fees, conditional access fees and access control fees.

Operating expenses

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

Programming represents our largest single component of costs.
Programming costs include payment for: (i) licences of
television rights from certain US and European film licensors;
(ii) the rights to televise certain sporting events;
(iii) other programming acquired from third party
licensors; (iv) the production and commissioning of
original programming; and (v) the rights to retail the Sky
Distributed Channels and the Music Choice and Music Choice Extra
audio services to DTH subscribers. The methods used to amortise
programming stock are described in note 1 of the
consolidated financial statements.

Under our pay television agreements with the US major movie
studios, we generally pay a US dollar-denominated licence fee
per movie calculated on a per movie subscriber basis, subject to
minimum guarantees, which were exceeded some time ago. During
the year, we managed our US dollar/pound sterling exchange risk
primarily by the purchase of forward foreign exchange contracts
and currency options (collars) for up to five years ahead
(see note 22 to the consolidated financial statements).
Offering multiplexed versions of our movie channels on the DTH
platform and on digital cable incurs no additional variable
rights fees.

Under the DTH distribution agreements for the Sky Distributed
Channels, we generally pay a monthly fee per subscriber for each
channel, the fee in some cases being subject to periodic
increases, or we pay a fixed fee or no such fee at all. A number
of our distribution agreements are subject to minimum
guarantees, which are linked to the proportion of the total
number of subscribers receiving specific packages. Our costs for
carriage of the Sky Distributed Channels will (where a monthly
per subscriber fee is payable) continue to be dependent on
changes in the subscriber base, contractual rates and/or the
number of channels distributed.

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

Marketing costs include:
(i) above-the-line
spend (which promotes our brand and range of products and
services generally);
(ii) below-the-line
spend (which relates to growth and maintenance of the subscriber
base, including commissions payable to retailers and other
agents for the sale of subscriptions and the costs of our own
direct marketing to our existing and potential subscribers); and
(iii) the cost of providing free or subsidised digital
satellite reception equipment to new customers and the
installation cost in excess of the relevant amount actually
received from the customer.

Subscriber management costs include customer management costs,
supply chain costs and associated depreciation. Customer
management costs are those associated with managing new and
existing subscribers, including subscriber handling and
subscriber bad debt costs. Supply chain costs relate to systems
and infrastructure and the installation costs of satellite
reception equipment and installation costs of new products
purchased by subscribers such as Sky+ and Multiroom digiboxes,
including smart card costs. Customer management costs and supply
chain costs are largely dependent on DTH subscriber levels.
Subscriber management costs exclude both the cost of free or
subsidised digital satellite reception equipment and the
installation cost to us in excess of the amount actually
received from the customer for such equipment and installation,
as these costs are included within marketing costs.

48



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##### Table of Contents

Administration costs include channel management, facilities and
other operational overhead and central costs, and the cost of
awards granted under our employee share option schemes.

For certain trend information related to our operating expenses,
see the Trends and other information section below.





FINANCIAL AND OPERATING REVIEW

Revenues

The Groups revenues can be analysed as follows:

|                        |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|----------------------- |  | -------- | ----- | ---- |  | -- | --- | - |  |  | ----- |  |  |  | --- | 
|                        |  | Revenues
|                        |  |         
|                        |  | 2006     |       | 2005
|For the year to 30 June |  | £m       |       | %    |  | £m |     | %
|                       
|DTH subscribers         |  |          | 3,154 |      |  |    | 76  |   |  |  | 2,968 |  |  |  | 77  | 
|Cable subscribers       |  |          | 224   |      |  |    | 6   |   |  |  | 219   |  |  |  | 6   | 
|Advertising             |  |          | 342   |      |  |    | 8   |   |  |  | 329   |  |  |  | 9   | 
|Sky Bet                 |  |          | 37    |      |  |    | 1   |   |  |  | 32    |  |  |  | 1   | 
|Sky Active              |  |          | 91    |      |  |    | 2   |   |  |  | 92    |  |  |  | 2   | 
|Other                   |  |          | 300   |      |  |    | 7   |   |  |  | 202   |  |  |  | 5   | 
|                        |  |          | 4,148 |      |  |    | 100 |   |  |  | 3,842 |  |  |  | 100 | 
|                       

DTH subscriber revenues








Cable subscriber revenues






Advertising revenues






| |                 
| | ----------------
| | Sky Bet revenues





| |                    
| | -------------------
| | Sky Active revenues



49



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##### Table of Contents

Other revenuesOther revenues increased by 49% compared to the prior year. This
increase was as a result of the inclusion of
£76 million of revenue generated by the corporate
business of Easynet (which was acquired during the current
year), the first full year effect of Sky credit card revenues
and the Sky News channel five contract.

Operating expenses

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

|                                   |  |                    |       |   |  |      |     |   |  |  |       |  |  |  |     | 
|---------------------------------- |  | ------------------ | ----- | - |  | ---- | --- | - |  |  | ----- |  |  |  | --- | 
|                                   |  | Operating expenses |      
|                                   |  |                    |      
|                                   |  | 2006               |       |   |  | 2005 |    
|For the year to 30 June            |  | £m                 |       | % |  | £m   |     | %
|                                   | 
|Programming                        |  |                    | 1,599 |   |  |      | 49  |   |  |  | 1,635 |  |  |  | 54  | 
|Transmission and related functions |  |                    | 234   |   |  |      | 7   |   |  |  | 171   |  |  |  | 6   | 
|Marketing                          |  |                    | 622   |   |  |      | 19  |   |  |  | 527   |  |  |  | 17  | 
|Subscriber management              |  |                    | 468   |   |  |      | 14  |   |  |  | 392   |  |  |  | 13  | 
|Administration                     |  |                    | 348   |   |  |      | 11  |   |  |  | 295   |  |  |  | 10  | 
|                                   |  |                    | 3,271 |   |  |      | 100 |   |  |  | 3,020 |  |  |  | 100 | 
|                                  



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











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





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



50



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##### Table of Contents

Subscriber managementSubscriber management costs increased by £76 million.
This reflects the first time consolidation of Easynet and
broadband expenses of £12 million, depreciation of the
new customer management systems of £26 million and
growth of £38 million due to the expansion of the
Groups customer management operation to further improve
customer service levels and manage the increase in sales
activity. During the current year, Sky expanded its existing
customer service operations in Scotland, adding 1,500 new
customer advisor positions and 600 new home installation
engineers in preparation for the roll-out of broadband and
providing the Group with one of the largest customer service and
home installation workforces in the UK.



AdministrationAdministration costs increased by 18% compared to the prior
year. This is a result of the consolidation of
£29 million of Easynet and broadband administration
expenses and a higher depreciation charge of
£16 million resulting from the infrastructure
investment programme, which commenced in August 2004.

The prior year administration expense was offset by a £13
million receipt following the settlement of ITV Digital
programming receivables.

Operating profit and operating margin

Operating profit increased by 7% to £877 million in the
current year from £822 million in the prior year. This
increase was driven by the increase in DTH subscribers,
advertising and other revenues, as detailed above, partly offset
by the increase in operating expenses as detailed above.

Operating margin (calculated as total revenues less all
operating expenses as a percentage of total revenues) for the
current year was 21%, in line with the prior year.

Joint ventures and associates

Joint ventures are entities in which we hold a long-term
interest and share control under a contractual arrangement. Our
share of the net operating results from joint ventures and
associates decreased from a £14 million net profit in
the prior year to a £12 million net profit in the
current year due to the disposal of the Groups holding in
Granada Sky Broadcasting (GSB) during the prior
year, the disposal of the Groups holding in Music Choice
Europe during the current year, and lower profits from the
History Channel, partly offset by improved profits from National
Geographic and Attheraces.

Investment income

Investment income increased by 79% to £52 million in
the current year from £29 million in the prior year.
This increase was primarily due to higher levels of cash on
deposit, subsequent to the issue of Guaranteed Notes in October
2005.

Finance costs

Finance costs increased by 64% to £143 million in the
current year from £87 million in the prior year. This
increase was primarily a result of the increase in our total
borrowings, which increased from £982 million at
30 June 2005 to £1,988 million at 30 June
2006, following the issue of Guaranteed Notes in October 2005.
For details of the issue of Guaranteed Notes, see
Liquidity and Capital Resources below. The higher
charge also reflects an £18 million non-cash movement
in the mark-to-market valuation of non-hedge accounted
derivatives and the net impact on interest following the
acquisition of Easynet.

Profit on disposal of joint venture

On 1 November 2004, we sold our 49.5% investment in GSB to
ITV plc for £14 million cash consideration. After
deducting the carrying value of the investment in GSB, the
disposal generated a profit of £9 million.

51



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##### Table of Contents

Taxation

The total tax charge for the current year of
£247 million comprises a current tax charge of
£141 million and a deferred tax charge of
£106 million. The mainstream corporation tax liability
for the period was £147 million and in accordance with
the quarterly payment regime, £95 million was paid
during the year in respect of this liability.

As a result of the acquisition of Easynet, the Group recognised
a deferred tax asset of £83 million during the year,
representing timing differences on fixed assets. The current tax
charge has benefited from a partial unwind of this asset in the
current year of £59 million, reducing the cash tax
liability due in respect of the current year profits
accordingly. The balance is expected to unwind in future periods.

Profit for the year

Profit for the year was £551 million compared with
£578 million in the prior year, mainly as a result of
an increase in finance costs of £56 million, an
increase in taxation of £38 million as a result of
increased profitability, and a profit on disposal of a joint
venture in the prior year of £9 million, offset by an
increase in operating profit of £55 million and an
increase in investment income of £23 million.

Earnings per share

Basic earnings per share were 30.2p in the current year, in line
with the prior year. The decrease in profit for the year was
offset by the effect of our share buy-back programmes. During
the prior year, a total of 74.3 million shares were
repurchased for cancellation, and during the current year
76.4 million shares were repurchased.

Adjusted basic earnings per share were 30.7p in the current
year, a 9% increase compared to the prior year. For a
reconciliation from earnings per share to adjusted earnings per
share, see note 9 to the consolidated financial statements.

Balance sheet

Goodwill increased by £206 million, from
£417 million at 30 June 2005 to
£623 million at 30 June 2006, primarily due to
the purchase of Easynet.

Property, plant and equipment and intangible assets increased by
£200 million, from £537 million at
30 June 2005 to £737 million at 30 June
2006, due to £232 million of additions in the year,
including refurbishment of leasehold properties, investment in
the broadband network, IT infrastructure and further
investment in customer management systems, assets acquired on
the purchase of Easynet of £108 million, partly offset
by depreciation and amortisation of £140 million.

Current assets increased by £920 million from
£1,363 million at 30 June 2005 to
£2,283 million at 30 June 2006, predominantly due
to an increase in short-term deposits of £453 million
and cash and cash equivalents of £313 million
principally due to the receipt of proceeds from the issuance of
Guaranteed Notes on 20 October 2005.

Current liabilities increased by £383 million from
£1,150 million at 30 June 2005 to
£1,533 million at 30 June 2006. This increase was
due to the reclassification of £162 million of
borrowings from non-current to current liabilities (relating to
a Guaranteed Note that is repayable in October 2006) and the
timing of payments.

Non-current borrowings increased by £843 million, from
£982 million at 30 June 2005 to
£1,825 million at 30 June 2006, primarily due to
the issuance of new Guaranteed Notes. The new Guaranteed Notes,
which were issued on 20 October 2005, consist of
(i) US $750 million aggregate principal amount of
notes paying 5.625% interest and maturing on 15 October
2015, (ii) US $350 million aggregate principal
amount of notes paying 6.500% interest and maturing on
15 October 2035 and (iii) £400 million
aggregate principal amount of notes paying 5.750% interest and
maturing on 20 October 2017.

Foreign exchange

For details of the impact of foreign currency fluctuations on
our results of operations, see note 22 to the consolidated
financial statements.

52



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##### Table of Contents

Contingent assets

Under the terms of one of the Groups channel distribution
agreements, British Sky Broadcasting Limited is entitled to a
payment, expected to be received between July and December 2006,
relating to a proportion of the fair market value of certain of
the channels under that distribution agreement. The fair market
value of the channels has not yet been determined. Accordingly,
it is not yet possible to determine the value of the payment
which may be received.

The Group has served a claim for a material amount against an
information and technology solutions provider, which provided
services to the Group as part of the Groups investment in
customer management systems software and infrastructure. The
amount which may be recovered by the Group will not be finally
determined until resolution of the claim.

Contingent liabilities

The Group has contingent liabilities by virtue of its
investments in joint ventures and associates that are unlimited
companies, or partnerships, which include Nickelodeon UK, The
History Channel (UK), Paramount UK and National Geographic
Channel UK. The Groups share of contingent liabilities of
its joint ventures and associates incurred jointly with other
investors is nil (2005: nil).

We do not expect any material loss to arise from the above
contingent liabilities.

Liquidity and capital resources

An analysis of the movement in our net debt is as follows:

|                                                        |  |              |      |   |           |  |       |           |  |  |               |   |  |  |       |  
|------------------------------------------------------- |  | ------------ | ---- | - | --------- |  | ----- | --------- |  |  | ------------- | - |  |  | ----- | -
|                                                        |  | As at 1 July |      |   | Cash      |  |       | Non-cash  |  |  | As at 30 June |  
|                                                        |  | 2005         |      |   | movements |  |       | Movements |  |  | 2006          |  
|                                                        |  | £m           |      |   | £m        |  |       | £m        |  |  | £m            |  
|                                                        | 
|Current borrowings                                      |  |              |     |   |           |  |      |           |  |  | 163           |   |  |  | 163   |  
|Non-current borrowings                                  |  |              | 982  |   |           |  | 1,014 |           |  |  | (171          | ) |  |  | 1,825 |  
|Debt                                                    |  |              | 982  |   |           |  | 1,014 |           |  |  | (8            | ) |  |  | 1,988 |  
|                                                       
|Borrowings-related derivative
    financial instruments |  |              | 103  |   |           |  |      |           |  |  | 133           |   |  |  | 236   |  
|Cash and cash equivalents                               |  |              | (503 | ) |           |  | (312  | )         |  |  | (1            | ) |  |  | (816  | )
|Short-term deposits                                     |  |              | (194 | ) |           |  | (453  | )         |  |  |              |   |  |  | (647  | )
|Net debt                                                |  |              | 388  |   |           |  | 249   |           |  |  | 124           |   |  |  | 761   |  
|                                                       





53



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##### Table of Contents

Trends and other information and Tabular
disclosure of contractual obligations below), subject to
the factors described in Review of the
Business  Risk Factors. As at 30 June 2006, our
RCF was undrawn (2005: undrawn).

Cash flows

During the current year, cash generated from operations was
£1,004 million, compared with an inflow of
£989 million in the prior year. The increased
operating cash inflow was driven by an improvement in operating
profit of £55 million, offset by a working capital
outflow of £13 million.

During the current year, interest receipts were
£43 million, compared to £28 million in the
prior year. This increase was primarily due to higher levels of
cash on deposit.

During the current year, tax payments were
£172 million, compared to £103 million in
the prior year. This increase in payments is due to the
increased profitability of the Group in the prior year, as our
payments made during the year relate in part to the tax charge
in the prior year.

During the prior year, receipts from the sale of a joint venture
of £14 million comprised proceeds from the sale of our
shareholding in GSB.

During the current year, payments for property, plant and
equipment and intangible assets were £212 million,
compared with £241 million in the prior year,
following completion of a number of capital expenditure and
infrastructure projects. We spent £38 million
completing the final stages of the project to upgrade and
implement new customer management systems, which went live for
all DTH customers on 31 March 2006. A total of
£37 million was spent unbundling telephone exchanges
and readying the business for the launch of Sky Broadband, and
£16 million was invested to progress the Groups
property, business continuity and infrastructure projects. We
invested £10 million to upgrade our production and
broadcast facilities ahead of the launch of high definition
services. We also made payments totalling £14 million
in the year to a third party for development of encryption
technology, which have been capitalised as intangible assets.
The remaining £97 million was spent on a number of
projects, such as IS infrastructure, broadcast equipment and the
development of new products and services.

During the current year, payments for the purchase of
subsidiaries amounting to £209 million principally
comprised the acquisition of the entire issued and to be issued
share capital of Easynet, net of cash and cash equivalents
purchased.

On 20 October 2005, the Group issued Guaranteed Notes consisting
of US $750 million aggregate principal amount of
Guaranteed Notes paying 5.625% interest and maturing on
15 October 2015: US $350 million aggregate
principal amount of Guaranteed Notes paying 6.500% interest and
maturing on 15 October 2035; and £400 million
aggregate principal amount of Guaranteed Notes paying 5.750%
interest and maturing on 20 October 2017, resulting in a net
cash inflow of £1,014 million.

On 12 November 2004, the Companys shareholders
approved a resolution at the Annual General Meeting for the
Company to purchase up to 97 million Ordinary Shares of the
Company. On 4 November 2005, the Companys
shareholders approved a resolution at the Annual General Meeting
for the Company to further purchase up to 92 million
Ordinary Shares of the Company. During the current year, the
Company purchased, and subsequently cancelled, 76.4 million
Ordinary Shares at an average price of 530 pence per share,
with a nominal value of £38 million, for a
consideration of £408 million (including stamp duty
and commissions). This represents 4% of
called-up share capital
at the beginning of the current year. The Company has announced
that the Board will not be proposing to renew the buy-back
authority at its next Annual General Meeting in November 2006.

During the current year, interest payments were
£105 million, compared to £91 million in the
prior year. This increase in payments was primarily due to
increased levels of indebtedness following the issue of new
Guaranteed Notes in October 2005, offset in part by the timing
of certain interest payments.

During the current year, we made equity dividend payments of
£191 million, compared to £138 million in
the prior year. We expect that future payments will increase in
line with the Boards expected dividend policy described in
the Trends and other information section below.

54



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##### Table of Contents

The above cash flows, in addition to other net movements of
£1 million, and non-cash movements of
£124 million resulted in an increase in net debt of
£373 million to £761 million.



Major non-cash transactions

2005

Corporate reorganisationOn 13 April 2005, the High Court approved a reduction in
the share capital of BSkyB Investments Limited, a 100% owned
subsidiary. This formed part of a corporate reorganisation,
allowing the Company access to significant additional
distributable reserves.

Tabular disclosure of contractual obligations

A summary of our contractual obligations and commercial
commitments at 30 June 2006 is shown below:

|                                      |  |       |       |                        |        |  |         |           |  |         |           |  |           |         |       |  |  |  |       | 
|------------------------------------- |  | ----- | ----- | ---------------------- | ------ |  | ------- | --------- |  | ------- | --------- |  | --------- | ------- | ----- |  |  |  | ----- | 
|                                      |  |       |       | Payments due by period |       
|                                      |  |       |       |                        |       
|                                      |  |       |       | Less than              |        |  | Between |           |  | Between |           |  | More than |        
|                                      |  | Total |       |                        | 1 year |  |         | 1-3 years |  |         | 3-5 years |  |           | 5 years |      
|                                      |  | £m    |       |                        | £m     |  |         | £m        |  |         | £m        |  |           | £m      |      
|                                      | 
|Obligation or
    commitment          |  |       |       |                        |        |  |         |           |  |         |           |  |           |         |       |  |  |  |       | 
|Purchase obligations:                 |  |       |       |                        |        |  |         |           |  |         |           |  |           |         |       |  |  |  |       | 
| Television programme
    rights(1)  |  |       | 3,260 |                        |        |  | 907     |           |  |         | 1,695     |  |           |         | 655   |  |  |  | 3     | 
| Digiboxes and related
    equipment |  |       | 91    |                        |        |  | 91      |           |  |         |          |  |           |         |      |  |  |  |      | 
| Third party
    payments(2)         |  |       | 30    |                        |        |  | 9       |           |  |         | 12        |  |           |         | 9     |  |  |  |      | 
| Transponder
    capacity(3)         |  |       | 420   |                        |        |  | 83      |           |  |         | 132       |  |           |         | 69    |  |  |  | 136   | 
| Capital expenditure                 |  |       | 25    |                        |        |  | 25      |           |  |         |          |  |           |         |      |  |  |  |      | 
| Other                               |  |       | 31    |                        |        |  | 26      |           |  |         | 5         |  |           |         |      |  |  |  |      | 
|Long-term
    debt(4)                 |  |       | 1,921 |                        |        |  | 163     |           |  |         | 326       |  |           |         | 451   |  |  |  | 981   | 
|Interest costs                        |  |       | 1,187 |                        |        |  | 138     |           |  |         | 258       |  |           |         | 132   |  |  |  | 659   | 
|Operating lease
    obligations(5)    |  |       | 144   |                        |        |  | 28      |           |  |         | 40        |  |           |         | 27    |  |  |  | 49    | 
|Capital lease
    obligations(6)      |  |       | 67    |                        |        |  | 1       |           |  |         | 2         |  |           |         | 1     |  |  |  | 63    | 
|Total cash obligations                |  |       | 7,176 |                        |        |  | 1,471   |           |  |         | 2,470     |  |           |         | 1,344 |  |  |  | 1,891 | 
|                                     





|    |                                                       
|--- | ------------------------------------------------------
|(1) | Purchase obligations  Television programme
    rights



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At 30 June 2006 we had minimum television programming
    rights commitments of £3,260 million (2005:
    £2,260 million), of which £667 million
    (2005: £642 million) related to commitments payable in
    US dollars for periods of up to six years (2005:
    eight years). In addition, in the prior year, there were
    £45 million of commitments payable in Swiss francs and
    £3 million of commitments payable in Euros.                                                                                         
|
| | An additional £363 million (US$671 million) of
    commitments (2005: £302 million (US$535 million))
    would also be payable in US dollars, assuming that movie
    subscriber numbers remained unchanged from current levels. The
    pounds sterling television programme rights commitments include
    similar per subscriber based price clauses that would result in
    additional commitments of £2 million (2005:
    £10 million), assuming that movie subscriber numbers
    remained unchanged from current levels.
|
| | The total increase in our minimum television programming rights
    commitments of £1,000 million compared to 30 June
    2005, is the result of the acquisition of the A1 Grand Prix
    rights, a new
    three-year agreement to
    broadcast the UEFA Champions League for the 2006/07 to 2008/09
    football seasons, and our successful bid for four of the six
    available packages of exclusive live UK audio visual rights to
    FAPL football, from the beginning of                                              

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##### Table of Contents

the 2007/08 season to the end of the 2009/10 season, partly
    offset by a decreased average period remaining on our
    commitments for movie channels programming.

(2)
    Purchase obligations  Third party
    payments

The third party payment commitments are in respect of
    distribution agreements for Sky Distributed Channels and are for
    periods of up to five years (2005: four years). The extent of
    the commitment is largely dependent upon the number of DTH
    subscribers to the relevant Sky Distributed Channels, and in
    certain cases, upon inflationary increases. If both the DTH
    subscriber levels to these channels and the rate payable for
    each Sky Distributed Channel were to remain at 30 June 2006
    levels, the additional commitment would be
    £491 million (2005: £522 million).

(3)
    Purchase obligations  Transponder
    capacity

Transponder capacity commitments are in respect of the Astra and
    Eurobird satellites that the Group uses for digital
    transmissions to both DTH subscribers and cable operators. The
    commitments are for periods of up to fourteen years (2005: nine
    years). Three additional transponder agreements were entered
    into in the year ended 30 June 2006 to provide capacity to
    facilitate the launch of the Groups HD services.

(4)
    Long-term debt

Further information concerning long-term debt is given in
    note 21 of the consolidated financial statements.

(5)
    Operating lease obligations

At 30 June 2006, our operating lease obligations totalled
    £144 million (2005: £129 million), the
    majority of which related to property leases.

(6)
    Capital lease obligations

At 30 June 2006, our obligations under capital leases were
    £67 million (2005: £7 million). This
    primarily represents financing arrangements in connection with
    the customer management centre in Dunfermline, Scotland and the
    broadband network infrastructure purchased in the current year
    through a business combination. For further details see
    note 21 of the consolidated financial statements.Trends and other information

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

The number of DTH homes increased by 389,000 in the current year
to 8,176,000, compared to growth of 432,000 in the prior year.
We expect growth in subscriber numbers to continue as a result
of the implementation of our current marketing strategy, with
the aim of achieving our target of 10,000,000 DTH subscribers in
2010. Sky+ and Multiroom subscribers both increased
substantially in the current year by 75% and 62% respectively,
representing a penetration of total DTH subscribers of 19% and
13% respectively. Given the success of Sky+ over the last two
years, we expect to reach our target of 25% Sky+ penetration of
DTH subscribers in 2010 by the end of 2007, three years early.
We expect Multiroom subscriber growth to continue, consistent
with achieving our target of 30% Multiroom penetration of DTH
subscribers in 2010. During the current year we launched our HD
service, and at 30 June 2006, there were
38,000 subscribers to our HD service. We expect there to be
substantial growth in the number of HD subscribers in the
future. Retail price increases, the increased number of
subscribers to our Multiroom and HD products and the launch of
new services, including residential broadband, are expected to
generate additional revenue on a per subscriber basis.

The operating margin for the current year was 21%, consistent
with the prior year. We currently expect our operating margin to
grow in the long-term, as a result of the operational gearing of
our business as we expect total revenues to increase at a faster
rate than operating costs. In the shorter term our operating
margin will decline, primarily due to the development and launch
of our residential broadband services. The associated increase in

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##### Table of Contents

costs as we invest in the new services will outweigh the
positive contribution they will have on subscriber revenues in
the earlier years.

During the current year, the number of cable homes receiving Sky
Channels in the UK and Ireland increased by 26,000 to 3,898,000
following a decrease of 23,000 in the prior year. We currently
expect cable subscriber numbers to remain stable in the
foreseeable future, although this is dependent on the strategies
of the relevant cable companies, as they relate to the
distribution of our channels (for further details see
Review of the business  Risk factors). We
currently have agreements with ntl and Telewest for the
distribution of certain of our channels which expire during
calendar 2006. We do, however, expect to renew these agreements.

Advertising revenues increased in the current and prior years.
The increase in the current year reflects continued growth in
our share of UK television advertising revenue. We expect that
our share of UK television advertising revenue will continue to
increase, primarily as a result of increasing commercial impacts
for those channels for which we sell airtime.

Sky Bet revenues increased by 16% in the current year. We expect
Sky Bet revenues to continue to grow driven by interactive
betting and gaming via television and the internet, and the
launch of a poker product during fiscal 2007. Sky Bet is well
positioned to take advantage of the changes in UK gambling laws
and regulations following the passing of the Gambling Act in
April 2005 and the issuing of UK remote gambling licenses which
are expected in late 2007.

Sky Active revenues in the current year decreased by 1% compared
to the prior year. We currently expect increases in Sky Active
revenues from growth in online advertising, mobile TV and TV by
broadband services.

Programming costs decreased during the current year. Following
our successful bid for four of the six available packages (each
of 23 games) of exclusive live UK television rights to FAPL
football from the beginning of the 2007/08 season to the end of
the 2009/10 season our expenditure on FAPL programming costs
will increase in the future; however we currently expect that
total programming costs will increase at a slower rate than our
revenues. We will continue to seek to reduce the per subscriber
cost in relation to the Sky Distributed Channels, as and when
the contracts for these are renewed. However, we do expect minor
fluctuations depending upon the timing of individual programming
agreements.

Transmission and related functions costs increased during the
current year, and are expected to continue to increase in future
years at a higher rate than the growth in subscribers, resulting
in an increased cost per subscriber, reflecting the costs of
operating our HDTV service, the launch of residential broadband
services, higher forecast utilities costs and increased
depreciation charges.

Marketing costs increased in the current and prior years. As a
percentage of revenues, we expect marketing costs to increase in
the shorter term, principally due to costs associated with the
launch of our residential broadband services. Also included
within marketing costs are the costs of providing free or
subsidised digital satellite reception equipment and
installation costs in excess of the relevant amount actually
received from customers. It remains our current intention to
continue the practice of providing free or subsidised digital
satellite reception equipment and subsidising installation to
new subscribers.

Subscriber management costs increased during the current year at
a higher rate than in the prior year. We expect that subscriber
management costs will increase at a higher rate over the next
few years due to a greater proportion of Sky+ and HD customers,
whose installations carry higher hardware costs than the
standard installations, and increased costs associated with the
launch of residential broadband services, partly offset by a
reduction in the cost of standard digiboxes. Additionally, the
new customer management systems which went into use in September
2005 will result in increased amortisation charges going
forward. We are also investing in increasing the capacity of our
contact centres, which is expected to result in an associated
increase in the cost of subscriber management.

Administration costs increased in the current and prior years,
and are expected to continue increasing in the foreseeable
future due to the growth in our overall business and higher
depreciation charges relating to investment in our properties,
including expenditure on broadcasting infrastructure.

The Directors are proposing a final dividend for 2005/06 of
6.7 pence per share, which, combined with the interim
dividend of 5.5 pence per share, will result in total
dividend growth of 36% on the prior year. The Group continues

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to be cash generative despite the projected reduction in short
term earnings per share as a result of the investment in
broadband. It is therefore the Boards aim to maintain a
progressive dividend policy throughout the broadband investment
phase, resulting in continued real growth in dividend per share.

Dividends are paid between Group companies out of profits
available for distribution subject to, inter alia, the
provisions of our Articles of Association and the Companies Act
1985 (as amended). There are restrictions over the distribution
of any profits which are not generated from external cash
receipts as defined in Technical Release 7/03, issued by the
Institute of Chartered Accountants in England and Wales. The
interim dividend of the Company of £99 million in
January 2006, relating to the period ended 31 December
2005, and the final dividend of £120 million proposed
in July 2006, relating to the year ended 30 June 2006, were
resolved or proposed to be paid out of profits available for
distribution generated from external cash receipts.

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

Off-balance sheet arrangements

At 30 June 2006, the Company did not have any undisclosed
off-balance sheet arrangements that require disclosure as
defined under the applicable rules of the Securities and
Exchange Commission.

Research and development

During the current year, the Group made payments totalling
£15 million to a third party for development of
encryption technology (2005: £11 million). The Group
did not incur any other significant research and development
expenditure in the current or prior year.

Related party transactions

The Group conducts all business transactions with companies
which are part of the News Corporation group (News
Corporation), a major shareholder, on an arms length
basis. During the year the Group made purchases of goods/
services from News Corporation totalling £175 million
(2005: £163 million, 2004: £146 million) and
supplied services to News Corporation totalling
£21 million (2005: £18 million, 2004:
£16 million).

During the year the Group made purchases of goods/ services from
joint ventures and associates totalling £46 million
(2005: £54 million, 2004: £64 million) and
supplied services to joint ventures and associates totalling
£14 million (2005: £20 million, 2004:
£19 million).

For further details of transactions with related parties, see
note 29 of the consolidated financial statements.

US GAAP reconciliation

Profit for the period under IFRS was £551 million
(2005: £578 million). Under US GAAP, net income was
£551 million (2005: £577 million). Net
assets under IFRS at 30 June 2006 were
£121 million (2005: £187 million). Under US
GAAP, net assets were £759 million (2005:
£818 million).

The principal differences between US GAAP and IFRS, as they
relate to the Group, arise from the methods of accounting for
goodwill, employee stock-based compensation, capitalisation of
interest, derivatives, pre-consolidation results, debt issue
costs and deferred taxation. For a further explanation of the
differences between US GAAP and IFRS, see note 32 to the
consolidated financial statements.

Critical accounting policies

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

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the timing of when a transaction is recognised. A description of
our significant accounting policies is disclosed in note 1
of the consolidated financial statements.

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 IFRS.

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

Goodwill

Business combinations that have occurred since the IFRS
Transition Date (1 July 2004) (IFRS Transition
Date) are accounted for by applying the purchase method of
accounting. Following this method, goodwill is initially
recognised on consolidation, representing the difference between
the cost of the business combination and the fair value of the
identifiable assets, liabilities and contingent liabilities
assumed. Judgement is required in determining the fair value of
identifiable assets, liabilities and contingent assets assumed
in a business combination. Calculating the fair values involves
the use of significant estimates and assumptions, including
expectations about future cash flows, discount rates and the
lives of assets following purchase.

In respect of business combinations that occurred prior to the
IFRS Transition Date, goodwill has been included at its deemed
cost, as permitted by IFRS 1 First-time Adoption of
International Financial Reporting Standards. Deemed cost
represents the goodwills carrying value under the
Groups UK GAAP accounting policies on the IFRS Transition
Date.

Goodwill is stated at cost less any impairment losses and is
tested annually for impairment, or more frequently if events or
changes in circumstances indicate that it might be impaired. Any
impairment identified is recognised immediately in the income
statement and may not subsequently be reversed. The carrying
amount of goodwill in respect of associates and joint ventures
is included in the carrying amount of the investment in the
associate or joint venture.

At 30 June 2006, the carrying value of goodwill amounted to
£623 million (2005: £417 million) and
represented 17% (2005: 17%) of our total assets. Applying
the impairment tests has not resulted in a charge for impairment
in either the current or prior years.

Judgement is required in evaluating whether any impairment loss
has arisen against the carrying amount of goodwill. This may
require calculation of the recoverable amount of cash generating
units to which the goodwill is associated. Such a calculation
may involve estimates of the net present value of future
forecast cash flows and selecting the appropriate discount rate.
Alternatively, it may involve a calculation of the fair value
less costs to sell of the applicable cash generating unit.

The main difference between IFRS and US GAAP with respect to
goodwill relates to the deemed cost of the goodwill in our
balance sheets (see note 32 of the consolidated financial
statements for further details).

Revenues and bad debt provisions

Selecting the appropriate timing and amount of revenue to be
recognised requires judgement. This may involve estimating the
fair value of consideration before it is received and
determining the stage of completion of a transaction at the
balance sheet date.

The main source of our revenue is revenue from subscribers.
Revenues from the provision of DTH subscription services are
charged to contract customers on a monthly basis. Revenues are
invoiced and recorded as part of a periodic billing cycle, and
are recognised as the services are provided. Pay-per-view
revenue is recognised when the event, movie or football match is
viewed. Cable revenue is recognised as the services are provided
to the cable companies and is based on the number of subscribers
taking the Sky Channels, as reported to us by the cable
companies, and the applicable wholesale prices. During the
current year, subscription revenues from DTH subscribers and
cable companies comprised 82% of total revenue (2005: 83%).

Judgement is also required in evaluating the likelihood of
collection of customer debt after revenue has been recognised.
This evaluation requires estimates to be made, including the
level of provision to be made for amounts

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with uncertain recovery profiles. Provisions are based on
historical trends in the percentage of debts which are not
recovered or on more detailed reviews of individually
significant balances. As DTH subscriber revenues are billed in
advance and corrective action is taken early within the billing
cycle, bad debts are a relatively low percentage of sales.

The remaining 18% of revenue (2005: 17%) comprises
advertising, Sky Bet, Sky Active and other revenues. Recognition
of these revenues takes place once the advertising is broadcast,
or when the relevant goods or services have been delivered or
provided. Sky Bet revenues represent our income in the period
for betting and gaming activities, defined as amounts staked by
customers less betting payouts. There is no difference in the
Groups revenue and bad debt provisions between IFRS and US
GAAP.

Property, plant and equipment and intangible assets

At 30 June 2006, property, plant and equipment and
intangible assets represented 20% of our total assets
(2005: 22%). Property, plant and equipment and intangible
assets are stated at cost, net of accumulated depreciation or
amortisation and any impairment losses, other than those that
are classified as held for sale, which are stated at the lower
of carrying amount and fair value less costs to sell. When an
item comprises major components having different useful lives,
each component is accounted for as a separate asset.

The assessment of the useful economic lives of these assets
requires judgement. Depreciation is charged to the income
statement based on the useful economic life selected. This
assessment requires estimation of the period over which the
Group will benefit from the assets.

Determining whether the carrying amount of these assets has any
indication of impairment also requires judgement. If an
indication of impairment is identified, further judgement is
required to assess whether the carrying amount can be supported
by the net present value of future cash flows forecast to be
derived from the asset. This forecast involves cash flow
projections and selecting the appropriate discount rate. There
have been no material impairments in the period.

International Accounting Standard No. 38, Intangible
Assets, specifies criteria for the recognition of
intangible assets, including a detailed definition of costs that
are capitalised in relation to internally generated assets.
Assessing whether assets meet the required criteria for initial
capitalisation requires judgement. This requires a determination
of whether the assets will result in future benefits to the
Group. In particular, internally generated intangible assets
must be assessed during the development phase to identify
whether the Group has the ability and intention to complete the
development successfully.

The only difference between IFRS and US GAAP relates to the
capitalisation of interest costs on funds invested in the
construction of major capital assets (see note 32 of the
consolidated financial statements for further details).

Amortisation of programming inventory

A significant proportion of programming costs relate to the
amortisation of television programme rights. Programming costs
constituted 49% of operating expenses in the current year
(2005: 54%). The key area of accounting for programming
inventory requiring judgement is the assessment of the
appropriate period over which to recognise the expense
associated with the inventory in the income statement. This
assessment requires consideration of the period over which the
Group will benefit from the programming inventory, which may not
be certain on initial recognition of the inventory.

Acquired movie rights are amortised on a straight-line basis
over the period of the transmission rights. Where contracts for
sports rights provide for multiple seasons or competitions, they
are amortised on a straight-line basis across the season or
competition as our estimate of the benefits received from these
rights is determined to be most appropriately aligned with a
straight-line amortisation profile. Provisions are made for any
programme 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 amortisation of programme stock
between IFRS and US GAAP.

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Deferred tax

We recognise deferred tax assets and liabilities using the
balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and
liabilities in the balance sheet and the corresponding tax bases
used in the computation of taxable profit. The following
temporary differences are not provided for: goodwill; the
initial recognition of assets or liabilities that affect neither
accounting profit nor taxable profit; and differences relating
to investments in subsidiaries to the extent that it is not
probable that they will reverse in the foreseeable future. The
amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates that have been enacted or
substantially enacted at the balance sheet date.

The key area of deferred tax accounting requiring judgement is
the assessment of the expected timing and manner of realisation
or settlement of the carrying amounts of assets and liabilities
held at the balance sheet date. In particular, assessment is
required of whether taxable profits are more likely than not to
arise against which the deferred tax can be utilised.

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 temporary
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 to recognise additional deferred
tax assets, resulting in a decrease in our effective tax rate
and a positive impact on our financial results.

At 30 June 2006, we have recognised a deferred tax asset of
£100 million (2005: £105 million) and
have unrecognised deferred tax assets of £244 million
(2005: £78 million) in respect of tax losses
arising from trading, and £354 million
(2005: £354 million) in respect of tax losses
arising from capital disposals and provisions against
investments. The Directors consider that at 30 June 2006
there was sufficient evidence to support the recognition of our
deferred tax asset on the basis that it was probable that there
would be suitable taxable profits against which this asset could
be utilised and from which future reversals of underlying timing
differences could be deducted.

The net deferred tax asset recognised under US GAAP has
primarily differed in respect of deferred tax on IFRS to US GAAP
adjustments and in relation to the recognition of deferred tax
assets in respect of employee stock-based compensation expense
(see note 32 of the consolidated financial statements for
further details).





PROPERTY

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

The principal properties of the Group are as follows:

|                                     |                                                           |           |           |                     |                        |               |               |             |         |         |              |  |        |         | 
|------------------------------------ | --------------------------------------------------------- | --------- | --------- | ------------------- | ---------------------- | ------------- | ------------- | ----------- | ------- | ------- | ------------ |  | ------ | ------- | 
|                                     |                                                           |           |           |                     |                        |               |               | Current     |         |         | Approximate  | 
|                                     |                                                           |           |           |                     |                        |               |               | annual      |         |         | square foot  | 
|                                     |                                                           |           |           |                     |                        |               |               | rent or     |         |         | net internal | 
|Location                             |                                                           | Tenure    |           | Use                 |                        | Term          |               | licence fee |         |         | area         | 
|                                     |                                                          
|1, 2, 3a/3b, 4, 5, 6 and
    7 Grant |                                                           |           |           |                     |                        |               |               |             |         |         |              |  |        |        
|                                     | Way                                                       |           | Freehold  |                     | Offices, studios,      |               | n/a           |             |         | n/a     |              |  |        | 275,605 | 
|                                     | Centaurs Business Park,
    Osterley, Isleworth, England  |           |           |                     | technology and storage |               |               |             |         |         |              |  |        |         | 
|8 Grant Way (Cromwell Centre)        |                                                           | Leasehold |           | Offices and storage |                        | Lease expires |               | £           | 350,000 |         |              |  | 37,480 |        
|                                     | Centaurs Business Park, Osterley,
    Isleworth, England  |           |           |                     |                        |               | 1 July 2008   |             |         |         |              |  |        |         | 
|Athena Court, Centaurs               |                                                           |           |           |                     |                        |               |               |             |         |         |              |  |        |        
|                                     | Business Park,                                            |           | Leasehold |                     | Offices                |               | Lease expires |             | £       | 990,000 |              |  |        | 53,583  | 
|                                     | Osterley, Isleworth, England                              |           |           |                     |                        |               | 23 June 2008  |             |         |         |              |  |        |         | 
|New Horizons Court,                  |                                                           | Leasehold |           | Offices             |                        | Lease expires |               | £           | 546,147 |         |              |  | 26,096 |        
|                                     | Courtyard Units 1-7
    The Courtyard, Brentford, England |           |           |                     |                        |               | 25 June 2007  |             |         |         |              |  |        |         | 

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|                               |                                      |           |  |                    |                                 |               |                                                                |             |           |  |              |  |         |  | 
|------------------------------ | ------------------------------------ | --------- |  | ------------------ | ------------------------------- | ------------- | -------------------------------------------------------------- | ----------- | --------- |  | ------------ |  | ------- |  | 
|                               |                                      |           |  |                    |                                 |               |                                                                | Current     |           |  | Approximate  | 
|                               |                                      |           |  |                    |                                 |               |                                                                | annual      |           |  | square foot  | 
|                               |                                      |           |  |                    |                                 |               |                                                                | rent or     |           |  | net internal | 
|Location                       |                                      | Tenure    |  | Use                |                                 | Term          |                                                                | licence fee |           |  | area         | 
|                               |                                     
|New Horizons Court,            |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 2,509,434 |  |              |  | 133,536 | 
|                               | Units 1-4, Brentford, England        |           |  |                    |                                 |               | 25 December 2011                                               |             |           |  |              |  |         |  | 
|West Cross House,              |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 1,349,694 |  |              |  | 72,194  | 
|                               | Brentford, England                   |           |  |                    |                                 |               | 26 March 2019                                                  |             |           |  |              |  |         |  | 
|The Chilworth Research Centre, |                                      | Leasehold |  | Satellite uplink   |                                 | Lease expires |                                                                | £           | 1         |  |              |  | 61,937  | 
|                               | Southampton, England                 |           |  |                    |                                 |               | 25 February 2087                                               |             |           |  |              |  |         |  | 
|Knowle Lane, Fair Oak,         |                                      | Freehold  |  | Satellite uplink   |                                 | n/a           |                                                                |             | n/a       |  |              |  | 43,087  | 
|                               | Eastleigh, England                   |           |  |                    |                                 |               |                                                                |             |           |  |              |  |         |  | 
|123 Buckingham Palace Road,    |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 1,834,300 |  |              |  | 36,686  | 
|                               | London, England                      |           |  |                    |                                 |               | 31 March 2017 with an option
    to terminate at 24 March 2012 |             |           |  |              |  |         |  | 
|Marcopolo House and Arches,    |                                      | Leasehold |  | Sub-let            |                                 | Lease expires |                                                                | £           | 2,409,900 |  |              |  | 85,509  | 
|                               | Queenstown Road, London, England     |           |  |                    |                                 |               | 24 December 2013                                               |             |           |  |              |  |         |  | 
|Welby House, 96 Wilton Road,   |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 311,250   |  |              |  | 8,138   | 
|                               | London, England                      |           |  |                    |                                 |               | 15 January 2015                                                |             |           |  |              |  |         |  | 
|1, 2, 4 and 5 Macintosh Road,  |                                      | Freehold  |  | Contact centres    |                                 | n/a           |                                                                |             | n/a       |  |              |  | 146,713 | 
|                               | Kirkton Campus, Livingston, Scotland |           |  |                    |                                 |               |                                                                |             |           |  |              |  |         |  | 
|Carnegie Campus,               |                                      | Freehold  |  | Contact centre     |                                 | n/a           |                                                                |             | n/a       |  |              |  | 95,852  | 
|                               | Dunfermline, Scotland                |           |  |                    |                                 |               |                                                                |             |           |  |              |  |         |  | 
|New Logic House,               |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 222,000   |  |              |  | 13,896  | 
|                               | Kirkton South, Livingston, Scotland  |           |  |                    |                                 |               | 3 October 2017 with a break
    option on 4 October 2007       |             |           |  |              |  |         |  | 
|Logic House,                   |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 222,112   |  |              |  | 9,219   | 
|                               | Kirkton South, Livingston, Scotland  |           |  |                    |                                 |               | 3 October 2017 with a break
    option on 30 November 2008     |             |           |  |              |  |         |  | 
|Citygate, Dunfermline,         |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 294,081   |  |              |  | 9,642   | 
|                               | Scotland                             |           |  |                    |                                 |               | 30 June 2007                                                   |             |           |  |              |  |         |  | 
|Centrex, Livingston,           |                                      | Leasehold |  | Offices            |                                 | Lease expires |                                                                | £           | 508,222   |  |              |  | 16,953  | 
|                               | Scotland                             |           |  |                    |                                 |               | 30 June 2006                                                   |             |           |  |              |  |         |  | 
|1 Brick Lane                   |                                      | Leasehold |  | Office & Technical |                                 | Lease expires |                                                                | £           | 1,230,798 |  |              |  | 77,000  | 
|                               | London England                       |           |  |                    |                                 |               | 13 April 2026                                                  |             |           |  |              |  |         |  | 
|44-46 Whitfield St             |                                      | Leasehold |  | Office & Technical |                                 | Lease expires |                                                                | £           | 351,000   |  |              |  | 10,000  | 
|                               | London England                       |           |  |                    |                                 |               | 15 August 2012                                                 |             |           |  |              |  |         |  | 
|Capronilaan 2,                 |                                      | Leasehold |  | Datacentre         |                                 | Lease expires |                                                                |             | 350,000  |  |              |  | 10,000  | 
|                               | In Schiphol Rijk, Amsterdam          |           |  |                    | (Telecommunications) Activities |               | 31 March 2009                                                  |             |           |  |              |  |         |  | 

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REPORT OF THE DIRECTORS





BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Our Directors are as follows:

|                        |  |     |  |                                                                             
|----------------------- |  | --- |  | ----------------------------------------------------------------------------
|Name                    |  | Age |  | Position with the Company                                                   
|                       
|Chase Carey             |  | 52  |  | * Director                                                                  
|Jeremy Darroch          |  | 44  |  | Director (Chief
    Financial Officer)                                      
|David DeVoe             |  | 59  |  | * Director                                                                  
|David Evans             |  | 66  |  | **Director                                                                  
|Nicholas Ferguson       |  | 57  |  | **Director (Remuneration Committee
    Chairman)                            
|Andrew Higginson        |  | 49  |  | **Director                                                                  
|Allan Leighton          |  | 53  |  | **Director (Audit Committee
    Chairman)                                   
|James Murdoch           |  | 33  |  | Director (Chief
    Executive Officer)                                      
|Rupert Murdoch          |  | 75  |  | * Chairman                                                                  
|Jacques Nasser          |  | 58  |  | **Director                                                                  
|Gail Rebuck             |  | 54  |  | **Director                                                                  
|Lord Rothschild         |  | 70  |  | **Director (Deputy
    Chairman & Senior Independent Non-Executive Director)
|Arthur Siskind          |  | 67  |  | * Director                                                                  
|Lord St John of Fawsley |  | 77  |  | * Director                                                                  
|Lord Wilson of Dinton   |  | 63  |  | **Director (Corporate
    Governance & Nominations Committee Chairman)      
|                       



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



|                     |  |     |  |                                                                  
|-------------------- |  | --- |  | -----------------------------------------------------------------
|Name                 |  | Age |  | Position with the Company                                        
|                    
|Dawn Airey           |  | 45  |  | Managing Director,
    Channels & Services                       
|Matthew Anderson     |  | 40  |  | Group Director for Communications                                
|James Conyers        |  | 41  |  | General Counsel                                                  
|Beryl Cook           |  | 45  |  | Director for People and
    Organisational Development           
|Robin Crossley       |  | 47  |  | Strategic Adviser, Technology                                    
|Mike Darcey          |  | 41  |  | Group Commercial and Strategy
    Director                       
|Jon Florsheim        |  | 46  |  | Managing Director, Customer Group
    and Chief Marketing Officer
|Richard Freudenstein |  | 41  |  | Chief Operating Officer                                          
|David Gormley        |  | 43  |  | Group Company Secretary                                          
|Jeff Hughes          |  | 36  |  | Group Director for IT and Strategy                               
|Nick Milligan        |  | 44  |  | Managing Director, Sky Media                                     
|David Rowe           |  | 47  |  | Managing Director, Enterprise
    Business                       
|Vic Wakeling         |  | 63  |  | Managing Director, Sky Sports                                    
|Alun Webber          |  | 40  |  | Group Director of Strategic Project
    Delivery                 
|                    





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Board of Directors

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

Jeremy Darrochwas appointed as Chief Financial Officer
(CFO) and a Director of the Company on 16 August
2004. Mr Darroch joined Dixons Group plc
(Dixons) in January 2000 as Retail Finance Director,
rising to the position of Group Finance Director in February
2002. Prior to Dixons, Mr Darroch spent 12 years at
Procter & Gamble in a variety of roles in the UK and
Europe, latterly as European Finance Director for its Health
Care businesses. In February 2006 Mr Darroch was appointed
a Non-Executive Director of Marks & Spencer Group plc.
Mr Darroch is a member of the 100 Group of Finance
Directors.

David DeVoewas appointed as a Director of the Company on
15 December 1994. Mr DeVoe has been an Executive
Director of News Corporation since October 1990, Senior
Executive Vice President of News Corporation since January 1996,
CFO and Finance Director of News Corporation since October 1990
and Deputy Finance Director from May 1985 to September 1990.
Mr DeVoe has been a Director of News America International
(NAI) since January 1991 and a Director of Star
since July 1993. Mr DeVoe has also been a Director of FEG
since 1991 and a Senior Executive Vice President and CFO since
August 1998. Mr DeVoe has been a Director of NDS since 1996
and a Director of Gemstar since June 2001.

David Evanswas appointed as a Director of the Company on
21 September 2001. In July 2006, Mr Evans joined the
executive team of RHI Entertainment (RHI).
Mr Evans was previously President and CEO of Crown Media
Holdings, Inc. (Crown) and its predecessor company,
Hallmark Entertainment Networks, from 1 March 1999. Prior
to that, Mr Evans was President and CEO of
Tele-Communications International, Inc. (TINTA) from
January 1998. Mr Evans joined TINTA in September 1997 as
its President and Chief Operating Officer, overseeing the
day-to-day operations
of the company. Prior to joining TINTA, from July 1996,
Mr Evans was Executive Vice President of News Corporation
and President and CEO of Sky Entertainment Services Latin
America, LLC.

Nicholas Fergusonwas appointed as a Director of the
Company on 15 June 2004 and was appointed Chairman of the
Remuneration Committee on 31 January 2006. Mr Ferguson
is Chairman of SVG Capital, a publicly-quoted private equity
group, and was formerly Chairman of Schroder Ventures. He is
also Chairman of the Courtauld Institute of Art and the
Institute of Philanthropy.

Andrew Higginsonwas appointed as a Director of the
Company on 1 September 2004. Mr Higginson is Finance
and Strategy Director of Tesco plc (Tesco).
Mr Higginson was appointed to the Board of Tesco in 1997,
having previously been the Group Finance Director of the Burton
Group plc. Mr Higginson is a member of the 100 Group of
Finance Directors and Chairman of Tesco Personal Finance.

Allan Leightonwas appointed as a Director of the Company
on 15 October 1999. Mr Leighton joined ASDA Stores
Limited as Group Marketing Director in March 1992. In September
1996 he was appointed Chief Executive and in November 1999 he
was appointed President and CEO of Wal-Mart Europe.
Mr Leighton resigned all of these positions in September
2000. Mr Leighton is Non-Executive Chairman of BHS Limited
and Royal Mail Group plc and Deputy Chairman of
Selfridges & Co Limited.

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

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##### Table of Contents

Rupert Murdochwas appointed as a Director of the Company
in November 1990, when he founded British Sky Broadcasting, and
was appointed Chairman in June 1999. Mr Murdoch has been
CEO of News Corporation since 1979, Chairman since 1991 and was
Managing Director from 1979 until November 2004. Mr Murdoch
has also served as a Director of FEG and its predecessor
companies since 1985, Chairman since 1992 and CEO since 1995. In
addition, Mr Murdoch has been a Director of Star since
1993, Gemstar since 2001 and DIRECTV since 2003.

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

Gail Rebuckwas appointed as a Director of the Company on
8 November 2002. Ms Rebuck is Chairman and Chief
Executive of The Random House Group Limited (Random
House), one of the UKs leading trade publishing
companies. In 1982, Ms Rebuck became a founder Director of
Century Publishing (Century). Century merged with
Hutchinson in 1985 and in 1989 Century Hutchinson was acquired
by Random House Inc. In 1991, Ms Rebuck was appointed
Chairman and Chief Executive of Random House. Ms Rebuck was
a Trustee of the Institute for Public Policy Research from 1993
to 2003 and was for three years a member of the
Governments Creative Industries Task Force. Ms Rebuck
is on the Board of The Work Foundation, a member of the Court of
the University of Sussex, on the Advisory Board of the Cambridge
Judge Institute, and the Council of the Royal College of Art.
Ms Rebuck was awarded a CBE in the 2000 New Years
Honours List.

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

Arthur Siskindwas appointed as a Director of the Company
on 19 November 1991. Mr Siskind has been the Senior
Advisor to the Chairman of News Corporation since January 2005.
Mr Siskind has been an Executive Director of News
Corporation since 1991 and was Group General Counsel of News
Corporation from March 1991 until December 2004. Mr Siskind
was Senior Executive Vice President of News Corporation from
January 1996 until December 2004 and an Executive Vice President
of News Corporation from February 1991 until January 1996.
Mr Siskind has been a Director of NDS since 1996 and was a
Director of NAI from 1991 until January 2005 and a Director of
Star from 1993 until January 2005. Mr Siskind was Senior
Executive Vice President and General Counsel of FEG from August
1998 until January 2005 and a Director from August 1998 to March
2005. Mr Siskind has been an Adjunct Professor of Law at
the Georgetown Law Center since 2005. Mr Siskind has been a
member of the Bar of the State of New York since 1962.

Lord St John of Fawsleywas appointed as a Director of
the Company on 20 November 1991. Lord St John was a
Director of the N.M. Rothschild Trust from 1990 to 1998. Lord St
John is Chairman of the Royal Fine Art Commission Trust and was
Chairman of the Royal Fine Art Commission from 1985 to 2000. He
is Grand Bailiff and Head of Order of St Lazarus of England
and Wales. Lord St John is a member of the Privy Council and
holds the Order of Merit of the Italian Republic. Lord St John
has held the offices of Minister of State for Education,
Minister of State for the Arts, Leader of the House of Commons
and Chancellor of the Duchy of Lancaster. Lord St John has also
been Master of Emmanuel College, Cambridge. Lord St John is a
regular commentator on television and radio. Lord St John
has decided not to seek
re-election at this
years AGM and will retire from the Board.

Lord Wilson of Dintonwas appointed as a Director of the
Company on 13 February 2003. He has been a Non-Executive
Director of Xansa plc since April 2003 and will become
Non-Executive Chairman
of C. Hoare and Co, Bankers, in October 2006. Lord Wilson
entered the Civil Service as an assistant principal in the Board
of Trade in

65



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##### Table of Contents

1966. Lord Wilson subsequently served in a number of
departments, including 12 years in the Department of
Energy, where his responsibilities included nuclear power
policy, the privatisation of Britoil, personnel and finance.
Lord Wilson headed the Economic Secretariat in the Cabinet
Office under Mrs Thatcher from 1987 to 1990 and, after two years
in the Treasury, was appointed Permanent Secretary of the
Department of the Environment in 1992. Lord Wilson became
Permanent Under Secretary of the Home Office in 1994 and
Secretary of the Cabinet and Head of the Home Civil Service in
January 1998. Since his retirement in September 2002,
Lord Wilson has been Master of Emmanuel College, Cambridge.
Lord Wilson was made a peer in November 2002.

Alternate Directors

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

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

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

Leslie Hintonserved as a Director of the Company from
15 October 1999 until 13 February 2003. Following his
resignation as a Director, Mr Hinton was immediately
appointed as an Alternate Director of the Company.
Mr Hinton was appointed President of Murdoch Magazines in
the US in 1990, two years later becoming CEO of Fox Television
Stations and in 1995 he became Executive Chairman of News
International Limited. Mr Hinton is a member of News
Corporations Executive Committee. In 1996 he joined the
board of the Press Association in Britain, and in 2005 he was
appointed a Non-Executive Director of Johnston Press plc.

Senior Executives

Our Senior Executives are as follows:

Dawn Aireyjoined us in January 2003 as Managing Director
of Sky Networks. In February 2006 she was appointed Managing
Director, Channels & Services with overall
responsibility for Skys multi-platform content strategy.

Matthew Andersonjoined us in November 2005 as our Group
Director for Communications.

James Conyersjoined us in April 1993 as Assistant
Solicitor. During 1998 he was appointed as our Deputy Head of
Legal and Business Affairs. In January 2004 he was appointed as
our Head of Legal and Business Affairs, and in September 2005 he
was appointed as our General Counsel.

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

Robin Crossleyjoined us in 1988 and was appointed
National Operations Manager in 1989. He left in 1991 but
subsequently rejoined us in June 1995 as Director of Digital
Development. In January 2001 he was appointed Strategic Adviser,
Technology.

Mike Darceyjoined us in February 1998 as our Head of
Strategic Planning and in July 2002 he was appointed as our
Group Director of Strategy. In February 2006 he was appointed
Group Commercial and Strategy Director with extended
responsibility for a new group that combines our Strategy,
Future Technology, Research and Development and Business
Development teams.

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 and in March 2005 he was appointed as
Chief Marketing Officer. In February 2006 Mr Florsheim
became Managing Director, Customer Group in addition to his
existing title of Chief Marketing Officer.

66



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##### Table of Contents

Richard Freudensteinjoined us in October 1999 as General
Manager and was appointed as Chief Operating Officer in October
2000. On 15 December 2005, the Company announced that
Mr. Freudenstein would be leaving the Company in the summer
of 2006 to return to his home country of Australia.

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

Jeff Hughesjoined us in May 2005 as our Group Director
for IT and Strategy.

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

David Rowejoined us in July 2006 as Managing Director,
Enterprise Business and is responsible for our
business-to-business services across both television and
telecoms. Mr Rowe was CEO of Easynet Group plc until it
became part of Sky in January 2006.

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, 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. On 1 July
2006, Mr Webber was appointed Group Director of Strategic
Project Delivery.

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 Senior Executive.

Employees

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

|                                   |  |      |        |  |      |  |       |      |  |  |       | 
|---------------------------------- |  | ---- | ------ |  | ---- |  | ----- | ---- |  |  | ----- | 
|                                   |  | 2006 |        |  | 2005 |  |       | 2004 | 
|                                   | 
|Programming                        |  |      | 1,479  |  |      |  | 1,464 |      |  |  | 1,295 | 
|Transmission and related functions |  |      | 1,976  |  |      |  | 1,588 |      |  |  | 1,394 | 
|Marketing                          |  |      | 416    |  |      |  | 238   |      |  |  | 209   | 
|Subscriber management              |  |      | 5,903  |  |      |  | 5,275 |      |  |  | 5,418 | 
|Administration                     |  |      | 1,306  |  |      |  | 1,266 |      |  |  | 1,051 | 
|Betting                            |  |      | 136    |  |      |  | 127   |      |  |  | 133   | 
|                                   |  |      | 11,216 |  |      |  | 9,958 |      |  |  | 9,500 | 
|                                  




DIRECTORS REPORT




Principal activities and business review








67



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##### Table of Contents

Financial instruments

Details of the Groups use of financial instruments,
together with information on our risk management objectives and
policies, and our exposure to price risks, credit risks,
liquidity risks and cash flow risks, can be found in
note 22 to the accounts.

Results and dividends

The profit for the year ended 30 June 2006 was
£551 million (2005: £578 million). The
Directors recommend a final dividend for the year ended
30 June 2006 of 6.70 pence per ordinary share which,
together with the interim dividend of 5.50 pence paid to
shareholders on 25 April 2006, will make a total dividend
for the year of 12.20 pence (2005: 9.00 pence). Subject to
approval at the Annual General Meeting (AGM), the
final dividend will be paid on 17 November 2006 to
shareholders appearing on the register at the close of business
on 27 October 2006.

Payment policy

The policy of the Group is to agree terms of payment with
suppliers prior to entering into a contractual relationship. In
the absence of a specific agreement, it is the policy of the
Group to pay suppliers on a monthly basis. The Group had under
30 days purchases outstanding at 30 June 2006
(2005: 31 days), based on the total amount invoiced by
non-programme trade suppliers during the year ended 30 June
2006. Programme creditors include significant balances which are
not yet contractually due. In respect of amounts both
contractually due and invoiced, the outstanding number of
days purchases is below 30 days (2005: below
30 days).

Share capital

Details of changes in the share capital during the year are
disclosed in note 23 to the consolidated financial
statements. On 27 July 2006, the following companies, or
their subsidiary undertakings, held more than 3% of the
Companys share capital:

|                                                                |  |       
|--------------------------------------------------------------- |  | ------
|                                                               
|News UK Nominees Limited (a
    subsidiary of News Corporation) |  | 38.36%
|Franklin Resources, Inc. and its
    affiliates                 |  | 10.00%
|Janus Capital Management LLC                                    |  | 3.86% 
|Barclays PLC                                                    |  | 3.85% 
|Brandes Investment Partners
    L.P.                            |  | 3.12% 
|The Capital Group Companies,
    Inc.                           |  | 3.10% 
|FMR Corp. and Fidelity
    International Limited                |  | 3.06% 
|Harris Associates L.P.                                          |  | 3.03% 
|                                                               

Corporate governance




Charitable contributions and community and environmental
activities






68



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##### Table of Contents

Political contributions

Political contributions of the Group in the UK during 2006
amounted to nil (2005: nil).

Directors

The names and biographical details of the Directors of the
Company are given on pages 64 and 66.

Chase Carey, Nicholas Ferguson, James Murdoch and Jacques Nasser
retire from the Board by rotation, and being eligible, offer
themselves for
re-election at the 2006
AGM. Lord St John of Fawsley will also retire from the Board by
rotation at the 2006 AGM but will not be seeking re-election by
the shareholders. Arthur Siskind, David DeVoe and Rupert Murdoch
are subject to annual reappointment in accordance with
requirement A.7.2 of the Combined Code, as they have served as
Non-Executive Directors for longer than 9 years.

The Directors interests in the ordinary shares and options
of the Company are disclosed within the Report on
Directors Remuneration on pages 86 to 88.

Employment policies

Details of the Groups employees, together with statements
of policy on equality of opportunity, disabled persons, employee
involvement and communication, training and development and
financial participation are provided in the Review of the
Business on pages 28 to 30.

Health and Safety

The health and safety of the Groups employees is a matter
of major importance. Accordingly, it is the Groups policy
to manage its activities so as to avoid causing any unnecessary
or unacceptable risk, so far as is reasonably practicable, to
the health, safety and wellbeing of its personnel. Furthermore,
the Group directs its managers and contractors to take all
reasonable steps to reduce risks to the minimal level achievable
through good management practice and the thorough application of
relevant control measures. The Groups goal is to ensure
continuous improvement in the management of its health and
safety risks. To this end, the Groups second two-year
programme of work was launched in July 2005 to secure such
continual development. Furthermore a revised governance model
has been implemented to reflect the organisational changes that
have occurred across the Group. The current status of the
project is in line with the deliverables required by the
programme to securely embed the reinvigorated management system
for health and safety into the Group. This process not only
meets all applicable statutory requirements, but also
demonstrates the Groups commitment to continual
organisational development and the welfare of the Groups
employees.

Purchase of own shares

At the AGM, held on 4 November 2005, the shareholders gave
the Company the authority to purchase in the market a maximum of
92,000,000 of its own shares. This authority expires on
3 November 2006.

During the year ended 30 June 2006, the Company purchased,
and subsequently cancelled, 76,446,000 ordinary shares of 50p
each, representing approximately 4.3% of the issued ordinary
share capital of the Company at 27 July 2006, for a
consideration of £405 million, before stamp duty and
commissions. Of the 76,446,000 ordinary shares purchased during
the year, 53,765,000 ordinary shares were purchased under the
authority granted at the 2005 AGM and 22,681,000 ordinary shares
were purchased under the authority granted at the 2004 AGM held
on 12 November 2004.

Annual General Meeting

The notice convening the AGM to be held at The Queen
Elizabeth II Conference Centre, Broad Sanctuary,
Westminster, London, SW1P 3EE on 3 November 2006 at
11.30am can be found in a separate notice accompanying the
Annual Report.

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##### Table of Contents

Going concern

After making enquires, the Directors have formed the judgement,
at the time of approving the financial statements, that there is
a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
For this reason, the Directors continue to adopt the going
concern basis in preparing financial statements.

Auditors

In the case of each of the persons who are Directors of the
Company at the date when this report was approved:




    so far as each of the Directors is aware, there is no relevant
    audit information (as defined in the Companies Act 1985) of
    which the Companys auditors are unaware; and
    each of the Directors has taken all the steps that he/she ought
    to have taken as a Director to make himself/herself aware of any
    relevant audit information (as defined) and to establish that
    the Companys auditors are aware of that information.A resolution to re-appoint Deloitte & Touche LLP as the
Companys auditors will be proposed at the forthcoming AGM.

By order of the Board,

Dave Gormley

Company Secretary

27 July 2006

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##### Table of Contents

CORPORATE GOVERNANCE REPORT

The Company is committed to maintaining high standards of
corporate governance in its management of the Group and when
accounting to shareholders. The management of the Company values
an effective long-term outlook and sees itself as responsible to
the wider range of stakeholders, whilst being accountable for
the pursuit of its objectives primarily for the benefit of the
Companys owners.

This section of the Annual Report has been prepared in
accordance with the Code of Best Practice set out in
Section 1 of the July 2003 Combined Code on Corporate
Governance (the Combined Code).

Throughout the year ended 30 June 2006, the Company has
been in compliance with the Combined Code provisions set out in
Section 1 of the Combined Code, apart from the requirement
for Directors who have served more than nine years being subject
to annual re-election. The Company can confirm that following
the 2006 AGM the Company will in future comply with this aspect
of the Code.

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

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

The Company maintains disclosure controls, procedures and
systems that are designed to ensure that information required to
be disclosed in the reports filed under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarised and
reported within the time periods specified in the SECs
rules and forms, and the Companys UK listing obligations.
The Company has established a disclosure committee. The
committee is chaired by the Company Secretary and its members
consist of senior managers from group finance, legal and
investor relations. It has responsibility for considering the
materiality of information (including inside information) and on
a timely basis, determination of the disclosure and treatment of
such information. The committee also has responsibility for the
filing of reports with the SEC and overseeing the process for
the formal review of the contents of the Companys Annual
Report.

The Company carried out an evaluation, under the supervision and
with the participation of the Companys management,
including the CEO and CFO, of the effectiveness of the design
and operation of these disclosure controls, procedures and
systems at 30 June 2006. Based on that evaluation, the CEO
and CFO of the Company have concluded that the Companys
disclosure controls and procedures are effective. No change in
the Companys internal control over financial reporting has
occurred during the year ended 30 June 2006 that has
materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial
reporting.

Corporate policies

Our policies aim to enhance and maintain risk management,
equality in the workplace, share dealing, work practices (on and
off-site), and social arrangements. Copies are readily available
to all staff on the intranet.

The Company has also adopted since 2003 a Code of Ethics that
applies to the Groups CEO and CFO, who also serves as the
principal accounting officer. The full text of the code of
ethics is incorporated by reference to the Annual Report on
Form 20-F of British Sky Broadcasting Group plc for the
fiscal year ended 30 June 2003 filed with the SEC on
5 December 2003.

The Board

The Board currently comprises fifteen Directors, made up of two
Executive Directors and thirteen Non-Executive Directors. A
majority of eight Non-Executive Directors are determined to be
independent in compliance with the

71



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##### Table of Contents

Combined Code. They bring a wide range of experience and
expertise to the Groups affairs, and carry significant
weight in the Boards decisions. The Independent
Non-Executive Directors provide a strong independent element and
a foundation for good corporate governance. Short biographies of
each of the Directors are set out on pages 64 to 66.
The table on page 63 clearly identifies those Directors who
are, in the view of the Board, independent within the meaning of
the Combined Code.

The Company recognises that all Directors are equally
accountable under the law for the proper stewardship of the
Companys affairs. To this end, the Company maintains a
directors and officers liability insurance policy
which meets defence costs when the director is not proved to
have acted fraudulently.

The roles of the Chairman, Rupert Murdoch, and CEO, James
Murdoch, are separate and the roles have been since the
Companys shares were admitted to listing in 1994. Lord
Rothschild holds the position of Senior Independent
Non-Executive Director and Deputy Chairman.

The Chairman

The Chairman is responsible for leadership of the Board,
ensuring its effectiveness on all aspects of its role and
setting its agenda. This includes ensuring via the Company
Secretary that the Directors receive accurate, timely and clear
information.

The Chief Executive Officer

The Chief Executive is responsible for the daily operation of
the Company, advancing long-term shareholder value, supported by
the management team. He is accountable and responsible to the
Board for the management and operation of the Company.

The Company Secretary

The Company Secretary is available to advise all Directors and
is responsible for ensuring the Board is supplied with all
necessary information in a timely manner. The Company Secretary
ensures good communication between the Board, Board committees
and senior management. He facilitates Directors induction
and training.

Board Practices

The Board is scheduled to meet at least six times a year to
review appropriate strategic, operational and financial matters
as required. During the financial year, one of these meetings
was held over two days when the Board met to review the future
strategy and direction of the Group.

72



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##### Table of Contents

Attendance of the current Directors at Board and Committee
meetings is set out in the table below:

|                                    |  |       |   |  |       |  |   |              |  |  |             |  |  |  |   | 
|----------------------------------- |  | ----- | - |  | ----- |  | - | ------------ |  |  | ----------- |  |  |  | - | 
|                                    |  |       |   |  |       |  |   | Corporate    | 
|                                    |  |       |   |  |       |  |   | Governance & | 
|                                    |  | Board |   |  | Audit |  |   | Remuneration |  |  | Nominations | 
|                                    | 
|NUMBER OF MEETINGS HELD IN
    YEAR |  |       | 8 |  |       |  | 8 |              |  |  | 6           |  |  |  | 3 | 
|DIRECTOR                            |  |       |   |  |       |  |   |              |  |  |             |  |  |  |   | 
|Rupert Murdoch, Chairman            |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  |  | 
|James Murdoch, CEO                  |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  |  | 
|Jeremy Darroch, CFO                 |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  |  | 
|Chase Carey                         |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  |  | 
|David DeVoe                         |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  |  | 
|David Evans*                        |  |       | 7 |  |       |  |  |              |  |  | 5           |  |  |  |  | 
|Nicholas Ferguson*                  |  |       | 7 |  |       |  |  |              |  |  | 6           |  |  |  |  | 
|Andrew Higginson***                 |  |       | 7 |  |       |  | 7 |              |  |  |            |  |  |  |  | 
|Allan Leighton***                   |  |       | 8 |  |       |  | 7 |              |  |  |            |  |  |  |  | 
|Jacques Nasser*                     |  |       | 7 |  |       |  |  |              |  |  | 6           |  |  |  |  | 
|Gail Rebuck***                      |  |       | 7 |  |       |  | 8 |              |  |  |            |  |  |  |  | 
|Lord Rothschild**                   |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  | 3 | 
|Arthur Siskind**                    |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  | 3 | 
|Lord St John of Fawsley             |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  |  | 
|Lord Wilson of Dinton**             |  |       | 8 |  |       |  |  |              |  |  |            |  |  |  | 3 | 
|                                   



|    |                                                      
|--- | -----------------------------------------------------
|*   | Remuneration Committee member                        
|   
|**  | Corporate Governance and Nominations Committee member
|   
|*** | Audit Committee member                               



Board role






|  |                                                                                                                                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | approval of the annual budget and any changes to it;                                                                                                                                                                                                                                                                                                            
| 
| | a major change in the nature, scope or scale of the business of
    the Group;                                                                                                                                                                                                                                                                                  
| 
| | approval of the interim and final results;                                                                                                                                                                                                                                                                                                                      
| 
| | approval of any dividend policy;                                                                                                                                                                                                                                                                                                                                
| 
| | changes relating to the Groups capital structure,
    including reductions of capital and share buy-backs;                                                                                                                                                                                                                                                     
| 
| | the entering into by the Group of a commitment or arrangement
    (or any series of related commitments or arrangements) which,
    whether budgeted or unbudgeted, involves or could reasonably
    involve, the payment or receipt by the Group of amounts equal to
    or in excess of £100 million in aggregate value;                                      
| 
| | the entering into by the Group of a commitment or arrangement
    (or any series of related commitments or arrangements) with News
    Corporation, any of its subsidiaries, or a related party which
    involves, or could reasonably involve, the payment or receipt by
    the Group of amounts equal to or in excess of
    £25 million in aggregate value;
| 
| | approval of resolutions to be put forward to shareholders at a
    general meeting;                                                                                                                                                                                                                                                                             
| 
| | communication involving the general state of the Company;                                                                                                                                                                                                                                                                                                       
| 
| | determining the independence of Non-Executive Directors.                                                                                                                                                                                                                                                                                                        



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

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

Following appointment to the Board, all new Directors receive an
induction tailored to their individual requirements. The
induction process involves a meeting with all of the
Companys Executive Directors and Senior Executives. This
facilitates their understanding of the Group and the key drivers
of the business performance. The Directors are also
provided with copies of the Companys corporate governance
practices and procedures.

Directors regularly receive additional information from the
Company between Board meetings, including a monthly report which
is sent to all of the Directors updating them on the performance
of the Group.

Where appropriate, additional training and updates on particular
issues are arranged. For example, over the last financial year
the Audit Committee has received specific briefings on the
introduction of IFRS and its likely impact on future reporting
by the Company.

During the year, the Directors carried out a full evaluation of
the performance of the Board, its committees and individual
Directors. The process was carried out internally and was led by
the Corporate Governance & Nominations Committee, with the
assistance of the Company Secretary and members of the legal
department. The evaluation confirmed that the Board was
satisfied with the Boards overall performance.

During the year, the Senior Independent Non-Executive Director
held a formal meeting of the Non-Executive Directors, without
Executive Directors present, to discuss the functioning of the
Board. There was also a meeting of the Non-Executive Directors
without the Chairman present to evaluate his performance led by
the Senior Independent Non-Executive Director.

Following this years review the Corporate Governance &
Nominations Committee and Board have confirmed that all
Directors standing for re-election at the forthcoming AGM
continue to perform effectively and demonstrate commitment to
their roles.

Chase Carey, Nicholas Ferguson, James Murdoch and Jacques Nasser
retire from the Board by rotation, and being eligible, offer
themselves for re-election at the 2006 AGM. Lord St John of
Fawsley will also retire from the Board by rotation at the 2006
AGM but will not be seeking
re-election by the
shareholders. Arthur Siskind, David DeVoe and Rupert Murdoch are
subject to annual reappointment in accordance with requirement
A.7.2 of the Combined Code, as they have served as Non-Executive
Directors for longer than 9 years. Following the 2006 AGM
the Company will be in full compliance with the Combined Code.

Board Committees

Terms of reference for the Board Committees can be found on the
Companys corporate website.

Remuneration Committee

The members of the Remuneration Committee are Nicholas Ferguson
(Chairman), David Evans and Jacques Nasser, all of whom are
Independent Non-Executive Directors, in compliance with the
Combined Code.

The Remuneration Committee has clearly defined terms of
reference, meets at least twice a year, and takes advice from
the CEO and independent consultants as appropriate in carrying
out its work. Following publication of the annual report we
arrange meetings and round-table discussions between the
Remuneration Committee and

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institutional shareholders to discuss remuneration policy and
aspects of the Committees Remuneration Report. The
Remuneration Committee Chairman reports regularly to the Board
on its activities.

Rupert Murdoch and David DeVoe have a standing invitation to
attend meetings of the Remuneration Committee. Their attendance
at these meetings is as observers only and in a non-voting
capacity.

The Report on Directors Remuneration can be found on
pages 78 to 88. In accordance with the Directors
Remuneration Report Regulations 2002, the Report on
Directors Remuneration will be put forward for an advisory
shareholder vote at the AGM.

Corporate Governance & Nominations Committee

The Corporate Governance & Nominations Committee is chaired
by Lord Wilson of Dinton and its other members are Lord
Rothschild and Arthur Siskind. The Corporate Governance &
Nominations Committee met three times during the year. Its main
duties include:




    the identification and nomination, for approval by the Board, of
    candidates to fill Board vacancies as they arise;
    the drafting of requirements for a particular appointment to the
    Board, taking into consideration the present balance of skills,
    knowledge and experience on the Board;
    the regular review of the structure, size and composition of the
    Board and to recommend any changes to the Board or succession
    planning;
    the provision of a formal letter of appointment, setting out
    clearly what is expected of new appointees to the Board, in
    terms of time commitment, term of office and committee service
    as well as their duties and liabilities as a Director, including
    details of the Companys corporate governance policies and
    directors & officers liability insurance cover;
    the monitoring of the Companys compliance with applicable
    Corporate Governance Codes and other similar requirements.The Corporate Governance & Nominations Committee Chairman
reports regularly to the Board on its activities.

The Corporate Governance & Nominations Committee has in the
past used the services of external recruitment advisors when
seeking to appoint a Director to the Board. There have been no
nominations to the Board during this year.

The Corporate Governance & Nominations Committee led the
evaluation of the Board that was completed during the year as
discussed earlier in this report.

The Committee also reviewed the independence of the
Non-Executive Directors and recommended to the Board that there
be no changes to the independent status of the current
Non-Executive Directors. The table on page 63 clearly sets
out those Non-Executive Directors who are considered by the
Board to be independent.

The Corporate Governance & Nominations Committee also
reviewed the letter of appointment of the Non-Executive
Directors. All Non-Executive Directors have signed letters of
appointment with the Company.

Audit Committee

The Audit Committee, which consists exclusively of Independent
Non-Executive Directors, has clearly defined terms of reference
as laid down by the Board. The composition of the Audit
Committee is currently Allan Leighton (Chairman), Gail Rebuck
and Andrew Higginson. The CFO and representatives from the
external auditor and the internal auditor attend meetings at the
request of the Audit Committee. It is also usual practice for
the CEO to attend meetings of the Audit Committee. Other finance
and business executives attend meetings from time to time and
the Company Secretary is Secretary to the Committee. The Audit
Committee Chairman reports regularly to the Board on its
activities. David DeVoe and Arthur Siskind have a standing
invitation to attend meetings of the Audit Committee. Their
attendance at these meetings is as observers only and in a
non-voting capacity. All three members of the Audit Committee
are independent for the purposes of the Combined Code and
rule 10.A.3(b)(1) of

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the US Securities Exchange Act of 1934. The members have wide
ranging experience to bring to the work of the Audit Committee.
The Audit Committee met eight times during the year. Its duties
include:




    making recommendations to the Board in relation to the
    appointment, reappointment and removal of the external auditors
    and discussing with the external auditors the nature, scope and
    fees for the external auditors work;
    reviewing and making recommendations to the Board regarding the
    approval, or any amendment to, the quarterly, half year and
    annual financial statements of the Group;
    reviewing and approving the Groups US Annual Report on
    Form 20-F prior to its filing;
    reviewing the Groups significant accounting policies;
    reviewing the Groups systems of internal control;
    reviewing the Groups treasury policies;
    recommending the appointment of the Groups Director of
    Internal Audit;
    reviewing the audit plan and findings of the Groups
    internal audit function;
    monitoring and reviewing the effectiveness of the Groups
    internal audit function;
    monitoring the Groups whistle-blowing policy;
    News UK Nominees Limited, a subsidiary of News Corporation, is a
    major shareholder in the Group. The Audit Committee receives, on
    a quarterly basis, a schedule of all transactions between
    companies within the News Corporation Group and the Group, and
    any other related party transactions, showing all transactions
    which have been entered into during the year and which
    cumulatively exceed £100,000 in value.
    Furthermore, Audit Committee approval is required for the
    entering into by the Group of a commitment or arrangement (or
    any series of related commitments or arrangements) with News
    Corporation or any of its subsidiaries, or any other related
    party which involves or could reasonably involve the payment or
    receipt by the Group of amounts equal to or in excess of
    £10 million, but not exceeding £25 million
    in aggregate value with News Corporation. Any transaction in
    excess of £25 million in aggregate value must be
    submitted to the Audit Committee and, if approved by the Audit
    Committee, must also be submitted to the full Board for approval.The Audit Committee does not include an Audit Committee
Financial Expert. The Audit Committee members have considerable
financial and business experience and the Board considers that
the membership as a whole has sufficient recent and relevant
financial experience to discharge its functions. Accordingly, it
is the opinion of the Board not to formally designate a member
as the financial expert.

Internal control

The Directors have overall responsibility for establishing and
maintaining the Groups systems of internal control and
risk management and for reviewing their effectiveness. These
systems are designed to manage, and where possible eliminate,
the risk of failure to achieve business objectives and to
provide reasonable, but not absolute, assurance against material
misstatement or loss. An ongoing process for identifying,
evaluating and managing the significant risks faced by the Group
has been established, in accordance with the guidance of the
Turnbull Committee on internal control issued in September 1999
and updated by the Financial Reporting Council in October 2005.
This process has been in place for the year ended 30 June
2006 and up to the date on which the financial statements were
approved.

The Audit Committee, on behalf of the Board, considers the
effectiveness of the operation of the Groups systems of
internal control and risk management during the year and this
review has been carried out for the year ended 30 June 2006
and up to the date on which the financial statements were
approved. This review relates to the Company and its
subsidiaries and does not extend to joint ventures. The Audit
Committee meets on at least a quarterly basis with the
Groups internal audit team and the external auditors.

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There is a comprehensive budgeting and forecasting process, and
the annual budget, which is regularly reviewed and updated, is
approved by the Board. Risk assessment and evaluation take place
as an integral part of this process. Performance is monitored
against budget through weekly and monthly reporting cycles.
Monthly reports on performance are provided to the Board and the
Group reports to shareholders each quarter. Each area of the
Group carries out risk assessments of its operations and ensures
that the key risks are addressed. A Risk Management Committee,
chaired by the CFO and comprising Senior Executives, reviews the
management of risks in all areas of the Group. The results of
the Risk Management Committees review are integrated into
the budgeting and forecasting process and are integrated into
the internal audit planning.

The internal audit team provides objective assurance as to the
effectiveness of the Groups systems of internal control
and risk management to the Groups operating management and
to the Audit Committee.

Use of external auditors

The Group has a policy on the provision by the external auditors
of audit and non-audit services, which categorises such services
between:




    those services which the auditors are prohibited from providing;
    those services which are acceptable for the auditors to provide
    and the provision of which has been pre-approved by the Audit
    Committee; and
    those services for which the specific approval of the Audit
    Committee is required before the auditors are permitted to
    provide the service.The policy defines the types of services falling under each
category and sets out the criteria which need to be met and the
internal approval mechanisms required to be completed prior to
any engagement. An analysis of all services provided by the
external auditors is reviewed by the Audit Committee on a
quarterly basis.

The Audit Committee is aware that the non-audit fees incurred
with Deloitte & Touche LLP have been considerably in excess
of the audit fees. The principal reason for this is that the
Group during the year received services from Deloitte &
Touche LLP in respect of the CRM systems development project.
The Audit Committee reviews regularly the non-audit work
provided by Deloitte & Touche LLP, and has noted that, in
relation to CRM, it would have had a disruptive effect on the
final delivery of the system if Deloitte & Touche LLP
personnel were to be withdrawn prior to completion of the
project. The Audit Committee further noted that those members of
Deloitte & Touche LLP who worked on the project were
completely separate from the Deloitte & Touche LLP audit
team and also were not involved in the development of any of the
financial systems within the project. Since the CRM system went
live, Deloitte & Touche LLP personnel have been withdrawn.

For the year ended 30 June 2006, the Audit Committee has
discussed the matter of audit independence with Deloitte &
Touche LLP, the Groups external auditors, and has received
and reviewed confirmation in writing that, in Deloitte &
Touche LLPs professional judgement, Deloitte & Touche
LLP is independent within the meaning of all UK and US
regulatory and professional requirements and the objectivity of
the audit engagement partner and audit staff is not impaired.

There were no services provided during the year that were not
pre-approved by the Audit Committee in accordance with the
Groups policy.

Communication with shareholders

Presentations and webcasts on the development of the business
are available to all shareholders on the Companys
corporate website. The Company also uses email alerts and
actively promotes downloading of all reports enhancing speed and
equality of shareholder communication. In addition, any letters
from shareholders are duly circulated to the Board.

The Company maintains a dialogue with institutional shareholders
in order to ensure that the objectives of both the Group and the
shareholders are understood. A programme of meetings with
institutional shareholders, fund managers and analysts takes
place each year, some of which are attended by the Senior
Independent Director. The

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Company also makes presentations to analysts and fund managers
following the half year and full year results of the Company,
conference calls are held with analysts following the
announcement of the first quarter and third quarter results and
presentations are made during the year to overseas shareholders.
During the year, various members of the Board have met with
institutional shareholders and representative bodies,
reinforcing the continuation of open dialogue and discussion of
strategy between the Board and its shareholders. Non-Executive
Directors are offered the opportunity to attend meetings with
major shareholders and are expected to attend if required.

The Board views the AGM as an opportunity to communicate with
private investors and sets aside time at these meetings for
shareholders to ask questions of the Board. All members of the
Board are encouraged to attend the meeting. Nicholas Ferguson
was unable to attend the 2005 AGM due to prior commitments. At
the AGM, the Chairman provides a brief résumé of the
Companys activities for the previous year to the
shareholders. The Company, in accordance with the Combined Code,
announces the number of proxy votes cast on resolutions at the
AGM. From 2003 there has been a year on year 2% increase in the
number of votes cast.

Directors responsibilities

The responsibilities of the Directors are set out on
page 89.

REPORT ON DIRECTORS REMUNERATION

Remuneration Committee



1.1
    Role of the Remuneration Committee and terms of referenceThe Remuneration Committee (the Committee) is
responsible for recommendations to the Board regarding:




    the Companys policy on remuneration for Board Directors
    and other Senior Executives of the Group who report directly to
    the CEO. In the latter case, decisions shall be the subject of
    recommendation to the Committee by the CEO;
    the design and implementation of incentive compensation
    arrangements including share-based schemes; and
    remuneration packages for Executive Directors of the Company,
    including basic salary, performance-based short and long-term
    incentives, pensions and other benefits.The Committee sets the performance targets applicable to
incentive compensation arrangements. As part of this process, it
seeks to ensure that such packages provide employees with
appropriate incentives to perform, reflect their positions and
roles within the Group, and that the employees are, in a fair
and reasonable manner, rewarded for their individual
contributions to the success of the Group. Payments or benefits
offered to employees in excess of £250,000 which do not
form part of an employees expected remuneration or
benefits require the approval of the Committee.

The Committee met five times during the year.

1.2 Membership of the Committee

The Committee comprised the following independent Non-Executive
Directors during the year ended 30 June 2006:




    David Evans
    Nicholas Ferguson (Chairman)
    Jacques NasserJacques Nasser resigned as Chairman and Nicholas Ferguson
assumed the role in January 2006. There have been no other
changes to the membership of the Committee during the year.

During the year, the Committee sought the advice of James
Murdoch, the CEO, on matters relating to the Executive Directors
and Senior Executives who report to him and advice from the
Director of People and Organisational Development; the Committee
was supported by the Company Secretary, and the finance
function. The CEO was not

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present when matters affecting his remuneration were considered.
The Chairman, Rupert Murdoch, did not attend any Remuneration
Committee meetings during the year.

2. Advisors

The Committee has engaged the services of both a lead adviser
(Patterson Associates LLP.) and a support adviser (New
Bridge Street Consultants LLP). The lead adviser advises the
Committee and the Company on overall direction and acts as the
primary lead for advice. The support adviser advises on share
based awards, performance monitoring, remuneration data and
accounting including IFRS and US GAAP for any existing or
new incentives and remuneration schemes and provides analytical
support. The support adviser works in conjunction with the lead
adviser.

3. Remuneration policy

The Committees reward policy reflects its aim to align
Executive Directors remuneration with shareholders
interests and to engage world-class executive talent for the
benefit of the Group. The main principles of the policy are that:




    Total rewards should be set at appropriate levels to reflect the
    competitive market in which the Group operates.
    The majority of the total reward should be linked to the
    achievement of demanding performance targets.
    Appropriate benchmarks are used when reviewing the salaries of
    the Executive Directors and Senior Executives. The Company uses
    a subset of the FTSE 100 as its major benchmark.Executive Directors are not allowed to take on the chairmanship
of a FTSE 100 company, but are allowed to take up one
external non-executive FTSE 100 appointment and retain any
payments in respect of this appointment.

In formulating its remuneration policy, the Committee is keen to
understand shareholders views on executive remuneration.
From time to time, the Company holds consultation meetings with
a range of institutional investors, concerning aspects of the
Committees policy, and has taken their advice into account
in arriving at remuneration decisions.

The Committee believes that performance share awards continue to
be the best long-term incentive vehicle for Executive Directors
and Senior Executives. The Committee also believes that the
Groups historically strong operational performance has led
the market to expect continued excellence in operational
delivery. Accordingly, 70% of the Long-Term Incentive Plan
(LTIP) vests based on operational performance, while
30% vests based on Total Shareholders Return (TSR)
relative to the constituents of the FTSE 100. The operational
performance conditions chosen include earnings per share
(EPS), free cash flow per share (FCF)
and Direct to Home (DTH) subscriber growth.

As detailed in last years Annual Report, in 2005 the
Company implemented an alignment programme to convert
outstanding historical share awards to the new set of measures
being used going forward. All of the Companys long-term
incentives are now aligned in three important ways: time
horizon; denomination; and performance measurement. All LTIP
programmes are now measured over three years, they are all based
on performance shares, and use the performance measures
described above for the LTIP.

The Committee also recognises that the interactions between
different areas of the business in creating long-term
shareholder value are complex. Therefore, rather than Senior
Executives being incentivised primarily through measures
relevant to their own business area, the remuneration of Senior
Executives now emphasises a smaller number of Group-wide goals,
in order to maximise the benefits of teamwork and collaboration
across the Group.

The Executive Directors of the Company are employed on
twelve-month rolling contracts.

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##### Table of Contents

4. Elements of Executive Director remuneration

4.1 Remuneration Mix

The Executive Directors and Senior Executives total
direct compensation consists of salary, annual bonus, long-term
incentives, pensions and other benefits. This reward structure
is regularly reviewed by the Committee to ensure that it
continues to support the Groups objectives.

Overview of current remuneration elements for executives,
including Executive Directors

|                          |  |                                                                                                      |  |                |  |                                                                                                                                                                                                                                                                
|------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | -------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |  |                                                                                                      |  | Performance    |  |                                                                                                                                                                                                                                                                
|Element                   |  | Objective                                                                                            |  | Period         |  | Performance Conditions                                                                                                                                                                                                                                         
|                         
|Base salary(see page 80)  |  | Reflects the market value of the
    position, as well as the skills and experience of the incumbent |  | Not applicable |  | Reviewed annually on the basis of
    external market benchmarking and/or reference to internal
    positioning                                                                                                                                                
|                         
|Annual bonus(see page 81) |  | Rewards achievement of short- term
    objectives set during the year                                |  | One year       |  | Cash award is subject to
    achievement of team and individual objectives. For Executive
    Directors, award is wholly dependent on group-level objectives
    (Earnings, cash and subscriber growth).                                                       
|                         
|LTIP(see page 81)         |  | Rewards the achievements of
    long-term objectives set during the year of award                    |  | Three years    |  | 30% of the award is subject to
    achievement of relative TSR performance vs. the FTSE 100
    over three years. 70% of the award is subject to achievement of
    operating targets for earnings per share, cashflow per share and
    DTH subscriber growth.
|                         










|  |                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Annual bonus valuation assumes on-target performance                                                                                                                             
| 
| | LTIP valuation assumes annualised expected value, where expected
    value is face value at the time of grant, discounted to reflect
    expected vesting for target performance.

4.2 Basic salary




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##### Table of Contents

4.3 Annual bonus

Executive Directors and Senior Executives participate in a bonus
scheme under which awards are made to participants at the
discretion of the Committee. For the Executive Directors the
level of bonus paid depends purely on Group-wide operational
performance measures specifically, Operating Profit, Free Cash
Flow and DTH Subscriber Growth. For the Senior Executives these
operational performance measures contribute to 75% of their
bonus with the additional 25% attributable to the performance of
that individuals performance area. For the CEO, the
maximum bonus that may be awarded is 200% of salary, and for
on-target performance, he would receive 130% of salary, while
for the CFO, these percentages are 160% and 110% respectively.

4.4 LTIP

The Company operates an LTIP for Executive Directors and Senior
Executives, under which awards may be made to any employee or
full-time Director of the Group at the discretion of the
Committee. Awards under the scheme are made as a nil priced
option. Awards are not transferable or pensionable and are made
over a number of shares in the Company, determined by the
Committee. LTIP awards are satisfied using shares purchased in
the market.

Design of LTIP plan

The LTIP has a structure tailored to the needs of the Company in
which grants are made every year, but vesting occurs biennially,
designed to reduce Executives reliance on annual vesting
of LTIP awards. In the first year, an Executive is granted an
award of shares that vests at the end of the three year
performance cycle, subject to performance conditions. In the
second year, a further discretionary award of up to 100% of the
year one award can be made. This award vests at the same time as
the first award. While second year grants are linked to the
previous year and therefore capped, the size of first year
grants is determined by the Committee on the basis of a range of
factors including internal, and external market benchmarks. A
number of shares are granted and therefore values in relation to
salary may vary with share price movements.

Performance conditions for LTIP plan

The awards vest, in full or in part, dependent on the
satisfaction of specified performance targets. Measurements of
the extent to which performance targets have been met are
reviewed by the Committee at the date of vesting of each award.
As explained in section 3 (Remuneration Policy), vesting is
based partly on relative TSR, and partly on operational measures.

TSR Performance

30% of the award vests dependent on TSR performance over the
three year performance period, relative to the constituents of
the FTSE 100 at the time of grant. If the Companys TSR
performance is below median, the TSR element of the award lapses
with no vesting. For median performance, one third of the award
vests. For performance in the upper quartile, the whole award
vests.

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For performance between median and upper quartile, vesting is on
a straight-line basis, as shown in the chart below:

LOGO

TSR calculations are conducted independently by New Bridge
Street Consultants LLP, employing a methodology which
averages share prices over 3 months prior to grants and the
three months prior to the end of the three year performance
period.

Operational performance

70% of the award is based on operational measures:




    EPS
    FCF
    Growth in DTH subscribers.5. Other share plans

5.1 Management Long Term Incentive Plan
(Management LTIP)

The Company now operates a Management LTIP, which has replaced
options granted under the Executive Share Option Scheme (see
below). It is intended that selected employees will participate
in the Management LTIP, but this will not include any Executive
Directors or Senior Executives who participate in the LTIP. In
the past this plan was open to only a small number of managers
within the Group but there will be more participants going
forward. Awards under this scheme are made at the discretion of
the CEO. The Management LTIP mirrors the LTIP for Senior
Executives and Executive Directors, with the same performance
conditions. Awards that are exercised under the Management LTIP
can only be satisfied by the delivery of shares purchased in the
market.

5.2 Executive Share Option Schemes (Executive
Schemes)

The Company operates Approved and Unapproved Executive Share
Option Schemes under Her Majestys Revenue & Customs
(HMRC) guidelines.

Executive Directors and Senior Executives who participate in the
LTIP do not participate in the Executive Schemes. It is the
Committees intention that no further options will be
granted to any employee of the Group during the year.

5.3 Sharesave Scheme

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

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6. Pensions

The Group provides pensions to eligible employees through the
BSkyB Pension Plan (Pension Plan), which is a
defined contribution plan. Employees contribute a minimum of 4%
of pensionable salary into the Pension Plan each year and the
Group matches this with a contribution of 8% of pensionable
salary.

Until 5 April 2006, for those Executives whose pensionable
salary was restricted by the cap on pensionable earnings
introduced in 1989, employee and employer pension contributions
may have been restricted. In such cases, a cash supplement was
paid to the Executive equal to the shortfall in the 8% employer
contribution rate.

The Company has reviewed its policy following changes to the tax
regime for pensions. Since 6 April 2006, contributions on
full salary are being paid into the Pension Plan by the Company
and by Executives. This replaces the use of cash supplements,
allows for a consistent approach between Executives and provides
a cost saving to the Company since it involves a reduction in
National Insurance contributions.

Where an Executives pension benefits might exceed his or
her Lifetime Allowance, the Company will, however, offer an
alternative to continued membership of the Pension Plan of a
cash allowance equal to the employer pension contribution.

7. Other benefits

Executive Directors are entitled to a company car, life
assurance equal to two times base salary, increased to four
times base salary when they become members of the Pension Plan
and private medical insurance.

8. Service agreements

Policy

The Committee introduced a policy that Executive Directors
service agreements will contain a maximum notice period of one
year. The Committee will also consider, where appropriate to do
so, reducing remuneration to a departing Director. However, the
Committee will consider such issues on a case by case basis and
will consider the terms of employment of a departing Director. A
large proportion of each Executive Directors total direct
remuneration is linked to performance and therefore will not be
payable to the extent that the relevant targets are not met.

James Murdoch

James Murdoch has a service agreement with the Company which
commenced on 27 November 2003 and shall continue unless, or
until, terminated by either party giving to the other not less
than 12 months notice in writing. James
Murdochs remuneration consists of a base salary of
£825,000 per annum. James Murdoch will be paid a bonus
amount depending upon the performance criteria adopted by the
Committee for each financial year during the continuance of his
service agreement with the Company.

James Murdoch is also entitled to other benefits, namely pension
benefits, company car, life assurance equal to four times base
salary, medical insurance, an entitlement to participate in the
LTIP and a relocation allowance (Expense Allowance)
of £200,000 per annum up until 27 November 2006.

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

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

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Jeremy Darroch

Jeremy Darroch has a service contract with the Company that
commenced on 16 August 2004 and shall continue unless, or
until, terminated by either party giving to the other not less
than 12 months notice in writing. Jeremy
Darrochs remuneration consists of a base salary of
£500,000 per annum. Jeremy Darroch will be paid a bonus
amount depending upon the performance criteria adopted by the
Committee for each financial year during the continuance of his
service agreement with the Company.

Jeremy Darroch is also entitled to other benefits, namely
pension benefits, company car, life assurance equal to four
times base salary, medical insurance and an entitlement to
participate in the LTIP.

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

On termination of the agreement, Jeremy Darroch will be entitled
to one years salary, pension and life assurance benefits
from the date of termination and a pro-rata bonus up to the date
of termination. Jeremy Darroch would be entitled to a bonus in
full if he was able to terminate his employment for cause.

Jeremy Darroch was appointed as a Non-Executive Director of
Marks & Spencer Group plc on 1 February 2006 and
retained fees, for this appointment, of £22,000 for the
period 1 February 2006 to 30 June 2006.

9. Non-Executive Directors

The basic fees payable to the Non-Executive Directors and the
Chairman, set by the Board of Directors, were £42,600 each
for the financial year. It is intended that in future these will
be increased on an annual basis by 5% or RPI, whichever is
the greater, unless the Board determines otherwise. The basic
fees payable to the
Non-Executive Directors
for the year ending 30 June 2007 will increase to
£44,700. The Non-Executive Directors are paid an additional
£5,000 per annum each, for membership of each of the Audit
Committee, the Remuneration Committee and the Corporate
Governance & Nominations Committee. The Chairmen of the
Board, the Audit Committee, the Remuneration Committee, and the
Corporate Governance & Nominations Committee, and the Senior
Independent Non-Executive Director each receive an additional
£10,000 per annum. Each Non-Executive Director is engaged
by the Company for an initial term of three years.
Re-appointment for a further term is not automatic, but may be
mutually agreed.

The dates on which the Non-Executive Directors initial
service agreements/ letters of appointment commenced and current
expiry dates are as follows:

|                            |  |                   |                   |                        |                       |  |                 | 
|--------------------------- |  | ----------------- | ----------------- | ---------------------- | --------------------- |  | --------------- | 
|                            |  |                   |                   | Expiry date of current |                      
|                            |  |                   |                   | service agreement or   |                      
|                            |  | Commencement Date |                   |                        | letter of appointment | 
|                            | 
|Chase Carey(i)              |  |                   | 13 February 2003  |                        |                       |  | 3 November 2006 | 
|David DeVoe(iii)            |  |                   | 15 December 1994  |                        |                       |  | 3 November 2006 | 
|David Evans                 |  |                   | 21 September 2001 |                        |                       |  | November 2008*  | 
|Nicholas Ferguson(i)        |  |                   | 15 June 2004      |                        |                       |  | 3 November 2006 | 
|Andrew Higginson            |  |                   | 1 September 2004  |                        |                       |  | November 2008*  | 
|Allan Leighton              |  |                   | 15 October 1999   |                        |                       |  | November 2008*  | 
|Rupert Murdoch(iii)         |  |                   | 3 November 1990   |                        |                       |  | 3 November 2006 | 
|Jacques Nasser(i)           |  |                   | 8 November 2002   |                        |                       |  | 3 November 2006 | 
|Gail Rebuck(iv)             |  |                   | 8 November 2002   |                        |                       |  | November 2007*  | 
|Lord Rothschild(iv)         |  |                   | 17 November 2003  |                        |                       |  | November 2007*  | 
|Arthur Siskind(iii)         |  |                   | 19 November 1991  |                        |                       |  | 3 November 2006 | 
|Lord St John of Fawsley(ii) |  |                   | 20 November 1991  |                        |                       |  | 3 November 2006 | 
|Lord Wilson of Dinton       |  |                   | 13 February 2003  |                        |                       |  | November 2008*  | 
|                           

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*
    These letters of appointment will expire on the day of the
    Companys AGM in either November 2007 or 2008, the dates of
    which have yet to be agreed.All Directors are subject to retirement by rotation and
reappointment by shareholders in accordance with the
Companys current Articles of Association (see
Shareholder Information).

Notes:



(i)
    Non-Executive Directors retiring by rotation and offering
    themselves for reappointment by shareholders at the
    Companys next AGM, to be held on 3 November 2006.
    James Murdoch will also retire by rotation.(ii)
    Lord St John of Fawsley will retire by rotation but will not
    offer himself for reappointment by shareholders at the
    Companys next AGM.(iii)
    David DeVoe, Arthur Siskind and Rupert Murdoch are subject to
    annual reappointment by shareholders in accordance with
    requirement A.7.2. of the Combined Code as they have served as
    Non-Executive Directors for longer than nine years.(iv)
    Gail Rebuck and Lord Rothschild will be subject to retirement by
    rotation and reappointment by shareholders at the Companys
    AGM in 2007, the date of which has yet to be agreed. In
    accordance with the Companys current Articles of
    Association, one-third of the Directors must retire by rotation.
    Therefore, assuming that the Board continues to comprise fifteen
    Directors, five Directors will be required to retire by rotation
    at the Companys AGM in 2007 (in addition to those then
    subject to annual reappointment). Accordingly, the remaining
    three Directors to retire by rotation in 2007 will be selected
    by drawing lots from those Directors who would otherwise be due
    to retire by rotation at the AGM of the Company to be held in
    2008.Non-Executive Directors service agreements do not contain
a notice period.

10. Performance graph

The following graph shows the Companys performance
measured by TSR to 30 June 2006. This graph shows the
growth in the value of a hypothetical £100 holding in the
Companys ordinary shares over five years, relative to
three indices, which are considered to be the most relevant
broad equity market index for this purpose. The graph is
included to meet a legislative requirement and is not directly
relevant to the performance criteria approved by shareholders
for the Companys long-term incentive plans.

Breakdown of shareholder return from 1 July 2001 to
30 June 2006

(SHAREHOLDER RETURN LINE GRAPH)

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11. Share interests

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

|                        |  |         |         |   |         |  |         |         |  |  |         |  
|----------------------- |  | ------- | ------- | - | ------- |  | ------- | ------- |  |  | ------- | -
|                        |  | At      |         |   | At      |  |         | At      | 
|                        |  | 27 July |         |   | 30 June |  |         | 30 June | 
|Name of Director        |  | 2006    |         |   | 2006    |  |         | 2005    | 
|                        | 
|David Evans             |  |         | 16,000  | * |         |  | 16,000  | *       |  |  | 16,000  | *
|Nicholas Ferguson       |  |         | 10,000  |   |         |  | 10,000  |         |  |  | 10,000  |  
|Andrew Higginson        |  |         | 2,000   |   |         |  | 2,000   |         |  |  | 2,000   |  
|Lord Rothschild         |  |         | 100,000 |   |         |  | 100,000 |         |  |  | 100,000 |  
|Lord St John of Fawsley |  |         | 2,000   |   |         |  | 2,000   |         |  |  | 2,000   |  
|Lord Wilson of Dinton   |  |         | 486     |   |         |  | 486     |         |  |  | 486     |  
|                       



|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
|* | Held in the form of 4,000 ADSs (American Depositary
    Share), one ADS is equivalent to four ordinary shares.









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12. Directors remuneration

The emoluments of the Directors for the years ended 30 June
2006, 2005 and 2004 are shown below:

|                           |  |            |           |  |             |  |           |            |  |         |         |  |            |                |           |            |      |         |            |      |          |  |           |  |  |  |           |  |  |  |            | 
|-------------------------- |  | ---------- | --------- |  | ----------- |  | --------- | ---------- |  | ------- | ------- |  | ---------- | -------------- | --------- | ---------- | ---- | ------- | ---------- | ---- | -------- |  | --------- |  |  |  | --------- |  |  |  | ---------- | 
|                           |  |            |           |  |             |  |           | Total      |  |         |         |  | Total      |                |           | Total      |      |         | Total      |     
|                           |  |            |           |  |             |  |           | Emoluments |  |         |         |  | emoluments |                |           | emoluments |      |         | emoluments |     
|                           |  |            |           |  |             |  |           | before     |  |         |         |  | including  |                |           | including  |      |         | including  |     
|                           |  | Salary and |           |  | Bonus       |  |           |            |  | pension |         |  |            |                | pension   |            |      | pension |            |      | pensions | 
|                           |  | fees       |           |  | Scheme (vi) |  |           | Benefits   |  |         | 2006    |  |            | Pensions (vii) |           |            | 2006 |         |            | 2005 |          |  | 2004      | 
|                           |  | £          |           |  | £           |  |           | £          |  |         | £       |  |            | £              |           |            | £    |         |            | £    |          |  | £         | 
|                           | 
|Executive                  |  |            |           |  |             |  |           |            |  |         |         |  |            |                |           |            |      |         |            |      |          |  |           |  |  |  |           |  |  |  |            | 
|James Murdoch              |  |            | 825,000   |  |             |  | 1,650,000 |            |  |         | 208,606 |  |            |                | 2,683,606 |            |      |         | 65,679     |      |          |  | 2,749,285 |  |  |  | 2,226,377 |  |  |  | 1,480,578  | 
|Jeremy Darroch             |  |            | 500,000   |  |             |  | 760,000   |            |  |         | 25,043  |  |            |                | 1,285,043 |            |      |         | 39,915     |      |          |  | 1,324,958 |  |  |  | 1,127,217 |  |  |  |           | 
|Non-Executive              |  |            |           |  |             |  |           |            |  |         |         |  |            |                |           |            |      |         |            |      |          |  |           |  |  |  |           |  |  |  |            | 
|Rupert Murdoch             |  |            | 52,600    |  |             |  |          |            |  |         |        |  |            |                | 52,600    |            |      |         |           |      |          |  | 52,600    |  |  |  | 45,400    |  |  |  | 48,375     | 
|Chase Carey                |  |            | 42,600    |  |             |  |          |            |  |         |        |  |            |                | 42,600    |            |      |         |           |      |          |  | 42,600    |  |  |  | 40,600    |  |  |  | 38,600     | 
|David Devoe                |  |            | 42,600    |  |             |  |          |            |  |         |        |  |            |                | 42,600    |            |      |         |           |      |          |  | 42,600    |  |  |  | 40,150    |  |  |  | 48,151     | 
|David Evans                |  |            | 47,600    |  |             |  |          |            |  |         |        |  |            |                | 47,600    |            |      |         |           |      |          |  | 47,600    |  |  |  | 45,600    |  |  |  | 43,600     | 
|Nicholas Ferguson          |  |            | 51,805    |  |             |  |          |            |  |         |        |  |            |                | 51,805    |            |      |         |           |      |          |  | 51,805    |  |  |  | 45,600    |  |  |  | 2,012      | 
|Andrew Higginson           |  |            | 47,600    |  |             |  |          |            |  |         |        |  |            |                | 47,600    |            |      |         |           |      |          |  | 47,600    |  |  |  | 38,000    |  |  |  |           | 
|Allan Leighton             |  |            | 57,600    |  |             |  |          |            |  |         |        |  |            |                | 57,600    |            |      |         |           |      |          |  | 57,600    |  |  |  | 50,600    |  |  |  | 46,747     | 
|Jacques Nasser             |  |            | 53,395    |  |             |  |          |            |  |         |        |  |            |                | 53,395    |            |      |         |           |      |          |  | 53,395    |  |  |  | 50,700    |  |  |  | 43,792     | 
|Gail Rebuck                |  |            | 47,600    |  |             |  |          |            |  |         |        |  |            |                | 47,600    |            |      |         |           |      |          |  | 47,600    |  |  |  | 45,600    |  |  |  | 43,600     | 
|Lord Rothschild            |  |            | 57,600    |  |             |  |          |            |  |         |        |  |            |                | 57,600    |            |      |         |           |      |          |  | 57,600    |  |  |  | 50,600    |  |  |  | 29,744     | 
|Arthur Siskind             |  |            | 47,600    |  |             |  |          |            |  |         |        |  |            |                | 47,600    |            |      |         |           |      |          |  | 47,600    |  |  |  | 45,400    |  |  |  | 46,010     | 
|Lord St John of Fawsley(i) |  |            | 42,600    |  |             |  |          |            |  |         |        |  |            |                | 42,600    |            |      |         |           |      |          |  | 42,600    |  |  |  | 50,400    |  |  |  | 47,035     | 
|Lord Wilson of Dinton      |  |            | 57,600    |  |             |  |          |            |  |         |        |  |            |                | 57,600    |            |      |         |           |      |          |  | 57,600    |  |  |  | 50,600    |  |  |  | 44,894     | 
|Former Directors           |  |            |           |  |             |  |           |            |  |         |         |  |            |                |           |            |      |         |            |      |          |  |           |  |  |  |           |  |  |  |            | 
|Tony Ball(ii)              |  |            |          |  |             |  |          |            |  |         |        |  |            |                |          |            |      |         |           |      |          |  |          |  |  |  |          |  |  |  | 13,184,745 | 
|Philip Bowman(iii)         |  |            |          |  |             |  |          |            |  |         |        |  |            |                |          |            |      |         |           |      |          |  |          |  |  |  |          |  |  |  | 18,069     | 
|Martin Stewart(iv)         |  |            |          |  |             |  |          |            |  |         |        |  |            |                |          |            |      |         |           |      |          |  |          |  |  |  | 2,317,127 |  |  |  | 1,059,926  | 
|John Thornton(v)           |  |            |          |  |             |  |          |            |  |         |        |  |            |                |          |            |      |         |           |      |          |  |          |  |  |  |          |  |  |  | 46,110     | 
|Total emoluments           |  |            | 1,973,800 |  |             |  | 2,410,000 |            |  |         | 233,649 |  |            |                | 4,617,449 |            |      |         | 105,594    |      |          |  | 4,723,043 |  |  |  | 6,269,971 |  |  |  | 16,271,988 | 
|                          





|      |                                                                                                                                                                                                                                            
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Lord St John of Fawsley received a payment of £10,000
    relating to unpaid fees for the period September 2002 to
    November 2003, when he was the Senior Independent Director and
    Chairman and member of the Nominations Committee.
|     
|(ii)  | Tony Ball resigned as a Director of the Company on
    4 November 2003. Details of the emoluments Tony Ball
    received during the fiscal year ended 30 June 2004 were
    disclosed in the Companys 2004 Annual Report on
    Form 20-F.
|     
|(iii) | Philip Bowman resigned as a Director of the Company on
    14 November 2003.                                                                                                                                                               
|     
|(iv)  | Martin Stewart resigned as a Director of the Company on
    4 August 2004.                                                                                                                                                                 
|     
|(v)   | John Thornton resigned as a Director of the Company on
    11 May 2004.                                                                                                                                                                    
|     
|(vi)  | The amounts shown above are those which have been approved by
    the Committee for the year ended 30 June 2006.                                                                                                                           
|     
|(vii) | James Murdoch received a payment of £21,844 (2005:
    £23,125) in relation to the shortfall in his pension
    arrangements. Employer contributions of £43,835 (2005:
    £36,555) were paid into the BSkyB Pension Plan.                 



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Jeremy Darroch received a payment of £5,625 (2005:
    £6,219) in relation to the shortfall in his pension
    arrangements. Employer contributions of £34,290 (2005:
    £26,949) were paid into the BSkyB Pension Plan.

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13. LTIP

Details of outstanding awards to Executive Directors under the
LTIP are shown below:

|                 |  |                              |         |  |          |  |         |           |  |  |          |  |  |         |   |  |          |  |         |         |           |  |             |  |  |        |          |  |  |  |          |  |  |  |          | 
|---------------- |  | ---------------------------- | ------- |  | -------- |  | ------- | --------- |  |  | -------- |  |  | ------- | - |  | -------- |  | ------- | ------- | --------- |  | ----------- |  |  | ------ | -------- |  |  |  | -------- |  |  |  | -------- | 
|                 |  | Number of shares under award |         |  |          |  |         |           |  |  |         
|                 |  |                              |         |  |          |  |         |           |  |  |         
|                 |  | At                           |         |  | Granted  |  |         | Exercised |  |  | Lapsed   |  |  | At      |   |  |          |  |         |         | Date from |  |             | 
|                 |  | 30 June                      |         |  | during   |  |         | during    |  |  | during   |  |  | 30 June |   |  | Exercise |  |         | Date of |           |  | which       |  |  | Expiry |         
|Name of Director |  | 2005                         |         |  | the year |  |         | the year  |  |  | the year |  |  | 2006    |   |  | Price    |  |         | award   |           |  | exercisable |  |  | date   |         
|                 | 
|James Murdoch    |  |                              | 450,000 |  |          |  |        |           |  |  |         |  |  |         |  |  |          |  | 450,000 |         |           |  | n/a         |  |  |        | 11.08.04 |  |  |  | 11.08.07 |  |  |  | 11.08.08 | 
|                 |  |                              |        |  |          |  | 382,500 |           |  |  |         |  |  |         |  |  |          |  | 382,500 |         |           |  | n/a         |  |  |        | 08.11.05 |  |  |  | 11.08.07 |  |  |  | 11.08.08 | 
|Jeremy Darroch   |  |                              | 250,000 |  |          |  |        |           |  |  |         |  |  |         |  |  |          |  | 250,000 |         |           |  | n/a         |  |  |        | 16.08.04 |  |  |  | 16.08.07 |  |  |  | 16.08.08 | 
|                 |  |                              |        |  |          |  | 212,500 |           |  |  |         |  |  |         |  |  |          |  | 212,500 |         |           |  | n/a         |  |  |        | 08.11.05 |  |  |  | 16.08.07 |  |  |  | 16.08.08 | 
|                





14. Sharesave Scheme options




|                 |  |                                |       |  |          |  |      |            |  |  |         |  |  |          |       |      |             |  |       |        |  |  |          |  |  |  |          | 
|---------------- |  | ------------------------------ | ----- |  | -------- |  | ---- | ---------- |  |  | ------- |  |  | -------- | ----- | ---- | ----------- |  | ----- | ------ |  |  | -------- |  |  |  | -------- | 
|                 |  | Number of shares under options |       |  |          |  |      |            | 
|                 |  |                                |       |  |          |  | Date |            |  | 
|                 |  | At                             |       |  | Granted  |  |      | Exercised  |  |  | At      |  |  |          |       | from |             |  |      
|                 |  | 30 June                        |       |  | during   |  |      | during the |  |  | 30 June |  |  | Exercise |       |      | which       |  |       | Expiry | 
|Name of Director |  | 2005                           |       |  | the year |  |      | year       |  |  | 2006    |  |  | Price    |       |      | exercisable |  |       | date   | 
|                 | 
|Jeremy Darroch   |  |                                | 4,281 |  |          |  |     |            |  |  |        |  |  |          | 4,281 |      |             |  | £3.86 |        |  |  | 01.02.10 |  |  |  | 01.08.10 | 
|                





Nicholas Ferguson






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##### Table of Contents

FINANCIAL STATEMENTS





STATEMENT OF DIRECTORS RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report
and the financial statements. The Directors are required to
prepare financial statements for the Group in accordance with
International Financial Reporting Standards (IFRS)
and have also elected to prepare financial statements for the
Company in accordance with IFRS. Company law requires the
directors to prepare such financial statements in accordance
with IFRS, the Companies Act 1985 and Article 4 of the IAS
Regulation.

IAS 1  Presentation of Financial Statements
(IAS 1) requires that financial statements
present fairly, for each financial year, the Group and the
Companys financial position, financial performance and
cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in
accordance with the definitions and recognitions criteria for
assets, liabilities, income and expenses set out in the
International Accounting Standards Boards Framework
for the preparation and presentation of financial
statements. In virtually all circumstances, a fair
presentation will be achieved by compliance with all applicable
IFRSs. Directors are also required to:




    properly select and apply accounting policies;
    present information, including accounting policies, in a manner
    that provides relevant, reliable, comparable and understandable
    information; and
    provide additional disclosures when compliance with the specific
    requirements in IFRS is insufficient to enable users to
    understand the impact of particular transactions, other events
    and conditions on the entitys financial position and
    financial performance.The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company, for safeguarding the assets,
for taking reasonable steps for the prevention and detection of
fraud and other irregularities and for the preparation of a
directors report and a directors remuneration report
which comply with the requirements of the Companies Act 1985.

The Directors are responsible for the maintenance and integrity
of the Company website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Members of:

British Sky Broadcasting Group plc

Grant Way

Isleworth

Middlesex

TW7 5QD

We have audited the accompanying consolidated balance sheets of
British Sky Broadcasting Group plc and subsidiaries
(collectively, the Group) as at 30 June 2006 and
2005, and the related consolidated income statements, statements
of recognised income and expense, and cash flow statements for
each of the two years in the period ended 30 June 2006 (all
expressed in pounds sterling). These financial statements are
the responsibility of the Groups management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Group is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Groups internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements, 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 financial position of
British Sky Broadcasting Group plc and subsidiaries as at 30
June 2006 and 2005, and the results of their operations and
their cash flows for each of the two years in the period ended
30 June 2006 in conformity with International Financial
Reporting Standards as adopted by the European Union.

International Financial Reporting Standards as adopted by the
European Union vary in certain significant respects from
accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such
differences is presented in Note 32 to the consolidated
financial statements.

Deloitte & Touche LLP

London, United Kingdom

27 July 2006

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CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statementfor the year ended
30 June 2006

|                                                           |  |       |    |      |    |  |        |    |  |  |        |  
|---------------------------------------------------------- |  | ----- | -- | ---- | -- |  | ------ | -- |  |  | ------ | -
|                                                           |  |       |    | 2006 |    |  | 2005   |   
|                                                           |  | Notes |    |      | £m |  |        | £m | 
|                                                           | 
|Revenue                                                    |  |       | 2  |      |    |  | 4,148  |    |  |  | 3,842  |  
|Operating expense                                          |  |       | 3  |      |    |  | (3,271 | )  |  |  | (3,020 | )
|Operating profit                                           |  |       |    |      |    |  | 877    |    |  |  | 822    |  
|                                                          
|Share of results of joint ventures
    and associates      |  |       | 14 |      |    |  | 12     |    |  |  | 14     |  
|Investment income                                          |  |       | 4  |      |    |  | 52     |    |  |  | 29     |  
|Finance costs                                              |  |       | 4  |      |    |  | (143   | )  |  |  | (87    | )
|Profit on disposal of joint venture                        |  |       | 5  |      |    |  |       |    |  |  | 9      |  
|Profit before tax                                          |  |       | 6  |      |    |  | 798    |    |  |  | 787    |  
|                                                          
|Taxation                                                   |  |       | 8  |      |    |  | (247   | )  |  |  | (209   | )
|Profit for the year                                        |  |       | 24 |      |    |  | 551    |    |  |  | 578    |  
|                                                          
|Earnings per share (in pence)
    from profit for the year |  |       |    |      |    |  |        |    |  |  |        |  
|Basic                                                      |  |       | 9  |      |    |  | 30.2   | p  |  |  | 30.2   | p
|Diluted                                                    |  |       | 9  |      |    |  | 30.1   | p  |  |  | 30.2   | p
|                                                          



Consolidated Statement of Recognised Income and Expense


|                                                              |  |      |      |   |      |  |     |  
|------------------------------------------------------------- |  | ---- | ---- | - | ---- |  | --- | -
|                                                              |  | 2006 |      |   | 2005 | 
|                                                              |  | £m   |      |   | £m   | 
|                                                              | 
|Profit for the year                                           |  |      | 551  |   |      |  | 578 |  
|                                                             
|Net gains (losses) recognised
    directly in equity          |  |      |      |   |      |  |     |  
|Cash flow hedges                                              |  |      | (160 | ) |      |  | (22 | )
|Tax on cash flow hedges                                       |  |      | 48   |   |      |  | 6   |  
|                                                              |  |      | (112 | ) |      |  | (16 | )
|                                                             
|Amounts reclassified and
    reported in the Income Statement |  |      |      |   |      |  |     |  
|Cash flow hedges                                              |  |      | 106  |   |      |  | 4   |  
|Tax on cash flow hedges                                       |  |      | (32  | ) |      |  | (1  | )
|                                                              |  |      | 74   |   |      |  | 3   |  
|                                                             
|Net losses not recognised in
    profit for the year          |  |      | (38  | ) |      |  | (13 | )
|                                                             
|Total recognised income and
    expense for the year          |  |      | 513  |   |      |  | 565 |  
|                                                             



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Consolidated Balance Sheetas at 30 June 2006

|                                                 |  |       |    |      |    |  |       |    |  |  |       | 
|------------------------------------------------ |  | ----- | -- | ---- | -- |  | ----- | -- |  |  | ----- | 
|                                                 |  |       |    | 2006 |    |  | 2005  |   
|                                                 |  | Notes |    |      | £m |  |       | £m | 
|                                                 | 
|Non-current assets                               |  |       |    |      |    |  |       |    |  |  |       | 
|Goodwill                                         |  |       | 11 |      |    |  | 623   |    |  |  | 417   | 
|Intangible assets                                |  |       | 12 |      |    |  | 218   |    |  |  | 202   | 
|Property, plant and equipment                    |  |       | 13 |      |    |  | 519   |    |  |  | 335   | 
|Investments in joint ventures and
    associates |  |       | 14 |      |    |  | 28    |    |  |  | 23    | 
|Available for sale investments                   |  |       | 15 |      |    |  | 2     |    |  |  | 2     | 
|Deferred tax assets                              |  |       | 16 |      |    |  | 100   |    |  |  | 105   | 
|Derivative financial assets                      |  |       | 22 |      |    |  |      |    |  |  | 9     | 
|                                                 |  |       |    |      |    |  | 1,490 |    |  |  | 1,093 | 
|                                                
|Current assets                                   |  |       |    |      |    |  |       |    |  |  |       | 
|Inventories                                      |  |       | 17 |      |    |  | 324   |    |  |  | 321   | 
|Trade and other receivables                      |  |       | 18 |      |    |  | 489   |    |  |  | 331   | 
|Short-term deposits                              |  |       | 22 |      |    |  | 647   |    |  |  | 194   | 
|Cash and cash equivalents                        |  |       | 22 |      |    |  | 816   |    |  |  | 503   | 
|Derivative financial assets                      |  |       | 22 |      |    |  | 7     |    |  |  | 14    | 
|                                                 |  |       |    |      |    |  | 2,283 |    |  |  | 1,363 | 
|                                                
|                                                
|Total assets                                     |  |       |    |      |    |  | 3,773 |    |  |  | 2,456 | 
|                                                
|Current liabilities                              |  |       |    |      |    |  |       |    |  |  |       | 
|Borrowings                                       |  |       | 21 |      |    |  | 163   |    |  |  |      | 
|Trade and other payables                         |  |       | 19 |      |    |  | 1,247 |    |  |  | 1,031 | 
|Current tax liabilities                          |  |       |    |      |    |  | 68    |    |  |  | 100   | 
|Provisions                                       |  |       | 20 |      |    |  | 6     |    |  |  | 13    | 
|Derivative financial liabilities                 |  |       | 22 |      |    |  | 49    |    |  |  | 6     | 
|                                                 |  |       |    |      |    |  | 1,533 |    |  |  | 1,150 | 
|                                                
|                                                
|Non-current
    liabilities                      |  |       |    |      |    |  |       |    |  |  |       | 
|Borrowings                                       |  |       | 21 |      |    |  | 1,825 |    |  |  | 982   | 
|Other payables                                   |  |       | 21 |      |    |  | 66    |    |  |  | 25    | 
|Provisions                                       |  |       | 20 |      |    |  | 19    |    |  |  |      | 
|Derivative financial liabilities                 |  |       | 22 |      |    |  | 209   |    |  |  | 112   | 
|                                                 |  |       |    |      |    |  | 2,119 |    |  |  | 1,119 | 
|                                                
|                                                
|Total liabilities                                |  |       |    |      |    |  | 3,652 |    |  |  | 2,269 | 
|                                                
|                                                
|Shareholders
    equity                         |  |       | 24 |      |    |  | 121   |    |  |  | 187   | 
|                                                
|                                                
|Total liabilities and
    shareholders equity   |  |       |    |      |    |  | 3,773 |    |  |  | 2,456 | 
|                                                





|                                     |  |                                      
|------------------------------------ |  | -------------------------------------
|James MurdochChief Executive Officer |  | Jeremy DarrochChief Financial Officer

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Consolidated Cash Flow Statementfor the year ended
30 June 2006

|                                                                               |  |       |     |      |    |  |       |    |  |  |      |  
|------------------------------------------------------------------------------ |  | ----- | --- | ---- | -- |  | ----- | -- |  |  | ---- | -
|                                                                               |  |       |     | 2006 |    |  | 2005  |   
|                                                                               |  | Notes |     |      | £m |  |       | £m | 
|                                                                               | 
|Cash flows from operating
    activities                                       |  |       |     |      |    |  |       |    |  |  |      |  
|Cash generated from operations                                                 |  |       | 25a | )    |    |  | 1,004 |    |  |  | 989  |  
|Interest received                                                              |  |       |     |      |    |  | 43    |    |  |  | 28   |  
|Taxation paid                                                                  |  |       |     |      |    |  | (172  | )  |  |  | (103 | )
|Net cash from operating
    activities                                         |  |       |     |      |    |  | 875   |    |  |  | 914  |  
|                                                                              
|                                                                              
|Cash flows from investing
    activities                                       |  |       |     |      |    |  |       |    |  |  |      |  
|Dividends received from joint
    ventures and associates                      |  |       |     |      |    |  | 7     |    |  |  | 12   |  
|Funding to joint ventures and
    associates                                   |  |       |     |      |    |  | (3    | )  |  |  | (4   | )
|Repayments of funding from joint
    ventures and associates                   |  |       |     |      |    |  | 1     |    |  |  | 8    |  
|Proceeds from the sale of a joint
    venture                                  |  |       |     |      |    |  |      |    |  |  | 14   |  
|Purchase of property, plant and
    equipment                                  |  |       |     |      |    |  | (169  | )  |  |  | (149 | )
|Purchase of intangible assets                                                  |  |       |     |      |    |  | (43   | )  |  |  | (92  | )
|Proceeds from the sale of equity
    investments                               |  |       |     |      |    |  |      |    |  |  | 1    |  
|Increase in short-term deposits                                                |  |       |     |      |    |  | (453  | )  |  |  | (60  | )
|Purchase of subsidiaries (net of
    cash and cash equivalents purchased)      |  |       | 28  |      |    |  | (209  | )  |  |  |     |  
|Net cash used in investing
    activities                                      |  |       |     |      |    |  | (869  | )  |  |  | (270 | )
|                                                                              
|                                                                              
|Cash flows from financing
    activities                                       |  |       |     |      |    |  |       |    |  |  |      |  
|Proceeds from issue of Guaranteed
    Notes                                    |  |       |     |      |    |  | 1,014 |    |  |  |     |  
|Proceeds from disposal of shares in
    Employee Share Ownership Plan (ESOP) |  |       |     |      |    |  | 13    |    |  |  | 4    |  
|Purchase of own shares for ESOP                                                |  |       |     |      |    |  | (17   | )  |  |  | (14  | )
|Purchase of own shares for
    cancellation                                    |  |       |     |      |    |  | (408  | )  |  |  | (416 | )
|Interest paid                                                                  |  |       |     |      |    |  | (105  | )  |  |  | (91  | )
|Dividends paid to shareholders                                                 |  |       |     |      |    |  | (191  | )  |  |  | (138 | )
|Net cash from (used in)
    financing activities                               |  |       |     |      |    |  | 306   |    |  |  | (655 | )
|                                                                              
|                                                                              
|Effect of foreign exchange rate
    movements                                  |  |       |     |      |    |  | 1     |    |  |  | 1    |  
|Net increase (decrease) in cash
    and cash equivalents                       |  |       |     |      |    |  | 313   |    |  |  | (10  | )
|                                                                              
|                                                                              
|Cash and cash equivalents at the
    beginning of the year                     |  |       |     |      |    |  | 503   |    |  |  | 513  |  
|                                                                              
|Cash and cash equivalents at the
    end of the year                           |  |       |     |      |    |  | 816   |    |  |  | 503  |  
|                                                                              



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Notes to the consolidated financial statements



1.
    Accounting policiesBritish Sky Broadcasting Group plc (the Company) is
a limited liability company incorporated in England and Wales,
and domiciled in the United Kingdom (UK). The
consolidated financial statements include the Company and its
subsidiaries (together, the Group) and its interests
in associates and jointly-controlled entities.

a) Statement of compliance

The consolidated financial statements have been prepared in
accordance with IFRS (including International Accounting
Standards (IAS) and interpretations issued by the
International Accounting Standards Board (IASB) and
its committees) as adopted for use in the European Union
(EU), the Companies Act 1985 and Article 4 of
the IAS Regulations. IFRS differs in certain material respects
from United States Generally Accepted Accounting Principles
(US GAAP)  see note 32.

These are the Groups first annual consolidated financial
statements since adopting IFRS, and the Group has elected
1 July 2004 as the date of transition to IFRS (the
Transition Date). This transition date complies with
the Securities and Exchange Commissions
(SECs) decision to provide an exemption from
the provision of a second year of comparative financial
information for foreign registrants in the first year in which
they adopt IFRS. In subsequent years, the Group will produce two
years of comparative financial information for SEC reporting
purposes.

The following IFRSs have been adopted from the Transition Date,
which is earlier than required under the IFRS transitional
provisions: IAS 32 Financial Instruments: Disclosure
and Presentation, IAS 39 Financial Instruments:
Recognition and Measurement, IFRS 2 Share-based
Payment and IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations.

b) Basis of preparation

The consolidated financial statements have been prepared on an
historical cost basis, except for the remeasurement to fair
value of financial instruments as described in the accounting
policies below, and on a going concern basis.

The Group maintains a 52 or 53 week fiscal year ending on
the Sunday nearest to 30 June in each year. In fiscal year
2006 this date was 2 July 2006, this being a 52 week year
(fiscal year 2005: 3 July 2005, 53 week year). For
convenience purposes, the Group continues to date its financial
statements as of 30 June 2006.

The Group has classified assets and liabilities as current when
they are expected to be realised in, settled in, or intended for
sale or consumption in, the normal operating cycle of the Group.

c) Basis of consolidation



i. Subsidiaries

Subsidiaries are entities controlled by the Company. Control
    exists when the Company has the power, directly or indirectly,
    to govern the financial and operating policies of an entity so
    as to obtain benefits from its activities. Subsidiaries are
    included in the consolidated financial statements of the Company
    from the date control of the subsidiaries commences until the
    date that control ceases.Intra-group balances, and any unrealised gains and losses or
    income and expenses arising from intra-group transactions, are
    eliminated in preparing the consolidated financial statements.

ii. Associates and joint ventures

Associates are entities where the Group has significant
    influence, but not control or joint control, over the financial
    and operating policies of the entity. Joint ventures are those
    entities which are jointly controlled by the Group under a
    contractual agreement with another party or parties.

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##### Table of Contents

1.
    Accounting policies (continued)

These consolidated financial statements include the Groups
    share of the total recognised gains and losses of associates and
    joint ventures using the equity method, from the date that
    significant influence or joint control commences to the date
    that it ceases, based on the present ownership interests and
    excluding the possible exercise of potential voting rights, less
    any impairment losses (see accounting policy k). When the
    Groups interest in an associate or joint venture has been
    reduced to nil because the Groups share of losses exceeds
    its interest in the associate or joint venture, the Group only
    provides for additional losses to the extent that it has
    incurred legal or constructive obligations to fund such losses,
    or made payments on behalf of the associate or joint venture.
    Where the disposal of an investment in an associate or joint
    venture is considered to be highly probable, the investment
    ceases to be equity accounted and, instead, is classified as
    held for sale and stated at the lower of carrying amount and
    fair value less costs to sell.d) Foreign currency translation

The Groups functional currency and presentational currency
is pounds sterling. Trading activities denominated in foreign
currencies are recorded in pounds sterling at the actual
exchange rates as of the date of the transaction. Monetary
assets, liabilities and commitments denominated in foreign
currencies at the balance sheet date are reported at the rates
of exchange at that date. Non-monetary assets and liabilities
denominated in foreign currencies are translated to pounds
sterling at the exchange rate prevailing at the date of the
initial transaction. Gains and losses from the retranslation of
assets and liabilities are included net in profit for the year,
except for exchange differences arising on non-monetary assets
and liabilities where the changes in fair value are recognised
directly in equity.

The assets and liabilities of the Groups foreign
operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at
the average exchange rate for the year. Any exchange differences
arising are classified as equity and transferred to the
Groups foreign exchange reserve.

e) Derivative financial instruments and hedging
activities

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

Derivatives are held at fair value from the date that a
derivative contract is entered into. Fair value is defined as
the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arms
length transaction. The fair value of derivative financial
instruments is estimated with reference to the contracted value
and the appropriate market value prevailing at the balance sheet
date. Certain derivatives held by the Group which relate to
highly probable forecast transactions (hedged
items), that meet qualifying criteria under IAS 39,
are designated as cash flow hedges, and are subject to cash flow
hedge accounting. Other derivatives held by the Group do not
meet the qualifying criteria for recognition for accounting
purposes as cash flow hedges, despite this being their economic
function. Changes in the fair values of these derivatives are
recognised immediately in the income statement. The Group does
not hold or issue derivatives solely for speculative purposes.

Derivatives that qualify for cash flow hedge accounting

Changes in the fair values of derivatives that are designated as
cash flow hedges (hedging instruments) are initially
recognised in the hedging reserve. In circumstances where only
the intrinsic value of a derivative is designated as a cash flow
hedge, only the intrinsic value of the derivative is initially
recognised in the hedging reserve, with all other movements
being recognised in the income statement. Amounts accumulated in
the hedging reserve are subsequently recognised in the income
statement in the periods across which the related hedged items
are recognised in the income statement.

When a hedging instrument expires, is terminated or is
exercised, or if a hedge no longer meets the qualifying criteria
for hedge accounting, any cumulative gain or loss existing in
the hedging reserve at that time remains in the hedging reserve
and is recognised when the forecast transaction is ultimately
recognised in the income statement, provided that the underlying
transaction is still expected to occur. When a forecast
transaction is no

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##### Table of Contents

1.
    Accounting policies (continued)longer expected to occur, the cumulative gain or loss that was
reported in the hedging reserve is immediately recognised in the
income statement and all future changes in the fair value of the
hedging instruments are immediately recognised in the income
statement.

The ongoing effectiveness of the Groups cash flow hedges
is assessed using the dollar-offset approach, with the expected
cash flows of hedging instruments being compared to the expected
cash flows of the hedged items. This assessment is used to
demonstrate that each hedge relationship has been highly
effective in the period and is expected to continue to be highly
effective in future periods. The measurement of hedge
ineffectiveness for the Groups hedging instruments is
calculated using the hypothetical derivative method, with the
fair values of the hedging instruments being compared to those
of the hypothetical derivative that would result in the
designated cash flow hedge achieving perfect hedge
effectiveness. The excess of the cumulative change in the fair
value of the actual hedging instrument compared to that of the
hypothetical derivative is deemed to be hedge ineffectiveness,
which is recognised in the income statement.

Embedded derivatives

Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of
the host contracts and the host contracts are not carried at
fair value with unrealised gains or losses reported in the
income statement. Embedded derivatives are carried on the
balance sheet at fair value from the inception of the host
contract. Changes in fair value are recognised within the income
statement during the period in which they arise.

f) Goodwill and intangible assets



i. Goodwill

Business combinations that have occurred since the Transition
    Date are accounted for by applying the purchase method of
    accounting. Following this method, goodwill is initially
    recognised on consolidation, representing the difference between
    the fair value cost of the business combination and the fair
    value of the identifiable assets, liabilities and contingent
    liabilities assumed. Where a business combination occurs in
    several stages, as a result of successive share purchases, the
    goodwill associated with each stage is calculated using fair
    value information at the date of each additional share purchase.
    Any movement in the fair value of the Groups share of net
    assets held previously is recognised in a revaluation reserve.In respect of business combinations that occurred prior to the
    Transition Date, goodwill has been included at its deemed cost,
    as permitted by IFRS 1 First-time Adoption of
    International Financial Reporting Standards. Deemed cost
    represents the goodwills carrying value under the
    Groups United Kingdom Generally Accepted Accounting
    Principles (UK GAAP) accounting policies on the
    Transition Date. On disposal of a subsidiary, associate or joint
    venture, the attributable amount of goodwill is included in the
    determination of profit or loss on disposal, except for goodwill
    written off to reserves under UK GAAP prior to the Transition
    Date, which is not reinstated and is not included in determining
    any subsequent gain or loss on disposal.Goodwill is stated at cost less any impairment losses and is
    tested, at least annually, for impairment, based on the
    recoverable amounts of the cash generating unit to which the
    goodwill has been allocated. Any impairment identified is
    recognised immediately in the income statement and is not
    subsequently reversed. The carrying amount of goodwill in
    respect of associates and joint ventures is included in the
    carrying amount of the investment in the associate or joint
    venture.

ii. Intangible assets

Research expenditure is recognised in the income statement as
    the expenditure is incurred. Development expenditure (relating
    to the application of research knowledge to plan or design new
    or substantially improved products for sale or use within the
    business) is recognised as an intangible asset from the point at
    which it is probable that the Group has the intention and
    ability to generate future economic benefits from the
    development expenditure, that the development is technically
    feasible and that the subsequent expenditure

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1. Accounting policies (continued)can be measured reliably. Any other development expenditure is
recognised in the income statement as incurred.



Other intangible assets, which are acquired by the Group
    separately or through a business combination, are stated at cost
    less accumulated amortisation and impairment losses, other than
    those that are classified as held for sale, which are stated at
    the lower of carrying amount and fair value less costs to sell.Amortisation of an intangible asset begins when the asset is
    available for use, and is charged to the income statement
    through operating expenses on a straight-line basis over the
    intangible assets estimated useful life, principally being
    a period of no more than ten years, unless the asset life is
    judged to be indefinite. If the useful life is indefinite or the
    asset is not yet available for use, no amortisation is charged
    and an impairment test is carried out at least annually. Other
    intangible assets are tested for impairment in line with
    accounting policy (k) below.g) Property, plant and equipment (PPE)



i. Owned assetsProperty, plant and equipment are stated at cost, net of
    accumulated depreciation and any impairment losses, (see
    accounting policy k), other than those that are classified as
    held for sale, which are stated at the lower of carrying amount
    and fair value less costs to sell.When an item of property, plant and equipment is comprised of
    major components having different useful economic lives, the
    components are accounted for as separate items of property,
    plant and equipment.

ii. Leased assetsAssets held under finance leases, which confer rights and
    obligations similar to those attached to owned assets, are
    treated as property, plant and equipment (see accounting
    policy p).

iii. DepreciationThe cost of PPE, less estimated residual value, is depreciated
    in the income statement on a straight-line basis over its
    estimated useful life. Land, and assets that are not yet
    available for use, are not depreciated. Principal useful
    economic lives used for this purpose are:

|                                      |  |                                                                  
|------------------------------------- |  | -----------------------------------------------------------------
|Freehold
    buildings                |  | 25 years                                                         
|Leasehold
    improvements            |  | Lower of lease term and the useful
    economic life of the asset
|Equipment,
    furniture and fixtures |  | 3 to 10 years                                                    
|Assets
    under finance leases       |  | Lower of lease term and the useful
    economic life of the asset



| |                    
| | -------------------
| | iv. Borrowing costs

| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Borrowing costs are recognised in the income statement in the
    period in which they are incurred.

h) Inventories




| |                                                             
| | ------------------------------------------------------------
| | i. Acquired and commissioned television programme
    rights

| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Programme rights are stated at the lower of cost and net
    realisable value (NRV), including, where applicable,
    estimated subscriber escalation payments, and net of the
    accumulated expense charged to the income statement to date.                                                                                             
|
| | Programme rights are recorded in inventories when the programmes
    are available for transmission. Contractual obligations for
    television programme rights not yet available for transmission
    are not included in inventories and are instead disclosed as
    contractual commitments (see note 26). Payments made upon
    receipt

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1.
    Accounting policies (continued)

of commissioned and acquired programming, but in advance of the
    legal right to broadcast the programmes, are treated as
    prepayments.The cost of television programme rights is recognised in the
    operating expense line of the income statement, primarily as
    described below:Sports  100% of the cost is recognised in the income
    statement on the first showing or, where the rights are for
    multiple seasons or competitions, such rights are principally
    recognised on a straight-line basis across the seasons or
    competitions.News  100% of the cost is recognised in the income
    statement on first showing.General entertainment  The cost is recognised in the
    income statement based on the expected profile of transmission.Movies  The cost is recognised in the income
    statement on a straight-line basis over the period of
    transmission rights.Where programme rights are surplus to the Groups
    requirements, and no gain is anticipated through a disposal of
    the rights, or where the programming will not be broadcast for
    any other reason, a write-down to the income statement is made.
    Any reversals of inventory write-downs are recognised as
    reductions in operating expense.

ii Digiboxes and related equipmentDigiboxes (including Sky+ boxes and High Definition boxes) and
    related equipment are valued at the lower of cost and NRV, the
    latter of which reflects the value the business expects to
    realise from the digiboxes and the related equipment in the
    hands of the customer, and are recognised through the operating
    expenses line of the income statement. Any subsidy is expensed
    on enablement, which is the process of activating the viewing
    card once inserted in the digibox 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. The amount recognised in the income
    statement as the inventories are sold is recognised on a
    first-in first-out
    basis (FIFO).

iii Raw materials, consumables and goods held for
    resaleRaw materials, consumables and goods held for resale are valued
    at the lower of cost and NRV. The cost of raw materials,
    consumables and goods held for resale is recognised through the
    operating expenses line of the income statement on a FIFO basis.i) Financial assets and liabilities

Financial assets and liabilities are initially recognised at
fair value plus any directly attributable transaction costs. At
each balance sheet date, the Group assesses whether there is any
objective evidence that any financial asset is impaired.
Financial assets and liabilities are recognised on the
Groups balance sheet when the Group becomes a party to the
contractual provisions of the financial asset or liability.
Financial assets are derecognised from the balance sheet when
the Groups contractual rights to the cash flows expire or
the Group transfers substantially all the risks and rewards of
the financial asset. Financial liabilities are derecognised from
the Groups balance sheet when the obligation specified in
the contract is discharged or cancelled or expires.



i. Equity investmentsEquity investments intended to be held for an indefinite period
    of time are classified as available for sale investments. They
    are carried at fair value, where this can be reliably measured,
    with movements in fair value recognised directly in reserves.
    Where the fair value cannot be reliably measured, the investment
    is carried at cost. Any impairment losses in equity investments
    are recognised in the income statement and are not reversible
    under any circumstances. Available for sale investments are
    included within non-current assets unless management have the
    intention of holding the investment for less than twelve months
    from the

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1.
    Accounting policies (continued)

balance sheet date, in which case they are included in current
    assets. On disposal, the difference between the carrying amount
    and the sum of the consideration received and any cumulative
    gain or loss that had previously been recognised directly in
    reserves is recognised in the income statement.

ii. Trade and other receivablesTrade and other receivables are non-derivative financial assets
    with fixed or determinable payments and are measured at
    amortised cost using the effective interest method. Trade and
    other receivables, with no stated interest rate, are measured at
    the original invoice amount if the effect of discounting is
    immaterial. An allowance account is maintained to reduce the
    carrying value of trade and other receivables for impairment
    losses identified from objective evidence, with movements in the
    allowance account, either from increased impairment losses or
    reversals of impairment losses, being recognised in the income
    statement.

iii.
    Cash and cash equivalentsCash and cash equivalents include cash in hand, bank accounts,
    deposits receivable on demand and deposits with maturity dates
    of 3 months or less from the date of inception. Bank
    overdrafts that are repayable on demand and which form an
    integral part of the Groups cash management are included
    as a component of cash and cash equivalents where offset
    conditions are met.

iv. Short-term depositsThis includes short-term deposits and commercial paper which
    have maturity dates of more than 3 months from inception.
    These deposits are initially recognised at fair value, and then
    carried at amortised cost or fair value through the income
    statement less any allowance for impairment losses.

v. Trade and other payablesTrade and other payables are non-derivative financial
    liabilities and are measured at amortised cost using the
    effective interest method. Trade and other payables, with no
    stated interest rate, are measured at the original invoice
    amount if the effect of discounting is immaterial.

vi. BorrowingsBorrowings are recorded as the proceeds received, net of direct
    issue costs. Finance charges, including any premium payable on
    settlement or redemption and direct issue costs, are accounted
    for on an accruals basis in the income statement using the
    effective interest method and are added to the carrying amount
    of the underlying instrument to which they relate, to the extent
    that they are not settled in the period in which they arise.j) Transponder rental prepayments

Payments made in respect of future satellite broadcast capacity
have been recorded as prepaid transponder costs. These payments
are recognised in the income statement on a straight-line basis
over the term of the agreement.

k) Impairment

At each balance sheet date, and in accordance with IAS 36
Impairment of Assets, the Group reviews the carrying
amounts of all its assets excluding inventories (see accounting
policy h), non-current assets classified as held for sale,
financial assets (see accounting policy i) and
deferred taxation (see accounting policy q) to
determine whether there is any indication that any of those
assets have suffered an impairment loss.

An impairment, other than an impairment of an investment in a
joint venture or associate, is recognised in the income
statement whenever the carrying amount of an asset or its cash
generating unit exceeds its recoverable amount. An impairment of
an investment in a joint venture or associate is recognised
within the share of profit from joint ventures and associates.
The recoverable amount is the greater of net selling price,
defined as the fair value less costs to sell, and value in use.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and risks specific to the asset. Where it is not possible
to estimate the recoverable amount of an individual

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##### Table of Contents

1.
    Accounting policies (continued)asset, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. Impairment
losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill
allocated to those units, and then to reduce the carrying amount
of other assets in the unit on a pro-rata basis.

An impairment loss for an individual asset or cash generating
unit shall be reversed if there has been a change in estimates
used to determine the recoverable amount since the last
impairment loss was recognised and is only reversed to the
extent that the assets carrying amount does not exceed the
carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised. Any impairment loss in respect of goodwill is
irreversible.

l) Provisions

Provisions are recognised when the Group has a present legal or
constructive obligation to make a probable transfer of economic
benefits as a result of past events. The amounts recognised
represent the Groups best estimate of the transfer of
benefits that will be required to settle the obligation as of
the balance sheet date. Provisions are discounted if the effect
of the time value of money is material using a market rate
adjusted for risks specific to the liability.

m) ESOP reserve

Where the Company or its subsidiaries purchase the
Companys own equity shares, the cost of those shares,
including any attributable transaction costs, is presented
within the ESOP reserve as a deduction in shareholders
equity in the consolidated financial statements.

n) Revenue recognition

Revenue, which excludes value added tax and transactions between
Group companies, represents the gross inflow of economic benefit
from Skys operating activities. Revenue is measured at the
fair value of the consideration received or receivable. The
Groups main sources of revenue are recognised as follows:




    Revenue from the provision of
    direct-to-home
    (DTH) subscription services, including residential
    broadband services and revenue associated with sale of the
    customer magazine, is recognised as the goods or services are
    provided, net of any discount given. Pay-per-view revenue is
    recognised when the event, movie or football match is viewed.
    Cable revenue is recognised as the services are provided to the
    cable wholesalers and is based on the number of subscribers
    taking the Sky channels, as reported to the Group by the cable
    wholesalers, and the applicable rate card.
    Advertising sales revenue is recognised when the advertising is
    broadcast. Revenue generated from airtime sales where Sky acts
    as an agent on behalf of third parties is recognised on a net
    commission basis.
    Betting and gaming revenues are recognised in accordance with
    IAS 39 Financial Instruments: Recognition and
    Measurement (IAS 39). Sky Bet revenues
    therefore represent income in the period for betting and gaming
    activities, defined as amounts staked by customers less betting
    payouts.
    Sky Active revenues include income from online advertising,
    email, telephony income from the use of interactive services
    (e.g. voting), interconnect, text services and digibox subsidy
    recovery revenues earned through conditional access and access
    control charges made to customers on the Sky digital platform.
    All Sky Active revenues are recognised in the income statement
    when the goods or services are delivered.
    Other revenue principally includes income from installations,
    digibox sales (including the sales of Sky+, Multiroom boxes and
    High Definition boxes), Sky Talk, service calls, warranties,
    customer management service fees, access control fees, SkyCard,
    Sky Mobile TV and the supply of broadband services to business
    customers. Other revenues are recognised, net of any discount
    given, when the relevant goods or service are provided.

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1.
    Accounting policies (continued)

o) Employee benefits

Wages, salaries and social security contributionsWages, salaries, social security contributions, bonuses payable
and non-monetary benefits for current employees, are recognised
in the income statement as the employees services are
rendered.



Pension obligationsThe Group provides pensions to eligible employees through
defined contribution schemes. The amount charged to the income
statement in the year represents the cost of contributions
payable by the Group to the schemes in exchange for employee
services rendered in that year. The assets of the schemes are
held independently of the Group.



Termination benefitsTermination benefits are recognised as a liability when, and
only when, the Group has a demonstrable commitment to terminate
the employment of an employee or group of employees before the
normal retirement date or as the result of an offer to encourage
voluntary redundancy.



Equity compensation benefitsThe Group issues equity-settled share-based payments to certain
employees which must be measured at fair value and recognised as
an expense in the income statement with a corresponding increase
in equity. The fair values of these payments are measured at the
dates of grant using option-pricing models, taking into account
the terms and conditions upon which the awards are granted. The
fair value is recognised over the period during which employees
become unconditionally entitled to the awards, subject to the
Groups estimate of the number of awards which will lapse,
either due to employees leaving the Group prior to vesting or
due to non-market based performance conditions not being met.
Where an award has market-based performance conditions, the fair
value of the award is adjusted at the date of grant for the
probability of achieving these via the option pricing model. The
total amount recognised in the income statement as an expense is
adjusted to reflect the actual number of awards that vest,
except where forfeiture is due to the failure to meet
market-based performance measures.

In accordance with the transitional provisions in IFRS 1,
and IFRS 2 Share-based payment, the recognition
and measurement principles in IFRS 2 have only been applied
to options and awards granted after 7 November 2002 that
had not vested by 1 January 2005.



p) LeasesLeases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards
incidental to ownership of the asset to the lessee. All other
leases are classified as operating leases.



The Group as lessorSublease income from operating leases is recognised on a
straight-line basis over the term of the lease.



The Group as lesseeAssets held under finance leases are recognised as assets of the
Group at their fair value on the date of acquisition, or, if
lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the balance
sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reductions of the lease
obligation so as to achieve a constant rate of interest on the
remaining balance of the liability.

The lease expense arising from operating leases is charged to
the income statement on a straight line basis over the term of
the lease, unless another systematic basis is more appropriate.
Benefits received and receivable as incentives to enter into
operating leases are recorded on a straight line basis over the
lease term.

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1.
    Accounting policies (continued)

q) Taxation, including deferred taxationThe Groups liability for current tax is based on taxable
profit for the year, and is calculated using tax rates that have
been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and liabilities are recognised using the
balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and
liabilities in the balance sheet and the corresponding tax bases
used in the computation of taxable profit. Temporary differences
arising from Goodwill and the initial recognition of assets or
liabilities that affect neither accounting profit nor taxable
profit are not provided for. Deferred tax liabilities are
recognised for taxable temporary differences arising on
investments in subsidiaries and associates, and interests in
joint ventures, except where the Group is able to control the
reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates that have been enacted
or substantially enacted at the balance sheet date.

The carrying amount of deferred tax assets is reviewed at each
balance sheet date and adjusted to reflect an amount that is
probable to be realised based on the weight of all available
evidence. Deferred tax is calculated at the rates that are
expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax assets and liabilities are
not discounted.

Deferred tax is charged or credited in the income statement,
except where it relates to items charged or credited directly to
equity, in which case the deferred tax is also included within
equity.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.



r) DividendsDividends are recognised in the retained earnings reserve in the
period in which they are declared or paid.



s) Earnings per shareBasic earnings per share represents the profit for the year,
divided by the weighted average number of ordinary shares in
issue during the year, excluding the weighted average number of
ordinary shares purchased by the Group and held in the
Groups ESOP during the year to satisfy employee share
awards.

Diluted earnings per share represents the profit for the year,
divided by the weighted average number of ordinary shares in
issue during the year, excluding the weighted average number of
ordinary shares purchased by the Group and held in the
Groups ESOP Trust during the year to satisfy employee
share awards, plus the weighted average number of dilutive
shares resulting from share options and other potential ordinary
shares outstanding during the year.



t) Reportable segmentsA reportable segment, as defined by IAS 14 Segmental
Reporting, is a distinguishable business or geographical
component of the Group, that provides products or services, that
are subject to risks and rewards that are different from those
of other segments. The Group has no reportable segments within
its business.



u) Accounting standards, interpretations and amendments
    to existing standards that are not yet effectiveThe Group has not yet adopted certain new standards, amendments
and interpretations to existing standards, which have been
published but are only mandatory for the Groups accounting
periods beginning on or after 1 July 2006, or later
periods. These new standards are listed below:




    Amendment to IAS 21 Net Investment in a Foreign
    Operation (effective from 1 July 2006)
    Amendment to IAS 39 and IFRS 4 Financial
    Guarantee Contracts (effective from 1 July 2006)

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1.
    Accounting policies (continued)


    Amendment to IAS 39 Cash Flow Hedge Accounting of
    Forecast Intragroup Transactions (effective from
    1 July 2006)
    Amendment to IAS 39 The Fair Value Option
    (effective from 1 July 2006)
    IFRIC 4 Determining whether an Arrangement contains a
    Lease (effective from 1 July 2006)
    IFRIC 5 Rights to Interests arising from
    Decommissioning, Restoration and Environmental Rehabilitation
    Funds (effective from 1 July 2006)
    IFRIC 6 Liabilities Arising from Participating in a
    Specific Market  Waste Electrical and Electronic
    Equipment (effective from 1 July 2006)
    IFRIC 7 Applying the restatement approach under
    IAS 29 (effective from 1 July 2006)
    IFRIC 8 Scope of IFRS 2 (effective from
    1 July 2006)
    IFRIC 9 Reassessment of Embedded Derivatives
    (effective from 1 July 2006)
    IFRS 6 Exploration for and Evaluation of Mineral
    Resources (effective from 1 July 2006)
    IFRS 7 Financial Instruments: Disclosures
    (effective from 1 July 2007) and amendment to IAS 1
    Presentation of Financial Statements  Capital
    Disclosures (effective from 1 July 2007)The Directors currently anticipate that the adoption of these
standards, amendments and interpretations in future periods will
not have a material impact on the financial statements of the
Group, other than additional disclosure requirements.



v) Critical accounting policies and the use of
    judgementCertain accounting policies are considered to be critical to the
Group. An accounting policy is considered to be critical if its
selection or application materially affects the Groups
financial position or results. The Directors are required to use
their judgement in order to select and apply the Groups
critical accounting policies. Below is a summary of the
Groups critical accounting policies and details of the key
areas of judgement that are exercised in their application.



(i) Goodwill(see note 11)


    Judgement is required in determining the fair value of
    identifiable assets, liabilities and contingent assets assumed
    in a business combination. Calculating the fair values involves
    the use of significant estimates and assumptions, including
    expectations about future cash flows, discount rates and the
    lives of assets following purchase.
    Judgement is also required in evaluating whether any impairment
    loss has arisen against the carrying amount of goodwill. This
    may require calculation of the recoverable amount of cash
    generating units to which the goodwill is associated. Such a
    calculation may involve estimates of the net present value of
    future forecast cash flows and selecting an appropriate discount
    rate. Alternatively, it may involve a calculation of the fair
    value less costs to sell of the applicable cash generating unit.(ii) Revenue(see note 2)




    Selecting the appropriate timing for, and amount of, revenue to
    be recognised requires judgement. This may involve estimating
    the fair value of consideration before it is received and
    determining the stage of completion of a transaction at the
    balance sheet date.
    Judgement is also required in evaluating the likelihood of
    collection of customer debt after revenue has been recognised.
    This evaluation requires estimates to be made, including the
    level of provision to be made for amounts with uncertain
    recovery profiles. Provisions are based on historical trends in
    the percentage of debts which are not recovered or on more
    detailed reviews of individually significant balances.

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##### Table of Contents

1.
    Accounting policies (continued)(iii) Property, plant and equipment and intangible
assets(see notes 12 and 13)




    The assessment of the useful economic lives of these assets
    requires judgement. Depreciation is charged to the income
    statement based on the useful economic life selected. This
    assessment requires estimation of the period over which the
    Group will benefit from the assets.
    Determining whether the carrying amount of these assets has any
    indication of impairment also requires judgement. If an
    indication of impairment is identified, further judgement is
    required to assess whether the carrying amount can be supported
    by the net present value of future cash flows forecast to be
    derived from the asset. This forecast involves cash flow
    projections and selecting the appropriate discount rate.
    Assessing whether assets meet the required criteria for initial
    capitalisation requires judgement. This requires a determination
    of whether the assets will result in future benefits to the
    Group. In particular, internally generated intangible assets
    must be assessed during the development phase to identify
    whether the Group has the ability and intention to complete the
    development successfully.(iv) Programming inventory(see note 17)




    The key area of judgement in respect of accounting for
    programming inventory is the assessment of the appropriate
    period over which to recognise the expense associated with the
    inventory in the income statement. This assessment requires
    consideration of the period over which the Group will benefit
    from the programming inventory, which may not be certain on
    initial recognition of the inventory.(v) Deferred tax(see note 16)




    The key area of judgement in respect of deferred tax accounting
    is the assessment of the expected timing and manner of
    realisation or settlement of the carrying amounts of assets and
    liabilities held at the balance sheet date. In particular,
    assessment is required of whether taxable profits are more
    likely than not to arise against which the deferred tax can be
    utilised.

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2.
    Revenue

|                  |  |      |       |  |      |  |       | 
|----------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                  |  | 2006 |       |  | 2005 | 
|                  |  | £m   |       |  | £m   | 
|                  | 
|DTH subscribers   |  |      | 3,154 |  |      |  | 2,968 | 
|Cable subscribers |  |      | 224   |  |      |  | 219   | 
|Advertising       |  |      | 342   |  |      |  | 329   | 
|Sky Bet           |  |      | 37    |  |      |  | 32    | 
|Sky Active        |  |      | 91    |  |      |  | 92    | 
|Other             |  |      | 300   |  |      |  | 202   | 
|                  |  |      | 4,148 |  |      |  | 3,842 | 
|                 







|   |                  
|-- | -----------------
|3. | Operating expense

|                                   |  |      |       |  |      |  |       | 
|---------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                   |  | 2006 |       |  | 2005 | 
|                                   |  | £m   |       |  | £m   | 
|                                   | 
|Programming                        |  |      | 1,599 |  |      |  | 1,635 | 
|Transmission and related functions |  |      | 234   |  |      |  | 171   | 
|Marketing                          |  |      | 622   |  |      |  | 527   | 
|Subscriber management              |  |      | 468   |  |      |  | 392   | 
|Administration(i)                  |  |      | 348   |  |      |  | 295   | 
|                                   |  |      | 3,271 |  |      |  | 3,020 | 
|                                  



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4.
    Investment income and finance costs

|                                                                          |  |      |    |  |      |  |    | 
|------------------------------------------------------------------------- |  | ---- | -- |  | ---- |  | -- | 
|                                                                          |  | 2006 |    |  | 2005 | 
|                                                                          |  | £m   |    |  | £m   | 
|                                                                          | 
|Investment income                                                         |  |      |    |  |      |  |    | 
|Investment income from cash, cash
    equivalents and short-term deposits |  |      | 52 |  |      |  | 29 | 
|                                                                         

|                                                                                                                    |  |      |      |   |      |  |     |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- |  | --- | -
|                                                                                                                    |  | 2006 |      |   | 2005 | 
|                                                                                                                    |  | £m   |      |   | £m   | 
|                                                                                                                    | 
|Finance costs                                                                                                       |  |      |      |   |      |  |     |  
| Interest payable and
    similar charges                                                                          |  |      |      |   |      |  |     |  
|£600 million RCF(i)                                                                                                 |  |      |     |   |      |  | (4  | )
|£1 billion revolving
    credit facility (RCF)(i)                                                                 |  |      | (2   | ) |      |  | (2  | )
|US$300 million of 7.300%
    Guaranteed Notes repayable in 2006                                                     |  |      | (14  | ) |      |  | (14 | )
|US$600 million of 6.875%
    Guaranteed Notes repayable in 2009                                                     |  |      | (30  | ) |      |  | (30 | )
|£100 million of 7.750%
    Guaranteed Notes repayable in 2009                                                       |  |      | (8   | ) |      |  | (8  | )
|US$650 million of 8.200%
    Guaranteed Notes repayable in 2009                                                     |  |      | (31  | ) |      |  | (32 | )
|US$750 million of 5.625%
    Guaranteed Notes repayable in 2015 (ii)                                                |  |      | (16  | ) |      |  |    |  
|£400 million of 5.750%
    Guaranteed Notes repayable in 2017 (ii)                                                  |  |      | (16  | ) |      |  |    |  
|US$350 million of 6.500%
    Guaranteed Notes repayable in 2035 (ii)                                                |  |      | (8   | ) |      |  |    |  
|Finance lease interest                                                                                              |  |      | (4   | ) |      |  | (1  | )
|                                                                                                                    |  |      | (129 | ) |      |  | (91 | )
|                                                                                                                   
|                                                                                                                   
| Other finance
    (expense) income                                                                                |  |      |      |   |      |  |     |  
|Remeasurement of borrowings-related
    derivative financial instruments (not qualifying for hedge
    accounting)  |  |      | (10  | ) |      |  | 5   |  
|Remeasurement of
    programming-related derivative financial instruments (not
    qualifying for hedge accounting) |  |      | (4   | ) |      |  | (1  | )
|                                                                                                                    |  |      | (14  | ) |      |  | 4   |  
|                                                                                                                   
|                                                                                                                    |  |      | (143 | ) |      |  | (87 | )
|                                                                                                                   









|   |                                    
|-- | -----------------------------------
|5. | Profit on disposal of joint venture



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6.
    Profit before taxationProfit before taxation is stated after charging (crediting):

|                                                         |  |      |       |   |      |  |       |  
|-------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|                                                         |  | 2006 |       |   | 2005 | 
|                                                         |  | £m   |       |   | £m   | 
|                                                         | 
|Cost of inventories recognised as
    an expense         |  |      | 1,281 |   |      |  | 1,276 |  
|Depreciation of property, plant and
    equipment        |  |      | 89    |   |      |  | 47    |  
|Amortisation of intangible assets                        |  |      | 51    |   |      |  | 45    |  
|Loss on disposal of property, plant
    and equipment    |  |      |      |   |      |  | 2     |  
|Rentals on operating leases and
    similar arrangements |  |      | 25    |   |      |  | 24    |  
|Sub-lease rentals received on
    operating leases       |  |      | (1    | ) |      |  | (1    | )
|                                                        





| |                 
| | ----------------
| | Foreign exchange





| |           
| | ----------
| | Audit fees



|                                            |  |      |   |  |      |  |   | 
|------------------------------------------- |  | ---- | - |  | ---- |  | - | 
|                                            |  | 2006 |   |  | 2005 | 
|                                            |  | £m   |   |  | £m   | 
|                                            | 
|Statutory audit services                    |  |      | 1 |  |      |  | 1 | 
|Audit-related services                      |  |      | 1 |  |      |  | 1 | 
|Audit and audit-related
    services        |  |      | 2 |  |      |  | 2 | 
|                                           
|Customer management systems
    development |  |      | 4 |  |      |  | 7 | 
|Non-audit related
    services              |  |      | 4 |  |      |  | 7 | 
|                                           





|   |                                                  
|-- | -------------------------------------------------
|7. | Employee benefits and key management compensation



|   |                        
|-- | -----------------------
|a) | Group employee benefits

|                                                     |  |      |     |  |      |  |     | 
|---------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                                     |  | 2006 |     |  | 2005 | 
|                                                     |  | £m   |     |  | £m   | 
|                                                     | 
|Wages and salaries                                   |  |      | 362 |  |      |  | 327 | 
|Social security costs                                |  |      | 38  |  |      |  | 32  | 
|Costs of employee share option
    schemes(i)        |  |      | 23  |  |      |  | 25  | 
|Contributions to the Groups
    pension schemes(ii) |  |      | 16  |  |      |  | 14  | 
|                                                     |  |      | 439 |  |      |  | 398 | 
|                                                    





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7.
    Employee benefits and key management compensation
    (continued)The average monthly number of full-time equivalent persons
(including temporary employees) employed by the Group during the
year was as follows:

|                                   |  |        |        |  |        |  |       | 
|---------------------------------- |  | ------ | ------ |  | ------ |  | ----- | 
|                                   |  | 2006   |        |  | 2005   | 
|                                   |  | Number |        |  | Number | 
|                                   | 
|Programming                        |  |        | 1,479  |  |        |  | 1,464 | 
|Transmission and related functions |  |        | 1,976  |  |        |  | 1,588 | 
|Marketing                          |  |        | 416    |  |        |  | 238   | 
|Subscriber management              |  |        | 5,903  |  |        |  | 5,275 | 
|Administration                     |  |        | 1,306  |  |        |  | 1,266 | 
|Betting                            |  |        | 136    |  |        |  | 127   | 
|                                   |  |        | 11,216 |  |        |  | 9,958 | 
|                                  

full-time




|   |                                          
|-- | -----------------------------------------
|b) | Key management compensation(see note 29d)

|                             |  |      |   |  |      |  |   | 
|---------------------------- |  | ---- | - |  | ---- |  | - | 
|                             |  | 2006 |   |  | 2005 | 
|                             |  | £m   |   |  | £m   | 
|                             | 
|Short-term employee benefits |  |      | 4 |  |      |  | 4 | 
|Share-based payments         |  |      | 2 |  |      |  | 1 | 
|                             |  |      | 6 |  |      |  | 5 | 
|                            





|   |         
|-- | --------
|8. | Taxation

a) Taxation recognised in the income statement


|                                                            |  |      |     |   |      |  |     |  
|----------------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                                            |  | 2006 |     |   | 2005 | 
|                                                            |  | £m   |     |   | £m   | 
|                                                           
|Current tax expense                                         |  |      |     |   |      |  |     |  
|Current year                                                |  |      | 147 |   |      |  | 163 |  
|Adjustment in respect of prior years                        |  |      | (6  | ) |      |  | (8  | )
|Total current tax charge                                    |  |      | 141 |   |      |  | 155 |  
|                                                           
|Deferred tax expense                                        |  |      |     |   |      |  |     |  
|Origination and reversal of
    temporary differences       |  |      | 106 |   |      |  | 71  |  
|Adjustment in respect of
    recoverable deferred tax asset |  |      |    |   |      |  | (17 | )
|Total deferred tax charge                                   |  |      | 106 |   |      |  | 54  |  
|                                                           
|Taxation                                                    |  |      | 247 |   |      |  | 209 |  
|                                                           

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8.
    Taxation (continued)b) Deferred tax recognised directly in equity

|                                                           |  |      |    |      |    |  |    |  
|---------------------------------------------------------- |  | ---- | -- | ---- | -- |  | -- | -
|                                                           |  | 2006 |    | 2005 |   
|                                                           |  | £m   |    |      | £m | 
|                                                          
|Deferred tax credit (charge)
    relating to stock options |  |      | 2  |      |    |  | (3 | )
|Deferred tax credit relating to
    cash flow hedges       |  |      | 16 |      |    |  | 5  |  
|                                                           |  |      | 18 |      |    |  | 2  |  
|                                                          

c) Reconciliation of effective tax rate




|                                                                                                      |  |      |     |   |      |  |     |  
|----------------------------------------------------------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                                                                                      |  | 2006 |     |   | 2005 | 
|                                                                                                      |  | £m   |     |   | £m   | 
|                                                                                                     
|Profit before tax                                                                                     |  |      | 798 |   |      |  | 787 |  
|Profit before tax multiplied by
    standard rate of corporation tax in the UK of 30%
    (2005: 30%) |  |      | 239 |   |      |  | 236 |  
|                                                                                                     
|Effects of:                                                                                           |  |      |     |   |      |  |     |  
|Non-deductible expense                                                                                |  |      | 16  |   |      |  | 7   |  
|Tax exempt revenue                                                                                    |  |      | (2  | ) |      |  | (9  | )
|Over provision in respect of prior
    years                                                          |  |      | (6  | ) |      |  | (25 | )
|Taxation                                                                                              |  |      | 247 |   |      |  | 209 |  
|                                                                                                     





|   |                   
|-- | ------------------
|9. | Earnings per share



|                                                |  |             |       |   |             |  |       |  
|----------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ----- | -
|                                                |  | 2006        |       |   | 2005        | 
|                                                |  | Millions of |       |   | Millions of | 
|                                                |  | shares      |       |   | shares      | 
|                                               
|Ordinary shares                                 |  |             | 1,830 |   |             |  | 1,917 |  
|ESOP trust ordinary shares                      |  |             | (3    | ) |             |  | (4    | )
|Basic shares                                    |  |             | 1,827 |   |             |  | 1,913 |  
|                                               
|                                               
|Dilutive ordinary shares from share
    options |  |             | 5     |   |             |  | 4     |  
|Diluted shares                                  |  |             | 1,832 |   |             |  | 1,917 |  
|                                               





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9.
    Earnings per share (continued)

|                                                                                                |  |      |     |      |  |  |     |  
|----------------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | -
|                                                                                                |  | 2006 |     | 2005
|                                                                                                |  | £m   |     | £m  
|                                                                                               
|Reconciliation from profit for
    the year to adjusted profit for the year                     |  |      |     |      |  |  |     |  
|Profit for the year                                                                             |  |      | 551 |      |  |  | 578 |  
|Payment from ITV Digital liquidators                                                            |  |      |    |      |  |  | (13 | )
|Profit on disposal of joint venture                                                             |  |      |    |      |  |  | (9  | )
|Remeasurement of all derivative
    financial instruments (not qualifying for hedge accounting) |  |      | 14  |      |  |  | (4  | )
|Tax effect of above items                                                                       |  |      | (4  | )    |  |  | 5   |  
|Increase in estimate of recoverable
    tax assets in respect of prior years                    |  |      |    |      |  |  | (17 | )
|Adjusted profit for the
    year                                                                |  |      | 561 |      |  |  | 540 |  
|                                                                                               

|                                                         |  |       |       |       |  |  |       | 
|-------------------------------------------------------- |  | ----- | ----- | ----- |  |  | ----- | 
|                                                         |  | 2006  |       | 2005 
|                                                         |  | pence |       | pence
|                                                        
|Earnings per share from profit
    for the year          |  |       |       |       |  |  |       | 
|Basic                                                    |  |       | 30.2p |       |  |  | 30.2p | 
|Diluted                                                  |  |       | 30.1p |       |  |  | 30.2p | 
|Adjusted earnings per share from
    profit for the year |  |       |       |       |  |  |       | 
|Basic                                                    |  |       | 30.7p |       |  |  | 28.2p | 
|Diluted                                                  |  |       | 30.6p |       |  |  | 28.2p | 
|                                                        



|    |          
|--- | ---------
|10. | Dividends

|                                                                                      |  |      |     |      |  |  |     | 
|------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                                                      |  | 2006 |     | 2005
|                                                                                      |  | £m   |     | £m  
|                                                                                     
|Dividends declared and paid
    during the year                                       |  |      |     |      |  |  |     | 
|2004 Final dividend paid: 3.25p per
    ordinary share                                |  |      |    |      |  |  | 63  | 
|2005 Interim dividend paid: 4.00p
    per ordinary share                              |  |      |    |      |  |  | 77  | 
|2005 Final dividend paid: 5.00p per
    ordinary share                                |  |      | 92  |      |  |  |    | 
|2006 Interim dividend paid: 5.50p
    per ordinary share                              |  |      | 99  |      |  |  |    | 
|                                                                                      |  |      | 191 |      |  |  | 140 | 
|                                                                                     
|Dividends proposed after the
    balance sheet date and not recognised as a liability |  |      |     |      |  |  |     | 
|2006 Final dividend proposed: 6.70p
    per ordinary share                            |  |      | 120 |      |  |  |    | 
|                                                                                     





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11.
    Goodwill

|                                                  |  |       |     | 
|------------------------------------------------- |  | ----- | --- | 
|                                                  |  | Total
|                                                  |  | £m   
|                                                 
|Carrying value                                    |  |       |     | 
|At 1 July 2004 and
    30 June 2005               |  |       | 417 | 
|                                                 
|Purchase of the Easynet Group plc
    (Easynet) |  |       | 202 | 
|Other purchases                                   |  |       | 4   | 
|                                                 
|At 30 June 2006                                   |  |       | 623 | 
|                                                 







|                                                |  |      |     |      |  |  |     | 
|----------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                |  | 2006 |     | 2005
|                                                |  | £m   |     | £m  
|                                               
|Interactive(i)                                  |  |      | 302 |      |  |  | 302 | 
|Betting and gaming (ii)                         |  |      | 112 |      |  |  | 112 | 
|Broadcast (iii)                                 |  |      | 172 |      |  |  |    | 
|Broadband Enterprise (iv)                       |  |      | 30  |      |  |  |    | 
|Multiple units without significant
    goodwill |  |      | 7   |      |  |  | 3   | 
|                                                |  |      | 623 |      |  |  | 417 | 
|                                               



i) Interactive




ii) Betting and gaming




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##### Table of Contents

11.
    Goodwill (continued)was applied in order to extrapolate these cash flow projections
beyond this five year period. The cash flows were discounted
using a pre-tax discount rate of 8.5%.

iii) Broadcast

The broadcast unit includes goodwill arising from the purchase
of Easynets UK broadband network assets and residential
business. The recoverable amount for the Broadcast cash
generating unit was calculated on the basis of the difference
between the quoted market value of the Company and the value in
use of the Groups other cash generating units, less
estimated costs to sell.

iv) Broadband enterprise

The broadband enterprise unit includes goodwill arising from the
purchase of Easynets enterprise broadband business in the
UK and other European countries. The key assumptions on which
these forecast five year cash flows were based include the
number of enterprise customers, the average revenues per
customer and the operating margin generated per customer. The
values assigned to each of these assumptions were determined
based on an extrapolation of historical trends within the unit,
and external information on expected future trends in the
enterprise broadband industry. A growth rate of 3% was applied
in order to extrapolate these cash flow projections beyond this
five year period. The cash flows were discounted using a pre-tax
discount rate of 8.5%.

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12.
    Intangible assets

|                          |  |                   |  |            |  |                   |  |                   |  |       |      | 
|------------------------- |  | ----------------- |  | ---------- |  | ----------------- |  | ----------------- |  | ----- | ---- | 
|                          |  |                   |  |            |  | Internally        |  |                   |  |      
|                          |  |                   |  |            |  | generated         |  |                   |  |      
|                          |  | Internally        |  | Other      |  | intangible        |  | Other intangible  |  |      
|                          |  | generated         |  | intangible |  | assets not yet    |  | assets not yet    |  |      
|                          |  | intangible assets |  | assets     |  | available for use |  | available for use |  | Total
|                          |  | £m                |  | £m         |  | £m                |  | £m                |  | £m   
|                         
|Cost                      |  |                   |  |            |  |                   |  |                   |  |       |      | 
|At 1 July 2004            |  | 17                |  | 214        |  |                  |  | 69                |  |       | 300  | 
|Additions                 |  | 6                 |  | 13         |  | 6                 |  | 67                |  |       | 92   | 
|Disposals                 |  |                  |  | (46)       |  |                  |  |                  |  |       | (46) | 
|At 30 June 2005           |  | 23                |  | 181        |  | 6                 |  | 136               |  |       | 346  | 
|                         
|Business combinations     |  |                  |  | 29         |  |                  |  |                  |  |       | 29   | 
|Other additions           |  | 5                 |  | 24         |  |                  |  | 9                 |  |       | 38   | 
|Disposals                 |  |                  |  | (22)       |  |                  |  |                  |  |       | (22) | 
|Transfers                 |  | 6                 |  | 115        |  | (6)               |  | (115)             |  |       |     | 
|At 30 June 2006           |  | 34                |  | 327        |  |                  |  | 30                |  |       | 391  | 
|                         
|                         
|Amortisation              |  |                   |  |            |  |                   |  |                   |  |       |      | 
|At 1 July 2004            |  | 12                |  | 133        |  |                  |  |                  |  |       | 145  | 
|Amortisation for the year |  | 2                 |  | 43         |  |                  |  |                  |  |       | 45   | 
|Disposals                 |  |                  |  | (46)       |  |                  |  |                  |  |       | (46) | 
|At 30 June 2005           |  | 14                |  | 130        |  |                  |  |                  |  |       | 144  | 
|                         
|Amortisation for the year |  | 2                 |  | 49         |  |                  |  |                  |  |       | 51   | 
|Disposals                 |  |                  |  | (22)       |  |                  |  |                  |  |       | (22) | 
|At 30 June 2006           |  | 16                |  | 157        |  |                  |  |                  |  |       | 173  | 
|                         
|                         
|Carrying amounts          |  |                   |  |            |  |                   |  |                   |  |       |      | 
|At 1 July 2004            |  | 5                 |  | 81         |  |                  |  | 69                |  |       | 155  | 
|At 30 June 2005           |  | 9                 |  | 51         |  | 6                 |  | 136               |  |       | 202  | 
|At 30 June 2006           |  | 18                |  | 170        |  |                  |  | 30                |  |       | 218  | 
|                         



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13.
    Property, plant and equipment

|                     |  |              |  |              |  |               |  |                |  |       |       | 
|-------------------- |  | ------------ |  | ------------ |  | ------------- |  | -------------- |  | ----- | ----- | 
|                     |  | Land and     |  |              |  | Equipment,    |  | Assets not yet |  |      
|                     |  | freehold     |  | Leasehold    |  | furniture and |  | available for  |  |      
|                     |  | buildings(i) |  | improvements |  | fittings      |  | use            |  | Total
|                     |  | £m           |  | £m           |  | £m            |  | £m             |  | £m   
|                    
|Cost                 |  |              |  |              |  |               |  |                |  |       |       | 
|At 1 July 2004       |  | 45           |  | 70           |  | 477           |  | 32             |  |       | 624   | 
|Additions            |  | 25           |  |             |  | 47            |  | 91             |  |       | 163   | 
|Disposals            |  |             |  |             |  | (121)         |  |               |  |       | (121) | 
|Transfers            |  |             |  | (28)         |  | 28            |  |               |  |       |      | 
|At 30 June 2005      |  | 70           |  | 42           |  | 431           |  | 123            |  |       | 666   | 
|                    
|Business combination |  |             |  | 12           |  | 67            |  |               |  |       | 79    | 
|Other additions      |  |             |  | 1            |  | 163           |  | 30             |  |       | 194   | 
|Disposals            |  | (3)          |  | (2)          |  | (125)         |  |               |  |       | (130) | 
|Transfers            |  | 48           |  |             |  | 55            |  | (103)          |  |       |      | 
|At 30 June 2006      |  | 115          |  | 53           |  | 591           |  | 50             |  |       | 809   | 
|                    
|                    
|Depreciation         |  |              |  |              |  |               |  |                |  |       |       | 
|At 1 July 2004       |  | 11           |  | 46           |  | 346           |  |               |  |       | 403   | 
|Depreciation         |  | 2            |  | 5            |  | 40            |  |               |  |       | 47    | 
|Disposals            |  |             |  |             |  | (119)         |  |               |  |       | (119) | 
|Transfers            |  |             |  | (20)         |  | 20            |  |               |  |       |      | 
|At 30 June 2005      |  | 13           |  | 31           |  | 287           |  |               |  |       | 331   | 
|                    
|Depreciation         |  | 3            |  | 5            |  | 81            |  |               |  |       | 89    | 
|Disposals            |  | (3)          |  | (2)          |  | (125)         |  |               |  |       | (130) | 
|Transfers            |  |             |  |             |  |              |  |               |  |       |      | 
|At 30 June 2006      |  | 13           |  | 34           |  | 243           |  |               |  |       | 290   | 
|                    
|                    
|Carrying amounts     |  |              |  |              |  |               |  |                |  |       |       | 
|At 1 July 2004       |  | 34           |  | 24           |  | 131           |  | 32             |  |       | 221   | 
|At 30 June 2005      |  | 57           |  | 11           |  | 144           |  | 123            |  |       | 335   | 
|At 30 June 2006      |  | 102          |  | 19           |  | 348           |  | 50             |  |       | 519   | 
|                    





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14.
    Investments in joint ventures and associatesA list of the Groups significant investments in joint
ventures and associates, including the name, country of
incorporation and proportion of ownership interest is given in
note 30 to the financial statements.

The movement in joint ventures and associates during the year
was as follows:

|                                  |  |      |    |   |      |  |     |  
|--------------------------------- |  | ---- | -- | - | ---- |  | --- | -
|                                  |  | 2006 |    |   | 2005 | 
|                                  |  | £m   |    |   | £m   | 
|                                  | 
|Beginning of year                 |  |      |    |   |      |  |     |  
| Share of net assets             |  |      | 23 |   |      |  | 33  |  
|                                 
|Movement in net assets            |  |      |    |   |      |  |     |  
| Net repayment of loans          |  |      | 2  |   |      |  | (4  | )
| Dividends received              |  |      | (7 | ) |      |  | (12 | )
| Disposals(i),(ii),(iii)         |  |      |   |   |      |  | (4  | )
| Share of results                |  |      | 12 |   |      |  | 14  |  
|Transfers to subsidiaries(iv),(v) |  |      | (1 | ) |      |  | (1  | )
|Movement in creditors(vi)         |  |      | (1 | ) |      |  | (3  | )
|                                 
|End of year                       |  |      |    |   |      |  |     |  
| Share of net
    assets         |  |      | 28 |   |      |  | 23  |  
|                                 















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##### Table of Contents

14.
    Investments in joint ventures and associates (continued)

a)
    Investments in joint venturesRepresenting the Groups share of each joint venture

|                                        |  |      |     |      |  |  |     |  
|--------------------------------------- |  | ---- | --- | ---- |  |  | --- | -
|                                        |  | 2006 |     | 2005
|                                        |  | £m   |     | £m  
|                                       
|                                       
|Non-current assets                      |  |      | 2   |      |  |  | 2   |  
|Current assets                          |  |      | 51  |      |  |  | 45  |  
|Current liabilities                     |  |      | (28 | )    |  |  | (25 | )
|Non-current liabilities                 |  |      | (3  | )    |  |  | (1  | )
|Shareholders
    equity                |  |      | 22  |      |  |  | 21  |  
|                                       
|                                       
|Revenue                                 |  |      | 70  |      |  |  | 67  |  
|Expense                                 |  |      | (56 | )    |  |  | (55 | )
|                                       
|Taxation                                |  |      | (2  | )    |  |  |    |  
|Share of profit from joint
    ventures |  |      | 12  |      |  |  | 12  |  
|                                       



|   |                          
|-- | -------------------------
|b) | Investments in associates



|                     |  |      |    |   |      |  |    |  
|-------------------- |  | ---- | -- | - | ---- |  | -- | -
|                     |  | 2006 |    |   | 2005 | 
|                     |  | £m   |    |   | £m   | 
|                     | 
|Total assets         |  |      | 1  |   |      |  | 8  |  
|Total liabilities    |  |      | (1 | ) |      |  | (6 | )
|Shareholders equity |  |      |   |   |      |  | 2  |  
|                    
|                    
|Revenue              |  |      | 2  |   |      |  | 12 |  
|Profit               |  |      |   |   |      |  | 6  |  
|                    





|    |                               
|--- | ------------------------------
|15. | Available for sale investments

|                   |  |      |   |      |  |  |   | 
|------------------ |  | ---- | - | ---- |  |  | - | 
|                   |  | 2006 |   | 2005
|                   |  | £m   |   | £m  
|                  
|Non-current assets |  |      |   |      |  |  |   | 
|Equity investments |  |      | 2 |      |  |  | 2 | 
|                  







| | 
| | 
| | 

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16.
    Deferred tax

i)
    Recognised deferred tax assets

|                          |  |             |  |        |  |             |  |             |  |             |  |             |  |       |  |      
|------------------------- |  | ----------- |  | ------ |  | ----------- |  | ----------- |  | ----------- |  | ----------- |  | ----- |  | -----
|                          |  | Fixed       |  |        |  |             |  | Share-based |  | Financial   |  | Foreign     |  |       |  |      
|                          |  | asset       |  |        |  | Short-term  |  | payments    |  | instrument  |  | exchange    |  |       |  |      
|                          |  | timing      |  | Tax    |  | timing      |  | timing      |  | timing      |  | timing      |  |       |  |      
|                          |  | differences |  | losses |  | differences |  | differences |  | differences |  | differences |  | Other |  | Total
|                          |  | £m          |  | £m     |  | £m          |  | £m          |  | £m          |  | £m          |  | £m    |  | £m   
|                         
|                         
|
|At 1 July 2005            |  | 14          |  | 68     |  | 12          |  | 9           |  | 29          |  | (23)        |  | (4)   |  | 105  
|(Charge) credit to income |  | (71)        |  | (35)   |  |            |  |            |  | (2)         |  | 2           |  |      |  | (106)
|
|Credit to equity          |  |            |  |       |  |            |  | 2           |  | 16          |  |            |  |      |  | 18   
|Business combinations     |  | 83          |  |       |  |            |  |            |  |            |  |            |  |      |  | 83   
|
|At 30 June 2006           |  | 26          |  | 33     |  | 12          |  | 11          |  | 43          |  | (21)        |  | (4)   |  | 100  
|                         





|    |                                 
|--- | --------------------------------
|ii) | Unrecognised deferred tax assets

|                                                                                 |  |      |     |      |  |  |     | 
|-------------------------------------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                                                 |  | 2006 |     | 2005
|                                                                                 |  | £m   |     | £m  
|                                                                                
|                                                                                
|Tax losses arising from trading                                                  |  |      | 244 |      |  |  | 78  | 
|Tax losses arising from capital
    disposals and provisions against investments |  |      | 354 |      |  |  | 354 | 
|                                                                                 |  |      | 598 |      |  |  | 432 | 
|                                                                                









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16.
    Deferred tax (continued)Certain deferred tax assets and liabilities have been offset.
The following is the analysis of the deferred tax balances
(after offset) for financial reporting purposes:

|                         |  |      |     |   |      |  |     | 
|------------------------ |  | ---- | --- | - | ---- |  | --- | 
|                         |  | 2006 |     |   | 2005 | 
|                         |  | £m   |     |   | £m   | 
|                         | 
|Deferred tax assets      |  |      | 107 |   |      |  | 105 | 
|Deferred tax liabilities |  |      | (7  | ) |      |  |    | 
|                         |  |      | 100 |   |      |  | 105 | 
|                        



|    |            
|--- | -----------
|17. | Inventories

|                                |  |      |     |  |      |  |     | 
|------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                |  | 2006 |     |  | 2005 | 
|                                |  | £m   |     |  | £m   | 
|                                | 
|Television programme rights     |  |      | 277 |  |      |  | 291 | 
|Digiboxes and related equipment |  |      | 41  |  |      |  | 28  | 
|Other inventories               |  |      | 6   |  |      |  | 2   | 
|                                |  |      | 324 |  |      |  | 321 | 
|                               





|    |                            
|--- | ---------------------------
|18. | Trade and other receivables

|                                                          |  |      |     |   |      |  |     |  
|--------------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                                          |  | 2006 |     |   | 2005 | 
|                                                          |  | £m   |     |   | £m   | 
|                                                          | 
|Gross trade receivables                                   |  |      | 267 |   |      |  | 177 |  
|Less: provision for impairment of
    receivables         |  |      | (60 | ) |      |  | (43 | )
|Net trade receivables                                     |  |      | 207 |   |      |  | 134 |  
|                                                         
|                                                         
|Amounts receivable from joint
    ventures and associates |  |      | 7   |   |      |  | 6   |  
|Amounts receivable from other
    related parties         |  |      | 1   |   |      |  | 1   |  
|Prepayments                                               |  |      | 156 |   |      |  | 114 |  
|Accrued income                                            |  |      | 107 |   |      |  | 72  |  
|Other receivables                                         |  |      | 11  |   |      |  | 4   |  
|                                                          |  |      | 489 |   |      |  | 331 |  
|                                                         



|            |  |      |    |  |      |  |    | 
|----------- |  | ---- | -- |  | ---- |  | -- | 
|            |  | 2006 |    |  | 2005 | 
|            |  | £m   |    |  | £m   | 
|            | 
|Prepayments |  |      | 73 |  |      |  | 32 | 
|           







119



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##### Table of Contents

19.
    Trade and other payables

|                                                  |  |      |       |  |      |  |       | 
|------------------------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                                  |  | 2006 |       |  | 2005 | 
|                                                  |  | £m   |       |  | £m   | 
|                                                  | 
|Trade payables(i)                                 |  |      | 352   |  |      |  | 346   | 
|Amounts owed to joint ventures and
    associates |  |      | 5     |  |      |  | 3     | 
|Amounts owed to other related
    parties         |  |      | 31    |  |      |  | 34    | 
|VAT                                               |  |      | 140   |  |      |  | 101   | 
|Accruals                                          |  |      | 428   |  |      |  | 308   | 
|Deferred income                                   |  |      | 246   |  |      |  | 186   | 
|Other payables                                    |  |      | 45    |  |      |  | 53    | 
|                                                  |  |      | 1,247 |  |      |  | 1,031 | 
|                                                 



|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(i) | Included within trade payables are £151 million (2005:
    £188 million) of US dollar-denominated programme
    creditors.





|    |           
|--- | ----------
|20. | Provisions

|                                          |  |           |  |            |  |          |  |           |  |            |  |          |  |           
|----------------------------------------- |  | --------- |  | ---------- |  | -------- |  | --------- |  | ---------- |  | -------- |  | ----------
|                                          |  |           |  | Provided   |  | Utilised |  |           |  | Provided   |  | Utilised |  |           
|                                          |  | At 1 July |  | during the |  | during   |  | At 1 July |  | during the |  | during   |  | At 30 June
|                                          |  | 2004      |  | year       |  | the year |  | 2005      |  | year(i)    |  | the year |  | 2006      
|                                          |  | £m        |  | £m         |  | £m       |  | £m        |  | £m         |  | £m       |  | £m        
|                                         
|Current liabilities                       |  |           |  |            |  |          |  |           |  |            |  |          |  |           
|Provision for termination
    benefits(i) |  |          |  | 11         |  |         |  | 11        |  |           |  | (11)     |  |          
|Other provisions                          |  |          |  | 2          |  |         |  | 2         |  | 6          |  | (2)      |  | 6         
|                                          |  |          |  | 13         |  |         |  | 13        |  | 6          |  | (13)     |  | 6         
|                                         
|Non-current
    liabilities               |  |           |  |            |  |          |  |           |  |            |  |          |  |           
|Provisions                                |  |          |  |           |  |         |  |          |  | 19         |  |         |  | 19        
|                                         





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##### Table of Contents

21.
    Borrowings and non-current other payables

|                                                                             |  |      |       |      |  |  |     | 
|---------------------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | --- | 
|                                                                             |  | 2006 |       | 2005
|                                                                             |  | £m   |       | £m  
|                                                                            
|                                                                            
|Current borrowings                                                           |  |      |       |      |  |  |     | 
|US$300 million of 7.300%
    Guaranteed Notes repayable in October 2006 (i)  |  |      | 162   |      |  |  |    | 
|Bank loan (ii)                                                               |  |      | 1     |      |  |  |    | 
|                                                                             |  |      | 163   |      |  |  |    | 
|                                                                            
|                                                                            
|Non-current borrowings                                                       |  |      |       |      |  |  |     | 
|US$300 million of 7.300%
    Guaranteed Notes repayable in October 2006 (i)  |  |      |      |      |  |  | 169 | 
|US$600 million of 6.875%
    Guaranteed Notes repayable in February 2009 (i) |  |      | 325   |      |  |  | 339 | 
|£100 million of 7.750%
    Guaranteed Notes repayable in July 2009 (i)       |  |      | 100   |      |  |  | 100 | 
|US$650 million of 8.200%
    Guaranteed Notes repayable in July 2009 (i)     |  |      | 351   |      |  |  | 367 | 
|US$750 million of 5.625%
    Guaranteed Notes repayable in October 2015 (i)  |  |      | 400   |      |  |  |    | 
|£400 million of 5.750%
    Guaranteed Notes repayable in October 2017 (i)    |  |      | 397   |      |  |  |    | 
|US$350 million of 6.500%
    Guaranteed Notes repayable in October 2035 (i)  |  |      | 184   |      |  |  |    | 
|Bank loan (ii)                                                               |  |      | 1     |      |  |  |    | 
|Obligations under finance
    leases (iii)                                   |  |      | 67    |      |  |  | 7   | 
|                                                                             |  |      | 1,825 |      |  |  | 982 | 
|                                                                            
|                                                                            
|Non-current other
    payables                                               |  |      |       |      |  |  |     | 
|Accruals                                                                     |  |      | 15    |      |  |  | 25  | 
|Deferred income                                                              |  |      | 51    |      |  |  |    | 
|                                                                             |  |      | 66    |      |  |  | 25  | 
|                                                                            



|    |                 
|--- | ----------------
|(i) | Guaranteed notes









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##### Table of Contents

21.
    Borrowings and non-current other payables (continued)US$650 million of 8.200% Guaranteed Notes, repayable in
July 2009. At the time of issuing these notes, the US dollar
proceeds were swapped into pounds sterling
(£413 million) at an average fixed rate of 7.653%
payable semi-annually. In December 2002 the Group entered into
further swap arrangements relating to £63.5 million of
this debt. These arrangements were subsequently amended in March
2003 and July 2004, the effect of which was to fix the interest
rate on £63.5 million at 5.990% until January 2004,
after which time it reverted to a floating six months LIBOR plus
a margin of 2.460%, except that should LIBOR be less than 2.750%
for the period January to July 2004, 2.890% for the period July
2004 to January 2005, or 2.990% thereafter, the effective rate
shall be deemed to be 7.653%. After July 2004, the margin over
LIBOR increased from 2.460% to 2.840%. In order to increase its
exposure to floating rates, in July 2003, the Group entered into
another interest rate hedging arrangement in respect of a
further £63.5 million of the above-mentioned debt. The
effect of this arrangement was that, from July 2003 until July
2009, the Group will pay floating six months LIBOR plus a margin
of 2.8175% on this £63.5 million, except that should
LIBOR be less than 2.750% for the period January to July 2004,
or less than 2.990% thereafter, the Group shall revert back to
7.653%. At 30 June 2006, none of the floor levels had been
breached; therefore, the Group continues to pay the relevant
floating rates.

US$750 million of 5.625% Guaranteed Notes, repayable in
October 2015, which were issued in October 2005. At the time of
issuing these notes, the Group entered into swap transactions to
convert the dollar proceeds to pounds sterling
(£428 million), which carry interest at an average
fixed rate of 5.401% until maturity, payable semi-annually. The
Group entered into further interest rate hedging arrangements in
respect of £257 million of this swapped debt. The
effect of these arrangements was that, from October 2005 until
October 2015, the Group will pay an average floating rate of six
months LIBOR plus a margin of 0.698% on £257 million
of its swapped debt.

£400 million of 5.750% Guaranteed Notes, repayable in
October 2017, which were issued in October 2005. The fixed
coupon is payable annually. On 14 June 2006, the Group
entered into an interest rate hedging arrangement in respect of
£20 million of debt. The effect of this hedging
arrangement is that, from October 2006 until October 2009, the
Group will pay floating six months LIBOR plus a margin of 0.325%
on £20 million of its debt. On the same date, the
Group entered into a further interest rate hedging arrangement
in respect of £10 million of debt, to take effect from
October 2009 and mature in October 2017. Under the terms of this
swap the Group will pay floating six months LIBOR plus a margin
of 0.325%. However, at each annual reset date from October 2009
to October 2017, the counterparty to this transaction has the
right to cancel the transaction with immediate effect.

US$350 million of 6.500% Guaranteed Notes, repayable in
October 2035, which were issued in October 2005. At the time of
issuing these notes, the Group entered into swap transactions to
convert the dollar proceeds to pounds sterling
(£200 million) at an average fixed rate of 5.826%,
payable semi-annually.

The following guarantees are in place relating to the
Groups borrowings:




    British Sky Broadcasting Limited, Sky Subscribers Services
    Limited and BSkyB Investments Limited have given joint and
    several guarantees in relation to the Companys
    £1 billion RCF.
    British Sky Broadcasting Limited and Sky Subscribers Services
    Limited have given joint and several guarantees in relation to
    the US$650 million, US$600 million,
    US$300 million and £100 million Guaranteed Notes.
    The Company, British Sky Broadcasting Limited and Sky
    Subscribers Services Limited have given joint and several
    guarantees in relation to the US$750 million,
    US$350 million and £400 million Guaranteed Notes.
    BSkyB Investments Limited will also become a guarantor of the
    Groups Guaranteed Notes should the £1 billion
    RCF be drawn down by £50 million or more.

122



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##### Table of Contents

21.
    Borrowings and non-current other payables (continued)

(ii)
    Bank loanThe bank loan of £2 million (2005: nil) which includes
£1 million of current borrowings (2005: nil) bears
interest at the Euro
Inter-Bank Offered Rate
(EURIBOR) plus 1%, repayable in 13 equal quarterly
instalments.



(iii)
    Finance leasesThe minimum lease payments under finance leases fall due as
follows:

|                                                        |  |      |      |      |  |  |     |  
|------------------------------------------------------- |  | ---- | ---- | ---- |  |  | --- | -
|                                                        |  | 2006 |      | 2005
|                                                        |  | £m   |      | £m  
|                                                       
|                                                       
|Within one year                                         |  |      | 8    |      |  |  | 1   |  
|Between one and two years                               |  |      | 8    |      |  |  | 1   |  
|Between two and three years                             |  |      | 8    |      |  |  | 1   |  
|Between three and four years                            |  |      | 8    |      |  |  | 1   |  
|Between four and five years                             |  |      | 8    |      |  |  | 1   |  
|After five years                                        |  |      | 201  |      |  |  | 17  |  
|                                                       
|                                                        |  |      | 241  |      |  |  | 22  |  
|Future finance charges on finance
    lease liabilities |  |      | (169 | )    |  |  | (12 | )
|                                                       
|                                                       
|Present value of finance lease
    liabilities          |  |      | 72   |      |  |  | 10  |  
|                                                       





|  |                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financing arrangements in connection with the contact centre in
    Dunfermline. During the year, repayments of £1 million
    (2005: £1 million) were made against the lease. A
    proportion of these payments have been allocated against the
    capital amount outstanding. The lease bears interest at a rate
    of 8.5% and expires in September 2020.                          
| 
| | Financing arrangements in connection with the broadband network
    infrastructure purchased in the year through a business
    combination. During the year, repayments of £7 million
    were made against the lease. A proportion of these payments have
    been allocated against the capital outstanding. The lease bears
    interest at a rate of 2.7% and expires in March 2040.



|     |                                          
|---- | -----------------------------------------
|(iv) | Undrawn Revolving Credit Facility (RCF)







|  |                                                       
|- | ------------------------------------------------------
| | Net Debt to EBITDA must be no more than 3:1           
| 
| | EBITDA to Net Interest Payable must be at least 3.5:1.



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##### Table of Contents

21.
    Borrowings and non-current other payables (continued)Commitment fees of £2 million (2005:
£2 million) were payable for undrawn amounts available
under the RCFs, based on a rate equal to 40% of the applicable
margin of 0.45% over LIBOR (30 June 2005: 40% of the applicable
margin of 0.45% over LIBOR).



22.
    Derivatives and other financial instrumentsSet out below are the derivative financial instruments held by
the Group to manage the interest rate risk and foreign exchange
risk.

|                                  |  |             |      |             |  |             |    |             |  |             |      |             |  |  |      |   |  |  |    |   |  |  |      |  
|--------------------------------- |  | ----------- | ---- | ----------- |  | ----------- | -- | ----------- |  | ----------- | ---- | ----------- |  |  | ---- | - |  |  | -- | - |  |  | ---- | -
|                                  |  | 2006        |      |             |  |             |    | 2005        |  |             |      |            
|                                  |  | Designated  |      | 2006        |  | 2006        |    | Designated  |  | 2005        |      | 2005       
|                                  |  | hedging     |      | Other       |  | Asset       |    | hedging     |  | Other       |      | Asset      
|                                  |  | instruments |      | instruments |  | (liability) |    | instruments |  | instruments |      | (liability)
|                                  |  | £m          |      | £m          |  | £m          |    | £m          |  | £m          |      | £m         
|                                 
|                                 
|Non-current assets                |  |             |      |             |  |             |    |             |  |             |      |             |  |  |      |   |  |  |    |   |  |  |      |  
|Interest rate swaps and swaptions |  |             |     |             |  |             |   |             |  |             |     |             |  |  |     |   |  |  | 6  |   |  |  | 6    |  
|Cross-currency swaps              |  |             |     |             |  |             |   |             |  |             |     |             |  |  | 3    |   |  |  |   |   |  |  | 3    |  
|                                  |  |             |     |             |  |             |   |             |  |             |     |             |  |  | 3    |   |  |  | 6  |   |  |  | 9    |  
|                                 
|                                 
|Current assets                    |  |             |      |             |  |             |    |             |  |             |      |             |  |  |      |   |  |  |    |   |  |  |      |  
|Currency options (collars)        |  |             | 3    |             |  |             |   |             |  |             | 3    |             |  |  | 2    |   |  |  | 1  |   |  |  | 3    |  
|Embedded derivatives              |  |             |     |             |  |             | 1  |             |  |             | 1    |             |  |  |     |   |  |  | 1  |   |  |  | 1    |  
|Forward exchange contracts        |  |             | 1    |             |  |             | 1  |             |  |             | 2    |             |  |  | 7    |   |  |  | 3  |   |  |  | 10   |  
|Cross-currency swaps              |  |             | 1    |             |  |             |   |             |  |             | 1    |             |  |  |     |   |  |  |   |   |  |  |     |  
|                                  |  |             | 5    |             |  |             | 2  |             |  |             | 7    |             |  |  | 9    |   |  |  | 5  |   |  |  | 14   |  
|                                 
|                                 
|Current liabilities               |  |             |      |             |  |             |    |             |  |             |      |             |  |  |      |   |  |  |    |   |  |  |      |  
|Currency options (collars)        |  |             | (10  | )           |  |             |   |             |  |             | (10  | )           |  |  | (1   | ) |  |  |   |   |  |  | (1   | )
|Forward exchange contracts        |  |             | (11  | )           |  |             |   |             |  |             | (11  | )           |  |  | (3   | ) |  |  | (2 | ) |  |  | (5   | )
|Cross-currency swaps              |  |             | (28  | )           |  |             |   |             |  |             | (28  | )           |  |  |     |   |  |  |   |   |  |  |     |  
|                                  |  |             | (49  | )           |  |             |   |             |  |             | (49  | )           |  |  | (4   | ) |  |  | (2 | ) |  |  | (6   | )
|                                 
|                                 
|Non-current
    liabilities       |  |             |      |             |  |             |    |             |  |             |      |             |  |  |      |   |  |  |    |   |  |  |      |  
|Interest rate swaps and swaptions |  |             |     |             |  |             | (9 | )           |  |             | (9   | )           |  |  |     |   |  |  | (3 | ) |  |  | (3   | )
|Cross-currency swaps              |  |             | (200 | )           |  |             |   |             |  |             | (200 | )           |  |  | (109 | ) |  |  |   |   |  |  | (109 | )
|                                  |  |             | (200 | )           |  |             | (9 | )           |  |             | (209 | )           |  |  | (109 | ) |  |  | (3 | ) |  |  | (112 | )
|                                 
|                                  |  |             | (244 | )           |  |             | (7 | )           |  |             | (251 | )           |  |  | (101 | ) |  |  | 6  |   |  |  | (95  | )
|                                 





| |                        
| | -----------------------
| | Group treasury activity



124



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##### Table of Contents

22.
    Derivatives and other financial instruments (continued)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, both by the Groups internal
audit team and by its Treasury Committee.

The Groups principal market risks are 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 market risks, the
Group selectively enters into derivative financial instruments
to manage these exposures. The principal instruments currently
used are interest rate swaps and options on interest rate swaps
(swaptions) to hedge interest rate risks, forward
exchange contracts, currency options (collars) and similar
financial instruments to hedge transactional currency exposures,
and cross-currency swaps to hedge exposures on long-term foreign
currency debt.



Interest rate riskThe Group has financial exposures to both UK and US interest
rates, arising primarily from long-term bonds. The Group manages
its exposures by borrowing at fixed rates of interest and by
using interest rate swap and swaption agreements to adjust the
balance between fixed and floating rate debt. All of the
Groups US dollar-denominated debt has been swapped to
pounds sterling, using cross-currency swap arrangements, which,
in addition to the translation of the principal amount of the
debt to pounds sterling, also provide for the exchange, at
regular intervals, of fixed-rate amounts of dollars for
fixed-rate amounts of pounds sterling. All of the Groups
debt exposure is denominated in pounds sterling after
cross-currency swaps are taken into account. At 30 June
2006, the split of the Groups aggregate net borrowings
into their core currencies was US dollar 72% and pounds sterling
28% (2005: US dollar 91% and pounds sterling 9%). The Group also
enters into pounds sterling interest rate swap and swaption
arrangements, which provide for the exchange, at specified
intervals, of the difference between fixed rates and variable
rates, calculated by reference to an agreed notional pounds
sterling amount. Certain of the swaption agreements can be
cancelled prior to the maturity of the bonds, to which they
apply (see note 21 for further details). The counterparties
have a minimum long-term rating of A or equivalent
with Moodys and Standard & Poors.

The Group has designated a number of cross-currency swaps as
cash flow hedges of 100% (2005: 100%) of the Groups
exposure to US dollar interest rates on US dollar denominated
bonds. As such, the effective portion of the gain or loss on the
swaps designated and qualifying as cash flow hedging instruments
is reported as a component of the hedging reserve, outside
profit or loss, and is reclassified into profit or loss in the
same periods during which the forecast transactions affect
profit or loss (i.e. when the interest expense is incurred
and/or gains or losses relating to the retranslation of US
dollar denominated debt principal are recognised in the income
statement). Any hedge ineffectiveness on the swaps is recognised
directly in profit or loss. The ongoing effectiveness testing is
performed using the dollar-offset approach. If forecast
transactions are no longer expected to occur, any amounts
included in the hedging reserve related to that forecast
transaction are recognised directly in profit or loss. Interest
rate swap and swaption agreements which convert fixed interest
rates to floating interest rates have not been designated as
hedging instruments for hedge accounting purposes and as such
movements in their values continue to be recorded directly in
earnings.

The Groups hedging policy requires that between 50% and
75% of its borrowings are held at fixed rates after taking
account of interest rate swap and swaption agreements. At
30 June 2006, 75% of the Groups borrowings were at
fixed rates after taking account of interest rate swaps and
swaption agreements (2005: 72%). The fair value of interest rate
swap and swaption agreements and cross-currency swaps held at
30 June 2006 was a £236 million net liability,
compared to £103 million net liability at 30 June
2005.

At 30 June 2006, the Group had outstanding cross currency
swap and interest rate swap and swaption agreements with net
notional principal amounts totalling £1,596 million,
compared to £1,018 million at 30 June 2005. This
movement reflects derivative financial instruments entered into
in relation to bonds issued during the year, partly offset by
the expiry of certain existing swap agreements.

125



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##### Table of Contents

22.
    Derivatives and other financial instruments (continued)In November 2004, the Group entered into a £1 billion
RCF. This facility was used to cancel an existing
£600 million RCF and is available for general
corporate purposes. At 30 June 2006, the
£1 billion facility was undrawn (30 June 2005:
undrawn). The £1 billion facility has a maturity date
of July 2010, and interest accrues at a margin of between 0.45%
and 0.55% above LIBOR, dependent on the Groups leverage
ratio of Net Debt to EBITDA (as defined in the loan agreement).
The current applicable margin is 0.45% (2005: 0.45%), which is
based on a net debt to EBITDA ratio of 1.00:1 or below. Should
this ratio increase above 1.00:1 and up to 2.00:1, the margin
would increase to 0.50%, and above 2.00:1, the margin increases
to 0.55%. The ratio of net debt to EBITDA at 30 June 2006
was 0.8:1 (2005: 0.5:1), indicating a margin of 0.45% (2005:
0.45%).

At 30 June 2006, the Group held £1,463 million
(2005: £697 million) in cash, cash equivalents and
short-term deposits.

In order to manage interest rate risk on interest receivable, at
30 June 2005 forward rate agreements with a notional value of
£53 million were entered into which fixed the interest
rate receivable on sterling deposits for three months from 27
June 2005 at a rate of 5.060% and for three months from 26
September 2005 at a rate of 5.105%. No forward rate agreements
to manage interest rate risks on interest receivable are
outstanding at 30 June 2006.

At 30 June 2006, a one percentage point increase in
interest rates would result in a £3 million decrease
in the Groups annual net finance cost, defined as annual
investment income less finance charges (2005:
£3 million increase) and a one percentage point
decrease in interest rates would result in a
£3 million increase in the Groups annual net
finance costs (2005: £2 million decrease) generated by
interest receivable and payable on bank accounts, bank loan, RCF
and interest swap and swaption agreements.

At 30 June 2006 and 30 June 2005, the Groups
annual finance costs would be unaffected by any change to the
Groups credit rating in either direction.



Foreign exchange riskThe Groups revenues are substantially denominated in
pounds sterling, although a significant proportion of operating
costs are denominated in US dollars. In the year 9% of operating
costs (£297 million) were denominated in US dollars
(2005: 12% (£397 million)). These costs relate mainly
to the Groups programming contracts with US suppliers.

During the year, the Group managed its currency exposure on US
dollar denominated programming contracts by the purchase of
forward exchange contracts and currency options
(collars) and similar financial instruments for up to five
years ahead. All US dollar-denominated forward exchange
contracts, currency options (collars) and similar financial
instruments entered into by the Group are in respect of firm
commitments only and those instruments maturing over the year
following 30 June 2006 represent approximately 80% (2005:
80%) of US dollar denominated costs falling due in that year. At
30 June 2006, the Group had outstanding commitments to purchase,
in aggregate, US$626 million (2005: US$670 million) at
an average rate of US$1.81 to £1.00 (2005: US$1.79 to
£1.00). In addition, currency option (collars) were
held relating to the purchase of a total of US$336 million
(2005: US$114 million).

The Group has designated a number of forward exchange contracts
and currency options (collars) as cash flow hedges of up to
approximately 80% (2005: 80%) of the Groups exposure to US
dollar payments on its programming contracts with US movie
licensors for a period of five years, thereafter nil (2005:
five years, thereafter nil). As such, the effective portion of
the gain or loss on these contracts is reported as a component
of the hedging reserve, outside profit or loss, and is
transferred to the income statement as the forecast transactions
affect profit or loss (i.e. when US dollar-denominated creditors
are retranslated and related programming stock is amortised
through the income statement). For currency options (collars),
hedge accounting is only applied to changes in intrinsic value.
For forward exchange contracts, hedge accounting is applied to
changes in the full fair value. Any hedge ineffectiveness on the
forward exchange contracts and currency options
(collars) is recognised directly in the income statement.
The ongoing effectiveness testing is performed using the
dollar-offset approach. If forecast transactions are no longer
expected to occur, any amounts included in the hedging reserve
related to that forecast

126



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##### Table of Contents

22.
    Derivatives and other financial instruments (continued)transaction would be recognised directly in the income
statement. Certain forward exchange contracts and currency
options (collars) have not been designated as hedges and
movements in their values continue to be recorded directly in
the income statement.

The Groups primary euro exposure arises as a result of
revenues generated from subscribers in Ireland. Approximately 5%
of total revenue in the year (2005: 3%) was denominated in
euros. These euro-denominated revenues are offset to a certain
extent by euro-denominated costs, relating primarily to certain
transponder rentals, the net position being a euro surplus.

58 million euros were exchanged for US dollars on currency
spot markets during the year (2005: 4 million euros) and
51 million surplus euros were exchanged for pounds sterling
(2005: nil). At 30 June 2006, 55 million euros
(£37 million) have been retained by the Group (2005:
82 million euros (£56 million)), to cover
euro-denominated obligations falling due in the early part of
the following year.

The Group purchased the programming rights to certain UEFA
Champions League football matches until the end of the 2005/06
season. Payments in respect of these rights were made pursuant
to the contract in Swiss francs, which means that the Group was
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 the Swiss franc
CHF 100 million was hedged during the year via the use of
forward contracts.

It is the Groups policy that all anticipated foreign
currency exposures are substantially hedged in advance of the
fiscal year in which the exposure occurs. The impact on the
Groups annual profit of a 10% movement in pounds sterling
against all currencies in which it has significant transactions
is estimated to be a £1 million movement (2005:
£8 million) in the income statement, with a
strengthening of pounds sterling resulting in a decrease in
profits.

Credit risk

The Group is exposed to default risk amounting to invested cash
and cash equivalents and short-term deposits, and the positive
fair value of derivatives held. However, as financial
transactions and instruments are only executed with counter
parties that are all A long-term rating or better
and the Groups policy is to ensure that investments are
spread across a number of counterparties, these risks are deemed
to be low.

Liquidity risk

The Groups financial liabilities are shown in
note 21, other than trade and other payables, shown in
note 19, and provisions, shown in note 20.

To ensure continuity of funding, the Groups policy is to
ensure that available funding matures over a period of years. At
30 June 2006, 35% (2005: 49%) of the Groups total
available funding was due to mature in more than five years.

The Groups undrawn committed bank facilities, subject to
covenants, were as follows:

|                                                                  |  |      |       |      |  |  |       | 
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                                  |  | 2006 |       | 2005
|                                                                  |  | £m   |       | £m  
|                                                                 
|                                                                 
|Expiring in more than four years
    but not more than five years |  |      | 1,000 |      |  |  |      | 
|Expiring in more than five years                                  |  |      |      |      |  |  | 1,000 | 
|                                                                 

127



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##### Table of Contents

22.
    Derivatives and other financial instruments (continued)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 at 30 June 2006 and 30 June
2005:

|                                                                                      |  |            |        |   |            |  |        |            |  |  |            |   |  |  |        |  
|------------------------------------------------------------------------------------- |  | ---------- | ------ | - | ---------- |  | ------ | ---------- |  |  | ---------- | - |  |  | ------ | -
|                                                                                      |  | 2006       |        |   | 2005       | 
|                                                                                      |  |            |        |   |            | 
|                                                                                      |  | Book value |        |   | Fair value |  |        | Book value |  |  | Fair value |  
|                                                                                      |  | £m         |        |   | £m         |  |        | £m         |  |  | £m         |  
|                                                                                      | 
|Financial assets and liabilities
    held or issued to finance the Groups operations |  |            |        |   |            |  |        |            |  |  |            |   |  |  |        |  
|Quoted bond debt                                                                      |  |            | (1,919 | ) |            |  | (1,919 | )          |  |  | (975       | ) |  |  | (1,062 | )
|Derivative financial instruments                                                      |  |            | (251   | ) |            |  | (251   | )          |  |  | (95        | ) |  |  | (95    | )
|Obligations under finance leases
    and other borrowings                             |  |            | (69    | ) |            |  | (69    | )          |  |  | (7         | ) |  |  | (7     | )
|Short-term deposits                                                                   |  |            | 647    |   |            |  | 647    |            |  |  | 194        |   |  |  | 194    |  
|Cash and cash equivalents                                                             |  |            | 816    |   |            |  | 816    |            |  |  | 503        |   |  |  | 503    |  
|                                                                                     









Additional information










128



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##### Table of Contents

23.
    Share capital

|                                                               |  |      |       |      |  |  |       | 
|-------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                               |  | 2006 |       | 2005
|                                                               |  | £m   |       | £m  
|                                                              
|                                                              
|Authorised                                                     |  |      |       |      |  |  |       | 
|3,000,000,000 (2005: 3,000,000,000)
    ordinary shares of 50p |  |      | 1,500 |      |  |  | 1,500 | 
|                                                              
|Allotted, called-up and fully
    paid                         |  |      |       |      |  |  |       | 
|1,791,077,599 (2005: 1,867,523,599)
    ordinary shares of 50p |  |      | 896   |      |  |  | 934   | 
|                                                              

|                                                                              |  |                 |               |                 |  |  |               |  
|----------------------------------------------------------------------------- |  | --------------- | ------------- | --------------- |  |  | ------------- | -
|                                                                              |  | 2006            |               | 2005           
|                                                                              |  | Number of       |               | Number of      
|                                                                              |  | ordinary shares |               | ordinary shares
|                                                                             
|Allotted and fully paid during
    the year                                   |  |                 |               |                 |  |  |               |  
|Beginning of year                                                             |  |                 | 1,867,523,599 |                 |  |  | 1,941,712,786 |  
|Options exercised under the
    Sharesave Scheme at between £3.720 and £6.112 |  |                 |              |                 |  |  | 129,813       |  
|Shares repurchased and subsequently
    cancelled                             |  |                 | (76,446,000   | )               |  |  | (74,319,000   | )
|End of year                                                                   |  |                 | 1,791,077,599 |                 |  |  | 1,867,523,599 |  
|                                                                             





| |                                                
| | -----------------------------------------------
| | Share option and contingent share award schemes







|                                             |  |                 |            |                 |  |           
|-------------------------------------------- |  | --------------- | ---------- | --------------- |  | ----------
|                                             |  | 2006            |            | 2005           
|                                             |  | Number of       |            | Number of      
|Scheme                                       |  | ordinary shares |            | ordinary shares
|                                            
|                                            
|Executive Share Option Scheme
    options(i) |  |                 | 36,289,000 |                 |  | 45,309,551
|Sharesave Scheme options(ii)                 |  |                 | 5,149,576  |                 |  | 5,131,741 
|Management LTIP awards(iii)                  |  |                 | 4,103,306  |                 |  |          
|LTIP awards(iv)                              |  |                 | 6,073,333  |                 |  | 4,827,243 
|KCP awards(v)                                |  |                 | 917,518    |                 |  | 2,830,259 
|EBP awards(vi)                               |  |                 | 235,000    |                 |  | 348,000   
|                                             |  |                 | 52,767,733 |                 |  | 58,446,794
|                                            



| |                                          
| | -----------------------------------------
| | (i) Executive Share Option Scheme options



129



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##### Table of Contents

23.
    Share capital (continued)options (2005: 2,403,589) to which no performance criteria are
attached, other than the requirement that the employee remains
in employment with the Group. The remaining 13,318 options
outstanding at 30 June 2005 vested only if performance
conditions were met. The contractual life of all Executive Share
Option Scheme options is ten years.

Grants under the Executive Share Option Scheme were made on an
annual basis to selected employees, with the exercise price of
options being equal to the Companys share price on the
date of grant. For those options with performance conditions,
growth in EPS has to exceed growth in the Retail Prices Index
plus 3% per annum in order for awards to vest. Options vest
over a period of up to 4 years from the date of grant.



(ii) Sharesave Scheme optionsAll Sharesave Scheme options outstanding at 30 June 2006
and 30 June 2005 have no performance criteria attached,
other than the requirement that the employee remains in
employment with the Group. Options granted under the Sharesave
scheme must be exercised within six months of the relevant award
vesting date.

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



(iii) Management LTIP awardsAll Management LTIP awards outstanding at 30 June 2006 vest
only if performance conditions are met. Awards granted under the
Management LTIP must be exercised within one year of the
relevant award vesting date.

The Company grants awards to selected employees under the
Management LTIP. Awards under this scheme mirror the LTIP, with
the same performance conditions. Awards exercised under the
Management LTIP can only be satisfied by the issue of
market-purchased shares.



(iv) LTIP awardsAll LTIP awards outstanding at 30 June 2006 (2005:
3,790,000) vest only if performance conditions are met. The
remaining 1,037,243 awards outstanding at 30 June 2005 were
exercisable in the final year before their lapsing date,
regardless of meeting performance criteria, provided that the
employee remained in employment with the Group.

The Company operates the LTIP for Executive Directors and Senior
Executives. Awards under the scheme are granted in the form of a
nil-priced option, and are satisfied using market-purchased
shares. The awards vest in full or in part dependent on the
satisfaction of specified performance targets. 30% of the award
vests dependent on TSR performance over a three-year performance
period, relative to the constituents of the FTSE 100 at the time
of grant, and the remaining 70% vests dependent on performance
against operational targets.



(v) KCP awardsAll KCP awards outstanding at 30 June 2006 and 30 June
2005 vest only if performance conditions are met. The
contractual life of all KCP awards is ten years.

Designated managers participated in the KCP, which was a replica
scheme of the LTIP, with the same performance conditions. Awards
exercised under the KCP can only be satisfied by the issue of
shares purchased in the market.



(vi) EBP awardsAll EBP awards outstanding at 30 June 2006 and 30 June
2005 vest only if performance conditions are met. The
contractual life of these awards is ten years.

130



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##### Table of Contents

23.
    Share capital (continued)The EBP operated for Executive Directors and Senior Executives.
Awards under the plan were made in the form of a contingent
right to acquire the Companys shares, for nil
consideration, which are acquired in the market, and were
subject to performance achieved in the financial year of award.

The movement in share awards outstanding is summarised in the
following table:

|                          |  |              |            |                |  |              |       |                |  |  |            |   |  |  |       | 
|------------------------- |  | ------------ | ---------- | -------------- |  | ------------ | ----- | -------------- |  |  | ---------- | - |  |  | ----- | 
|                          |  | 2006         |            | 2006           |  | 2005         |       | 2005          
|                          |  | Number of    |            | Weighted       |  | Number of    |       | Weighted      
|                          |  | shares       |            | average        |  | shares       |       | average       
|                          |  | under option |            | exercise price |  | under option |       | exercise price
|                         
|Outstanding at 1 July     |  |              | 58,446,794 |                |  |              | £5.64 |                |  |  | 50,965,676 |   |  |  | £6.58 | 
|Granted during the year   |  |              | 8,390,285  |                |  |              | £0.80 |                |  |  | 19,636,399 |   |  |  | £3.57 | 
|Exercised during the year |  |              | (4,160,336 | )              |  |              | £3.85 |                |  |  | (1,938,116 | ) |  |  | £6.05 | 
|Forfeited during the year |  |              | (9,906,234 | )              |  |              | £5.90 |                |  |  | (9,772,815 | ) |  |  | £6.29 | 
|Expired during the year   |  |              | (2,776     | )              |  |              | £4.85 |                |  |  | (444,350   | ) |  |  | £6.05 | 
|Outstanding at 30 June    |  |              | 52,767,733 |                |  |              | £4.96 |                |  |  | 58,446,794 |   |  |  | £5.64 | 
|                         



|                         |  |                    |            |                  |  |  |  |          
|------------------------ |  | ------------------ | ---------- | ---------------- |  |  |  | ---------
|                         |  | Awards Outstanding
|                         |  |                   
|                         |  |                    |            | Weighted         | 
|                         |  |                    |            | average          | 
|                         |  |                    |            | remaining        | 
|Range of Exercise Prices |  | Number             |            | contractual life | 
|                        
|£0.00-£1.00              |  |                    | 11,329,157 |                  |  |  |  | 4.5 years
|£2.00-£3.00              |  |                    | 295,355    |                  |  |  |  | 2.2 years
|£3.00-£4.00              |  |                    | 2,630,543  |                  |  |  |  | 2.7 years
|£4.00-£5.00              |  |                    | 1,722,925  |                  |  |  |  | 3.2 years
|£5.00-£6.00              |  |                    | 16,744,201 |                  |  |  |  | 6.8 years
|£6.00-£7.00              |  |                    | 8,547,034  |                  |  |  |  | 6.0 years
|£7.00-£8.00              |  |                    | 6,285,648  |                  |  |  |  | 5.4 years
|£8.00-£9.00              |  |                    | 26,668     |                  |  |  |  | 5.4 years
|£9.00-£10.00             |  |                    | 4,964,142  |                  |  |  |  | 4.4 years
|£10.00-£11.00            |  |                    | 21,842     |                  |  |  |  | 3.9 years
|£11.00-£12.00            |  |                    | 57,860     |                  |  |  |  | 4.1 years
|£12.00-£13.00            |  |                    | 142,358    |                  |  |  |  | 4.0 years
|                         |  |                    | 52,767,733 |                  |  |  |  | 5.4 years
|                        



Information for awards granted during the year






131



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##### Table of Contents

23.
    Share capital (continued)period of the options. The fair value of nil-priced options
granted during the year was measured on the basis of the
market-price of the Companys shares on the date of grant,
discounted for expected dividends which would not be received
over the vesting period of the options.



Weighted average fair value assumptionsThe following weighted average assumptions were used in these
option pricing models:

|                        |  |      |            |      |  |  |            | 
|----------------------- |  | ---- | ---------- | ---- |  |  | ---------- | 
|                        |  | 2006 |            | 2005
|                       
|Share price             |  |      | £5.13      |      |  |  | £4.93      | 
|Exercise price          |  |      | £0.80      |      |  |  | £3.57      | 
|Expected volatility     |  |      | 25.9%      |      |  |  | 41.5%      | 
|Expected life           |  |      | 2.0  years |      |  |  | 3.5  years | 
|Expected dividends      |  |      | 1.8%       |      |  |  | 1.0%       | 
|Risk-free interest rate |  |      | 4.3%       |      |  |  | 4.8%       | 
|                       





|    |                                       
|--- | --------------------------------------
|24. | Reconciliation of shareholders equity

|                                                 |  |         |     |         |  |            |       |         |  |         |    |         |  |         |    |          |  |               |     |   |  |  |     |  |  |  |     |   |  |  |        |   |  |  |      |  
|------------------------------------------------ |  | ------- | --- | ------- |  | ---------- | ----- | ------- |  | ------- | -- | ------- |  | ------- | -- | -------- |  | ------------- | --- | - |  |  | --- |  |  |  | --- | - |  |  | ------ | - |  |  | ---- | -
|                                                 |  |         |     |         |  | Capital    |       |         |  |         |    |         |  |         |    |          |  | Total        
|                                                 |  | Share   |     | Share   |  | redemption |       | Special |  | ESOP    |    | Merger  |  | Hedging |    | Retained |  | shareholders
|                                                 |  | capital |     | premium |  | reserve    |       | reserve |  | reserve |    | reserve |  | reserve |    | earnings |  | equity       
|                                                 |  | £m      |     | £m      |  | £m         |       | £m      |  | £m      |    | £m      |  | £m      |    | £m       |  | £m           
|                                                
|At 1 July 2004                                   |  |         | 971 |         |  |            | 1,437 |         |  |         |   |         |  |         | 14 |          |  |               | (30 | ) |  |  | 222 |  |  |  | (1  | ) |  |  | (2,447 | ) |  |  | 166  |  
|Purchase of own shares for
    cancellation      |  |         | (37 | )       |  |            |      |         |  |         | 37 |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  |    |   |  |  | (416   | ) |  |  | (416 | )
|Recognition and transfer of cash
    flow hedges |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  | (18 | ) |  |  |       |   |  |  | (18  | )
|Tax on items taken directly to
    equity        |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  | 5   |   |  |  | (3     | ) |  |  | 2    |  
|Share-based payment                              |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               | (2  | ) |  |  |    |  |  |  |    |   |  |  | 17     |   |  |  | 15   |  
|Profit for the year                              |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  |    |   |  |  | 578    |   |  |  | 578  |  
|Dividends                                        |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  |    |   |  |  | (140   | ) |  |  | (140 | )
|At 30 June 2005                                  |  |         | 934 |         |  |            | 1,437 |         |  |         | 37 |         |  |         | 14 |          |  |               | (32 | ) |  |  | 222 |  |  |  | (14 | ) |  |  | (2,411 | ) |  |  | 187  |  
|                                                
|                                                
|Purchase of own shares for
    cancellation      |  |         | (38 | )       |  |            |      |         |  |         | 38 |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  |    |   |  |  | (408   | ) |  |  | (408 | )
|Recognition and transfer of cash
    flow hedges |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  | (54 | ) |  |  |       |   |  |  | (54  | )
|Tax on items taken directly to
    equity        |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  | 16  |   |  |  | 2      |   |  |  | 18   |  
|Share-based payment                              |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               | 7   |   |  |  |    |  |  |  |    |   |  |  | 11     |   |  |  | 18   |  
|Profit for the year                              |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  |    |   |  |  | 551    |   |  |  | 551  |  
|Dividends                                        |  |         |    |         |  |            |      |         |  |         |   |         |  |         |   |          |  |               |    |   |  |  |    |  |  |  |    |   |  |  | (191   | ) |  |  | (191 | )
|At 30 June 2006                                  |  |         | 896 |         |  |            | 1,437 |         |  |         | 75 |         |  |         | 14 |          |  |               | (25 | ) |  |  | 222 |  |  |  | (52 | ) |  |  | (2,446 | ) |  |  | 121  |  
|                                                



| |                                  
| | ---------------------------------
| | Share premium and special reserve



132



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##### Table of Contents

24.
    Reconciliation of shareholders equity (continued)As part of the application, the Companys balance sheet at
30 September 2003 was required to be presented. At that
date, the deficit on the Company-only profit and loss account
reserve had reduced by £14 million since 30 June
2003, to £1,106 million.

As a condition of the reduction, the reduction in the share
premium account of £1,120 million was permitted to be
offset against the profit and loss account reserve by the amount
of the deficit at 30 September 2003. The excess of
£14 million was credited to a special reserve, and,
under the terms of the reduction, will remain undistributable
until all the creditors of the Company and its guarantors (as at
10 December 2003) are paid.

Purchase of own shares and capital redemption reserve

On 12 November 2004, the Companys shareholders
approved a resolution at the AGM for the Company to purchase up
to 97 million ordinary shares. On 4 November 2005, the
Companys shareholders approved a resolution at the AGM for
the Company to further purchase up to 92 million ordinary
shares. This authority to buy-back these shares expires on 3
November 2006. Under the former resolution, during the year
ended 30 June 2005, the Company purchased, and subsequently
cancelled, 74 million ordinary shares at an average price
of £5.60 per share, with a nominal value of
£37 million, for a consideration of
£416 million. Consideration included stamp duty and
commission of £3 million. This represented 4% of
called-up share capital
at the beginning of the year.

During the financial year ended 30 June 2006, the Company
purchased, and subsequently cancelled, 76 million ordinary
shares at an average price of £5.30 per share, with a
nominal value of £38 million, for a consideration of
£408 million. The nominal value of the shares
cancelled has been credited to the capital redemption reserve.
Consideration included stamp duty and commission of
£3 million. This represents 4% of
called-up share capital
at the beginning of the financial year. In July 2006, a further
2,902,173 shares were purchased and subsequently cancelled at an
average price of £5.63 for a consideration of
£16 million. In addition, included within the total
number of shares purchased in June 2006, are 3 million of
the Companys ordinary shares, purchased by the Trustee of
the ESOP. These shares are held by the ESOP and will be used to
satisfy the future exercise of share options and share awards by
the Groups employees.

The following table provides information about purchases of
equity securities by the Company during the fiscal year.

|                                      |  |              |            |  |               |                        |       |                    |                     |  |                    |  |  |  |            | 
|------------------------------------- |  | ------------ | ---------- |  | ------------- | ---------------------- | ----- | ------------------ | ------------------- |  | ------------------ |  |  |  | ---------- | 
|                                      |  |              |            |  |               | Total number of shares |       |                    | Maximum number of   | 
|                                      |  |              |            |  |               | purchased as part of   |       |                    | shares that may yet | 
|                                      |  | Total number |            |  | Average price |                        |       | publicly announced |                     |  | be purchased under | 
|                                      |  | of shares    |            |  | paid per      |                        |       | plans or           |                     |  | the plans or       | 
|Period                                |  | purchased(i) |            |  | share         |                        |       | programmes         |                     |  | programmes         | 
|                                      | 
|July                                  |  |              | 1,100,000  |  |               |                        | £5.26 |                    |                     |  | 1,100,000          |  |  |  | 21,581,000 | 
|August                                |  |              | 7,600,000  |  |               |                        | £5.53 |                    |                     |  | 7,600,000          |  |  |  | 13,981,000 | 
|September                             |  |              | 13,981,000 |  |               |                        | £5.70 |                    |                     |  | 13,981,000         |  |  |  |           | 
|October                               |  |              |           |  |               |                        |      |                    |                     |  |                   |  |  |  |           | 
|November                              |  |              | 8,400,000  |  |               |                        | £4.95 |                    |                     |  | 8,400,000          |  |  |  | 83,600,000 | 
|December                              |  |              | 14,025,000 |  |               |                        | £4.94 |                    |                     |  | 14,025,000         |  |  |  | 69,575,000 | 
|January                               |  |              |           |  |               |                        |      |                    |                     |  |                   |  |  |  | 69,575,000 | 
|February                              |  |              | 3,100,000  |  |               |                        | £5.11 |                    |                     |  | 3,100,000          |  |  |  | 66,475,000 | 
|March                                 |  |              | 10,700,000 |  |               |                        | £5.26 |                    |                     |  | 10,700,000         |  |  |  | 55,775,000 | 
|April                                 |  |              | 700,000    |  |               |                        | £5.37 |                    |                     |  | 700,000            |  |  |  | 55,075,000 | 
|May                                   |  |              | 5,500,000  |  |               |                        | £5.17 |                    |                     |  | 5,500,000          |  |  |  | 49,575,000 | 
|June                                  |  |              | 14,340,000 |  |               |                        | £5.55 |                    |                     |  | 11,340,000         |  |  |  | 38,235,000 | 
|                                     
|Total for year ended
    30 June 2006 |  |              | 79,446,000 |  |               |                        |       |                    |                     |  | 76,446,000         |  |  |  |            | 
|                                     



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##### Table of Contents

24.
    Reconciliation of shareholders equity (continued)

ESOP reserveThis reserve represents a deduction to Group equity for the cost
of the Companys shares held by the Groups ESOP. The
movement in the ESOP reserve was as follows:

|                                                                 |  |           |            |    |  |  |     |  
|---------------------------------------------------------------- |  | --------- | ---------- | -- |  |  | --- | -
|                                                                 |  | Number of |            |   
|                                                                 |  | Ordinary  |            |   
|                                                                 |  | Shares    |            | £m
|                                                                
|At 1 July 2005                                                   |  |           | 5,609,212  |    |  |  | 32  |  
|Share options exercised during the
    year                      |  |           | (4,160,336 | )  |  |  | (24 | )
|Shares repurchased by the Group for
    the ESOP during the year |  |           | 3,000,000  |    |  |  | 17  |  
|At 30 June 2006                                                  |  |           | 4,448,876  |    |  |  | 25  |  
|                                                                





| |               
| | --------------
| | Merger reserve

















| |                
| | ---------------
| | Hedging reserve



134



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25.
    Notes to the Consolidated Cash Flow Statementa) Reconciliation of profit before taxation to cash
generated from operations

|                                                       |  |      |       |   |      |  |     |  
|------------------------------------------------------ |  | ---- | ----- | - | ---- |  | --- | -
|                                                       |  | 2006 |       |   | 2005 | 
|                                                       |  | £m   |       |   | £m   | 
|                                                       | 
|Profit before taxation                                 |  |      | 798   |   |      |  | 787 |  
|Depreciation of property, plant and
    equipment      |  |      | 89    |   |      |  | 47  |  
|Amortisation of intangible assets                      |  |      | 51    |   |      |  | 45  |  
|Loss on disposal of property, plant
    and equipment  |  |      |      |   |      |  | 2   |  
|Profit on disposal of joint venture                    |  |      |      |   |      |  | (9  | )
|Net finance costs                                      |  |      | 91    |   |      |  | 58  |  
|Share of results of joint ventures
    and associates  |  |      | (12   | ) |      |  | (14 | )
|                                                       |  |      | 1,017 |   |      |  | 916 |  
|                                                      
|(Increase) decrease in trade and
    other receivables |  |      | (102  | ) |      |  | 34  |  
|Decrease in inventories                                |  |      | 31    |   |      |  | 28  |  
|Increase (decrease) in trade and
    other payables    |  |      | 55    |   |      |  | (67 | )
|(Decrease) increase in provisions                      |  |      | (13   | ) |      |  | 12  |  
|Decrease in derivative financial
    instruments       |  |      | 16    |   |      |  | 66  |  
|Cash generated from
    operations                     |  |      | 1,004 |   |      |  | 989 |  
|                                                      

b) Major non-cash movements


Corporate reorganisation






|    |                                                     
|--- | ----------------------------------------------------
|26. | Contracted commitments, contingencies and guarantees



|   |                                                                       
|-- | ----------------------------------------------------------------------
|a) | Future expenditure contracted for but not provided in the
    accounts

|                                |  |                     |       |       |  |          |     |          |  |      |     |         |  |      |     |      |  |  |    |  |  |  |     |  |  |  |       |  |  |  |       | 
|------------------------------- |  | ------------------- | ----- | ----- |  | -------- | --- | -------- |  | ---- | --- | ------- |  | ---- | --- | ---- |  |  | -- |  |  |  | --- |  |  |  | ----- |  |  |  | ----- | 
|                                |  | Year ending 30 June |       |       |  | Total at |     | Total at
|                                |  |                     |       | After |  | 30 June  |     | 30 June 
|                                |  | 2007                |       | 2008  |  | 2009     |     | 2010     |  | 2011 |     | 5 years |  | 2006 |     | 2005
|                                |  | £m                  |       | £m    |  | £m       |     | £m       |  | £m   |     | £m      |  | £m   |     | £m  
|                               
|Television programme rights(i)  |  |                     | 907   |       |  |          | 873 |          |  |      | 822 |         |  |      | 636 |      |  |  | 19 |  |  |  | 3   |  |  |  | 3,260 |  |  |  | 2,260 | 
|Digiboxes and related equipment |  |                     | 91    |       |  |          |    |          |  |      |    |         |  |      |    |      |  |  |   |  |  |  |    |  |  |  | 91    |  |  |  | 155   | 
|Third party payments(ii)        |  |                     | 9     |       |  |          | 7   |          |  |      | 5   |         |  |      | 5   |      |  |  | 4  |  |  |  |    |  |  |  | 30    |  |  |  | 14    | 
|Transponder capacity(iii)       |  |                     | 83    |       |  |          | 68  |          |  |      | 64  |         |  |      | 38  |      |  |  | 31 |  |  |  | 136 |  |  |  | 420   |  |  |  | 314   | 
|Property, plant and equipment   |  |                     | 24    |       |  |          |    |          |  |      |    |         |  |      |    |      |  |  |   |  |  |  |    |  |  |  | 24    |  |  |  | 9     | 
|Intangible asset                |  |                     | 1     |       |  |          |    |          |  |      |    |         |  |      |    |      |  |  |   |  |  |  |    |  |  |  | 1     |  |  |  | 1     | 
|Other                           |  |                     | 26    |       |  |          | 4   |          |  |      | 1   |         |  |      |    |      |  |  |   |  |  |  |    |  |  |  | 31    |  |  |  | 36    | 
|                                |  |                     | 1,141 |       |  |          | 952 |          |  |      | 892 |         |  |      | 679 |      |  |  | 54 |  |  |  | 139 |  |  |  | 3,857 |  |  |  | 2,789 | 
|                               



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | At 30 June 2006, the Group had minimum television
    programming rights commitments of £3,260 million
    (2005: £2,260 million), of which
    £667 million (2005: £642 million) related to
    commitments payable in US dollars for periods of up to
    six years (2005: eight years). In addition, in the prior
    year, there were £45 million of commitments payable in
    Swiss francs and £3 million of commitments payable in
    Euros.



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Assuming that movie subscriber numbers remain unchanged from
    current levels, an additional £363 million
    (US$671 million) of commitments (2005:
    £302 million, (US$535 million)) would also be
    payable in US dollars, due to price escalator clauses. The pound
    sterling television programme rights commitments include similar

135



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##### Table of Contents

26.
    Contracted commitments, contingencies and guarantees
    (continued)

price escalation clauses that would result in additional
    commitments of £2 million (2005:
    £10 million) if subscriber numbers were to remain at
    current levels.

(ii)
    The third party payment commitments are in respect of
    distribution agreements for the television channels owned and
    broadcast by third parties, retailed by the Group to DTH
    subscribers (Sky Distributed Channels) and are for
    periods up to five years (2005: four years). The extent of
    the commitment is largely 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 current levels,
    the additional commitment would be £491 million (2005:
    £522 million).(iii)
    Transponder capacity commitments are in respect of the Astra and
    Eurobird satellites that the Group uses for digital
    transmissions to both DTH subscribers and cable operators. The
    commitments are for periods of up to fourteen years (2005: nine
    years). Three additional transponder agreements were entered
    into in the year ended 30 June 2006 to provide capacity to
    facilitate the launch of the Groups HD services.b) Contingent liabilities

The Group has contingent liabilities by virtue of its
investments in joint ventures and associates that are unlimited
companies, or partnerships, which include Nickelodeon UK,
The History Channel (UK), Paramount UK and National
Geographic Channel UK. The Groups share of contingent
liabilities of its joint ventures and associates incurred
jointly with the other investors is nil (2005: nil).

The Directors do not expect any material loss to arise from the
above contingent liabilities.

c) Contingent assets

Under the terms of one of the Groups channel distribution
agreements, British Sky Broadcasting Limited is entitled to a
payment, expected to be received between July and December 2006,
relating to a proportion of the fair market value of certain of
the channels under that distribution agreement. The fair market
value of these channels has not yet been determined.
Accordingly, it is not yet possible to determine the value of
the payment which may be received.

The Group has served a claim for a material amount against an
information and technology solutions provider, which provided
services to the Group as part of the Groups investment in
customer management systems software and infrastructure. The
amount which may be recovered by the Group will not be finally
determined until resolution of the claim.

d) Guarantees

The Company and certain of its subsidiaries have undertaken, in
the normal course of business, to provide support to several of
the Groups investments in both limited and unlimited
companies and partnerships, to meet their liabilities as they
fall due. Several of these undertakings contain maximum
financial limits. These undertakings have been given for at
least one year from the date of the signing of the UK statutory
accounts of the related entity. A payment under these
undertakings would be required in the event of an investment
being unable to pay its liabilities. The Company has provided
parental company guarantees of £14 million (2005:
£14 million) to creditors of Hestview Limited. Letters
of credit of £5 million that British Sky Broadcasting
Limited provided to Sky Interactive Limited in respect of Sky
Buy expired during the year ended 30 June 2005 and were not
replaced.

The Company and certain of its subsidiaries have agreed to
provide additional funding to several of its investments in
limited and unlimited companies and partnerships, in accordance
with funding agreements. Payment of this additional funding
would be required if requested by the investees in accordance
with the funding agreements. The maximum potential amount of
future payments which may be required to be made by the Company
and certain of its subsidiaries to its investments, in both
limited and unlimited companies and partnerships under the
undertakings and additional funding agreements, is
£4 million (2005: £7 million).

136



---



##### Table of Contents

26.
    Contracted commitments, contingencies and guarantees
    (continued)The following guarantees are in place relating to the
Groups borrowings:




    British Sky Broadcasting Limited, Sky Subscribers Services
    Limited and BSkyB Investments Limited have given joint and
    several guarantees in relation to the Companys
    £1 billion RCF.
    British Sky Broadcasting Limited and Sky Subscribers Services
    Limited have given joint and several guarantees in relation to
    the US$650 million, US$600 million,
    US$300 million and £100 million Guaranteed Notes.
    The Company, British Sky Broadcasting Limited and Sky
    Subscribers Services Limited have given joint and several
    guarantees in relation to the US$750 million,
    US$350 million and £400 million Guaranteed Notes.
    BSkyB Investments Limited will also become a guarantor of the
    Groups Guaranteed Notes should the £1 billion
    RCF be drawn down by £50 million or more.

27.
    Operating lease commitmentsThe minimum lease rentals to be paid under non-cancellable
operating leases at 30 June are as follows:

|                             |  |      |     |  |      |  |     | 
|---------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                             |  | 2006 |     |  | 2005 | 
|                             |  | £m   |     |  | £m   | 
|                             | 
|Within one year              |  |      | 28  |  |      |  | 26  | 
|Between one and two years    |  |      | 22  |  |      |  | 19  | 
|Between two and three years  |  |      | 18  |  |      |  | 15  | 
|Between three and four years |  |      | 14  |  |      |  | 13  | 
|Between four and five years  |  |      | 13  |  |      |  | 11  | 
|After five years             |  |      | 49  |  |      |  | 45  | 
|                             |  |      | 144 |  |      |  | 129 | 
|                            





|                             |  |      |    |  |      |  |    | 
|---------------------------- |  | ---- | -- |  | ---- |  | -- | 
|                             |  | 2006 |    |  | 2005 | 
|                             |  | £m   |    |  | £m   | 
|                             | 
|Within one year              |  |      | 2  |  |      |  | 2  | 
|Between one and two years    |  |      | 2  |  |      |  | 2  | 
|Between two and three years  |  |      | 1  |  |      |  | 2  | 
|Between three and four years |  |      | 1  |  |      |  | 1  | 
|Between four and five years  |  |      | 1  |  |      |  | 1  | 
|After five years             |  |      | 4  |  |      |  | 4  | 
|                             |  |      | 11 |  |      |  | 12 | 
|                            

Sub-lease




|    |                         
|--- | ------------------------
|28. | Purchase of subsidiaries



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##### Table of Contents

28.
    Purchase of subsidiaries (continued)purchase of Easynet provides the Group with an opportunity to
use and extend Easynets broadband network to offer
residential broadband services to its customers.

|                                                                                                                 |  |                |      |             |  |            |     |   |  |  |      |  
|---------------------------------------------------------------------------------------------------------------- |  | -------------- | ---- | ----------- |  | ---------- | --- | - |  |  | ---- | -
|                                                                                                                 |  |                |      | Fair value  |  | Recognised
|                                                                                                                 |  | Net book value |      | adjustments |  | values    
|                                                                                                                 |  | £m             |      | £m          |  | £m        
|                                                                                                                
|Net assets of Easynet
    purchased                                                                              |  |                |      |             |  |            |     |   |  |  |      |  
|Goodwill                                                                                                         |  |                | 18   |             |  |            | (18 | ) |  |  |     |  
|Intangible assets                                                                                                |  |                | 10   |             |  |            | 19  |   |  |  | 29   |  
|Property, plant and equipment                                                                                    |  |                | 74   |             |  |            | 5   |   |  |  | 79   |  
|Deferred tax assets                                                                                              |  |                |     |             |  |            | 91  |   |  |  | 91   |  
|Deferred tax liabilities                                                                                         |  |                | (2   | )           |  |            | (6  | ) |  |  | (8   | )
|Inventories                                                                                                      |  |                | 2    |             |  |            |    |   |  |  | 2    |  
|Trade and other receivables                                                                                      |  |                | 35   |             |  |            |    |   |  |  | 35   |  
|Cash and cash equivalents                                                                                        |  |                | 18   |             |  |            |    |   |  |  | 18   |  
|Borrowings                                                                                                       |  |                | (3   | )           |  |            |    |   |  |  | (3   | )
|Trade and other payables                                                                                         |  |                | (206 | )           |  |            |    |   |  |  | (206 | )
|Provisions                                                                                                       |  |                | (11  | )           |  |            | (5  | ) |  |  | (16  | )
|                                                                                                                 |  |                | (65  | )           |  |            | 86  |   |  |  | 21   |  
|                                                                                                                
|                                                                                                                
|Provisional goodwill                                                                                             |  |                |      |             |  |            |     |   |  |  | 202  |  
|Total consideration                                                                                              |  |                |      |             |  |            |     |   |  |  | 223  |  
|                                                                                                                
|                                                                                                                
|Satisfied by:                                                                                                    |  |                |      |             |  |            |     |   |  |  |      |  
|Ordinary shares purchased for cash
    (including the purchase of certain outstanding Easynet share
    options) |  |                |      |             |  |            |     |   |  |  | 219  |  
|Professional fees                                                                                                |  |                |      |             |  |            |     |   |  |  | 4    |  
|                                                                                                                 |  |                |      |             |  |            |     |   |  |  | 223  |  
|                                                                                                                
|                                                                                                                
|Net cash outflow arising on the
    purchase of Easynet                                                          |  |                |      |             |  |            |     |   |  |  |      |  
|Cash paid                                                                                                        |  |                |      |             |  |            |     |   |  |  | 223  |  
|Cash and cash equivalents purchased                                                                              |  |                |      |             |  |            |     |   |  |  | (18  | )
|                                                                                                                 |  |                |      |             |  |            |     |   |  |  | 205  |  
|                                                                                                                





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29.
    Transactions with related parties and major shareholders

a)
    Entities with joint control or significant influenceThe Company and Group conduct business transactions with
companies that are part of the News Corporation group
(News Corporation), a major shareholder:

|                                                 |  |      |      |   |      |  |      |  
|------------------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | -
|                                                 |  | 2006 |      |   | 2005 | 
|                                                 |  | £m   |      |   | £m   | 
|                                                 | 
|Supply of services by the Group                  |  |      | 21   |   |      |  | 18   |  
|Purchases of goods/services by the
    Group     |  |      | (175 | ) |      |  | (163 | )
|Amounts owed by related parties to
    the Group |  |      | 1    |   |      |  | 1    |  
|Amounts owed to related parties by
    the Group |  |      | (31  | ) |      |  | (34  | )
|                                                



| |                                                
| | -----------------------------------------------
| | Services supplied to News Corporation companies





| |                                                                    
| | -------------------------------------------------------------------
| | Purchases of goods and services from News Corporation
    companies









139



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##### Table of Contents

29.
    Transactions with related parties and major shareholders
    (continued)

b) Joint ventures and associates

|                                                               |  |      |     |   |      |  |     |  
|-------------------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                                               |  | 2006 |     |   | 2005 | 
|                                                               |  | £m   |     |   | £m   | 
|                                                               | 
|Supply of services by the Group                                |  |      | 14  |   |      |  | 20  |  
|Purchases of goods or services by
    the Group                |  |      | (46 | ) |      |  | (54 | )
|Amounts owed by joint ventures and
    associates to the Group |  |      | 7   |   |      |  | 21  |  
|Amounts owed to joint ventures and
    associates by the Group |  |      | (5  | ) |      |  | (3  | )
|                                                              









| |                                           
| | ------------------------------------------
| | c) Other transactions with related parties









| |                  
| | -----------------
| | d) Key management



140



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##### Table of Contents

30. Group investments

The significant investments of the Company which principally
affect the consolidated results and total assets of the Group
are as follows:

|                                                      |  |                         |  |                                                    |  |                                                                                                                      
|----------------------------------------------------- |  | ----------------------- |  | -------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|                                                      |  | Country of              |  | Description and proportion of shares               |  |                                                                                                                      
|Name                                                  |  | incorporation/operation |  | held (%)                                           |  | Principal activity                                                                                                   
|                                                     
|Subsidiaries:                                         |  |                         |  |                                                    |  |                                                                                                                      
|Direct holdings of the
    Company                    |  |                         |  |                                                    |  |                                                                                                                      
|British Sky Broadcasting Limited(i)                   |  | England and Wales       |  | 10,000,002 ordinary shares of
    £1 each (50.01%) |  | Operation of a pay television
    broadcasting service in the United Kingdom and Ireland                             
|Sky Television Limited                                |  | England and Wales       |  | 13,376,982 ordinary shares of
    £1 each (100%)   |  | Holding company                                                                                                      
|Sports Internet Group Limited                         |  | England and Wales       |  | 38,247,184 ordinary shares of 5p
    each (100%)   |  | Holding company                                                                                                      
|British Interactive Broadcasting
    Holdings Limited |  | England and Wales       |  | 651,960 ordinary shares of £1
    each (100%)      |  | The transmission of interactive
    services                                                                         
|BSkyB Investments Limited                             |  | England and Wales       |  | 100 ordinary shares of £1 each
    (100%)          |  | Holding company                                                                                                      
|Sky Broadband Services Limited                        |  | England and Wales       |  | 100 ordinary shares of £1 each
    (100%)          |  | Holding company                                                                                                      
|Subsidiaries:                                         |  |                         |  |                                                    |  |                                                                                                                      
|Indirect holdings of the
    Company                  |  |                         |  |                                                    |  |                                                                                                                      
|Sky Subscribers Services Limited                      |  | England and Wales       |  | 3 ordinary shares of £1 each
    (100%)            |  | The provision of ancillary
    functions supporting the satellite television broadcasting
    operations of the Group
|Sky In-Home Service Limited                           |  | England and Wales       |  | 1,576,000 ordinary shares of
    £1 each (100%)    |  | The supply, installation and
    maintenance of satellite television receiving equipment                             
|Hestview Limited                                      |  | England and Wales       |  | 108 ordinary shares of £1 each
    (100%)          |  | Licensed bookmakers                                                                                                  
|Sky Interactive Limited                               |  | England and Wales       |  | 3 ordinary shares of £1 each
    (100%)            |  | The provision of interactive
    television services                                                                 
|Sky Ventures Limited                                  |  | England and Wales       |  | 912 ordinary shares of £1 each
    (100%)          |  | Holding company for joint ventures                                                                                   
|British Sky Broadcasting SA                           |  | Luxembourg              |  | 12,500 ordinary shares of £12
    each (100%)      |  | Digital satellite transponder
    leasing company                                                                    
|Sky New Media Ventures Limited                        |  | England and Wales       |  | 12,500 ordinary shares of £1
    each (100%)       |  | Holding company for new media
    investments                                                                        
|Easynet Group Plc(ii)                                 |  | England and Wales       |  | 121,308,490 ordinary shares of 4p
    each (100%)  |  | Provision of Broadband networking
    services in the UK and other European Countries                                

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##### Table of Contents

30. Group investments (continued)

|                                   |  |                         |  |                                                                                        |  |                                                                                                              
|---------------------------------- |  | ----------------------- |  | -------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------
|                                   |  | Country of              |  | Description and proportion of shares                                                   |  |                                                                                                              
|Name                               |  | incorporation/operation |  | held (%)                                                                               |  | Principal activity                                                                                           
|                                  
|Joint ventures and
    associates  |  |                         |  |                                                                                        |  |                                                                                                              
|Nickelodeon UK                     |  | England and Wales       |  | 104 B Shares of £0.01 each
    (40%)                                                   |  | The transmission of childrens
    television channels                                                       
|The History Channel (UK)           |  | England and Wales       |  | 50,000 A Shares of £1 each
    (50%)                                                   |  | The transmission of history and
    biography television programming                                         
|Paramount UK(iii),(iv)             |  | England and Wales       |  | Partnership interest (25%)                                                             |  | The transmission of general
    entertainment comedy channels                                                
|Australia News Channel Pty Limited |  | Australia               |  | 1 Ordinary Share of AUS$1 (33.33%)                                                     |  | The transmission of a 24-hour news
    channel                                                               
|MUTV Limited(v)                    |  | England and Wales       |  | 500 B Shares of £1 each
    (33.33%)                                                   |  | The transmission, production and
    marketing of the Manchester United football channel                     
|National Geographic Channel(vi)    |  | England and Wales       |  | Partnership interest (50%)                                                             |  | The transmission of natural history
    and adventure channels                                               
|Attheraces Holdings Limited(iv)    |  | England and Wales       |  | 1,500 Ordinary Shares of £1
    each (47.50%), 20 Recoupment Shares of £0.01 each      |  | The transmission of a horse racing
    channel and related on-line activities                                
|Chelsea Digital Media Limited      |  | England and Wales       |  | 42,648 B Shares of £0.01 each
    (35%) and 7m redeemable preference shares of £1 each |  | The transmission, production and
    marketing of the Chelsea Football Club football channel and
    website.

Notes




|      |  |                                                                                                                                                                                                                                                                        
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | 50.01% directly held by British Sky Broadcasting Group plc and
    49.99% held by BSkyB Investments Limited.                                                                                                                                                           
|     
|(ii)  |  | Subsequent to the purchase of Easynet Group Plc by the
    Group, Easynet Group Plc changed its accounting reference
    date from 31 December 2005 to 30 June 2006. The
    registered address of Easynet Group Plc is
    44-46Whitfield
    Street, London, W1T 2RJ.
|     
|(iii) |  | The registered address of Paramount UK is 180 Oxford Street,
    London, W1D 1DS.                                                                                                                                                                                      
|     
|(iv)  |  | These entities report their financial results for each
    12 month period ending 31 December.                                                                                                                                                                         
|     
|(v)   |  | MUTV Limited reports its financial results for each
    12 month period ending 30 September.                                                                                                                                                                           
|     
|(vi)  |  | The registered address of National Geographic Channel is Grant
    Way, Isleworth, Middlesex, TW7 5QD.                                                                                                                                                                 

142



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##### Table of Contents

31. Explanation of transition to IFRS

The analysis below shows a reconciliation of the Groups
balance sheet reported under UK GAAP to the Groups balance
sheet reported under IFRS at the Transition Date and at
30 June 2005; a reconciliation of profit reported under UK
GAAP to the profit reported under IFRS for the year ended
30 June 2005; and a reconciliation of the cash flows of the
Group as reported under UK GAAP reconciled to cash flows
reported under IFRS.

The Group complied with all applicable mandatory exemptions and
in addition the elective exemptions within IFRS 1 relating
to business combinations and share-based payment transactions.



Consolidated IFRS Income Statementfor the year ended
    30 June 2005

|                                                           |  |          |        |   |          |               |       |            |  |  |          |   |                   |        |      |   |        |  |      |           |  |  |        |   |  |             |       |   |      |  |      |   |  |  |      |   |  |  |        |  
|---------------------------------------------------------- |  | -------- | ------ | - | -------- | ------------- | ----- | ---------- |  |  | -------- | - | ----------------- | ------ | ---- | - | ------ |  | ---- | --------- |  |  | ------ | - |  | ----------- | ----- | - | ---- |  | ---- | - |  |  | ---- | - |  |  | ------ | -
|                                                           |  |          |        |   |          | Financial     |       |            |  |  |          |   |                   |        |      |   |        |  |     
|                                                           |  |          |        |   |          | instruments & |       |            |  |  |          |   |                   |        |      |   |        |  |     
|                                                           |  | As       |        |   | Share-   |               |       | hedge      |  |  |          |   |                   |        |      |   |       
|                                                           |  | reported |        |   | based    |               |       | accounting |  |  |          |   | Other Adjustments |        |      |   |        | 
|                                                           |  | under    |        |   | payments |               |       |            |  |  | Goodwill |   |                   |        |      |   | IFRS   |  |      |          
|                                                           |  | UK GAAP* |        |   | IFRS 2   |               |       | IAS 21     |  |  | IAS 39   |   |                   | IFRS 3 |      |   | IAS 38 |  |      | IAS 28/31 |  |  | IAS 18 |   |  | adjustments |       |   | IFRS | 
|                                                           |  | £m       |        |   | £m       |               |       | £m         |  |  | £m       |   |                   | £m     |      |   | £m     |  |      | £m        |  |  | £m     |   |  | £m          |       |   | £m   | 
|                                                           | 
|Notes                                                      |  |          |        |   |          |               | (i    | )          |  |  | (ii      | ) |                   |        | (iii | ) |        |  | (iv  | )         |  |  | (v     | ) |  |             | (vi   | ) |      |  | (vii | ) |  |  |      |   |  |  |        |  
|Revenue                                                    |  |          | 4,048  |   |          |               |       |            |  |  |          |   |                   |        | (229 | ) |        |  |      |           |  |  |        |   |  |             |       |   |      |  | 23   |   |  |  | (206 | ) |  |  | 3,842  |  
|Operating expense                                          |  |          | (3,346 | ) |          |               | (19   | )          |  |  | (22      | ) |                   |        | 263  |   |        |  | 116  |           |  |  | 11     |   |  |             |       |   |      |  | (23  | ) |  |  | 326  |   |  |  | (3,020 | )
|Operating profit                                           |  |          | 702    |   |          |               | (19   | )          |  |  | (22      | ) |                   |        | 34   |   |        |  | 116  |           |  |  | 11     |   |  |             |       |   |      |  |      |   |  |  | 120  |   |  |  | 822    |  
|                                                          
|Share of results of joint ventures
    and associates      |  |          | 14     |   |          |               |       |            |  |  |          |   |                   |        |      |   |        |  |      |           |  |  |        |   |  |             |       |   |      |  |      |   |  |  |     |   |  |  | 14     |  
|Investment income                                          |  |          | 30     |   |          |               |       |            |  |  |          |   |                   |        |      |   |        |  |      |           |  |  |        |   |  |             | (1    | ) |      |  |      |   |  |  | (1   | ) |  |  | 29     |  
|Finance costs                                              |  |          | (92    | ) |          |               |       |            |  |  | (26      | ) |                   |        | 31   |   |        |  |      |           |  |  |        |   |  |             |       |   |      |  |      |   |  |  | 5    |   |  |  | (87    | )
|Profit on disposal of joint venture                        |  |          | (23    | ) |          |               |       |            |  |  |          |   |                   |        |      |   |        |  | 32   |           |  |  |        |   |  |             |       |   |      |  |      |   |  |  | 32   |   |  |  | 9      |  
|Profit before tax                                          |  |          | 631    |   |          |               | (19   | )          |  |  | (48      | ) |                   |        | 65   |   |        |  | 148  |           |  |  | 11     |   |  |             | (1    | ) |      |  |      |   |  |  | 156  |   |  |  | 787    |  
|                                                          
|Taxation                                                   |  |          | (206   | ) |          |               | 6     |            |  |  | 14       |   |                   |        | (20  | ) |        |  |      |           |  |  | (3     | ) |  |             |       |   |      |  |      |   |  |  | (3   | ) |  |  | (209   | )
|Profit for the year                                        |  |          | 425    |   |          |               | (13   | )          |  |  | (34      | ) |                   |        | 45   |   |        |  | 148  |           |  |  | 8      |   |  |             | (1    | ) |      |  |      |   |  |  | 153  |   |  |  | 578    |  
|                                                          
|Earnings per share (in pence)
    from profit for the year |  |          |        |   |          |               |       |            |  |  |          |   |                   |        |      |   |        |  |      |           |  |  |        |   |  |             |       |   |      |  |      |   |  |  |      |   |  |  |        |  
|Basic and diluted                                          |  |          | 22.2p  |   |          |               | (0.6p | )          |  |  | (1.8p    | ) |                   |        | 2.4p |   |        |  | 7.7p |           |  |  | 0.4p   |   |  |             | (0.1p | ) |      |  |      |   |  |  | 8.0p |   |  |  | 30.2p  |  
|                                                          



|  |                          
|- | -------------------------
|* | Presented in IFRS format.



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



| |                                   
| | ----------------------------------
| | (i) IFRS 2  Share-based Payment





143



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##### Table of Contents

31. Explanation of transition to IFRS (continued)



Financial instruments & hedge accountingFinancial instruments and hedge accounting under IFRS resulted
in an increase in profit before tax of £17 million and
an additional tax charge of £6 million. The breakdown
of these adjustments is detailed below:



(ii) IAS 21  The Effects of Changes in
    Foreign Exchange RatesUnder UK GAAP, where the Group has taken out financial
instruments to hedge foreign currency exposures, the rates
inherent in the hedging contracts have been used to translate
the hedged items. IAS 21 requires the Group to record all
foreign currency transactions at spot exchange rates at the
transaction date, and to state all foreign currency monetary
assets and liabilities at closing exchange rates each balance
sheet date. The restatement of foreign currency creditors,
programming additions and amortisation in the period resulted in
a net charge of £22 million to programming costs. The
restatement of US$ debt and accrued interest in the period
resulted in an additional charge to finance costs of
£26 million. Together, these adjustments resulted in a
£14 million reduction in the taxation charge for the
year.



(iii) IAS 39 Financial Instruments 
    Recognition and MeasurementUnder UK GAAP, the Group has recognised gains or losses on
financial instruments on maturity. Under IAS 39, the Group is
required to recognise its derivative financial instruments on
the balance sheet at fair value from inception of the contract,
with changes in fair value being recognised in the income
statement. Where hedge accounting of cash flows is achieved, the
portion of the gain or loss on the hedging instrument (i.e. the
change in fair value) that is determined to be an effective
hedge is initially recognised in equity in a hedging reserve,
and is transferred to the Income Statement over the same period
as the underlying hedged exposure affects the income statement.
This resulted in a reduction in programming costs of
£34 million, and a reduction in finance costs of
£31 million in respect of forward contracts and cross
currency and interest rate swaps which achieved hedge accounting
and an additional charge to taxation for the year of
£20 million.

Under UK GAAP, the Group presented amounts receivable from
betting and gaming customers on a gross basis. Under IFRS,
betting payouts are presented net against amounts receivable
from betting and gaming customers. This resulted in a £229m
reduction in revenue, with a corresponding reduction in
operating expense.



Goodwill

(iv) IFRS 3  Business CombinationsUnder UK GAAP, the Group amortised goodwill on a straight-line
basis over periods no longer than twenty years. Under
IFRS 3, the Groups goodwill balances which existed at
the date of transition to IFRS are no longer amortised and
instead are subject to annual impairment testing. Therefore, the
amortisation charge under UK GAAP for 2005 of
£116 million has been reversed under IFRS.

Under UK GAAP, goodwill arising on acquisitions which had been
written off to reserves is recycled to the profit and loss
account on disposal of the investment. Under IFRS 3, such
goodwill is not included in the gain or loss on disposal. This
results in a different gain or loss on disposal of investments
under IFRS. During the year, this difference gave rise to an
adjustment of £32 million to reverse out goodwill
recycled to the profit and loss account on the disposal of
Granada Sky Broadcasting Limited (GSB), so that the
£23 million loss on disposal under UK GAAP became a
gain on disposal of £9 million under IFRS.



Other adjustments

(v) IAS 38  Intangible AssetsIAS 38 requires development expenditure to be recognised in the
balance sheet if it is probable it will provide future economic
benefits to the Group and its cost can be measured reliably.
Under IFRS, certain smartcard development expenditure arising in
the year that was expensed under UK GAAP must be capitalised
under these criteria. This has resulted in an
£11 million reduction in operating expenses and an
additional charge to taxation for the year of
£3 million.

144



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##### Table of Contents

31. Explanation of transition to IFRS (continued)



(vi) IAS 28  Investments in
    Associates and IAS 31  Investments in
    Joint VenturesUnder UK GAAP, the Group accounted for its share of joint
ventures and associates using equity accounting. Under IFRS, the
Group continues to apply equity accounting. However, under IFRS,
the Group is required to cease recognising losses in equity
accounted investments where our share of the loss exceeds our
investment in the venture, unless it has incurred legal or
constructive obligations or made payments on behalf of the joint
venture or associate. In addition, the Groups share of
joint ventures interest and taxation are reported through
the share of joint ventures line. Lastly, goodwill amortisation
relating to joint ventures and associates has been reversed out
under IFRS. The net impact of these adjustments was a reduction
in Investment income of £1 million.



(vii) IAS 18  RevenueUnder UK GAAP, revenues derived from the sale of surplus
programming rights and magazine advertising were recognised net
against operating expenses. Under IFRS, this revenue has been
recognised on a gross basis, resulting in a
£23 million increase in revenue, offset by a
£23 million increase in operating costs. This
treatment is consistent with the Groups US GAAP accounting
policy for revenue.

145



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##### Table of Contents

31. Explanation of transition to IFRS (continued)



Consolidated IFRS Balance Sheet as at 1 July 2004

|                                                 |  |             |        |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |      |   |  |  |        |  
|------------------------------------------------ |  | ----------- | ------ | ------ | -------- | ------------- | ----- | ---------- |  | ----- | ----------------- | - | ---- | ------ | ---- | --- | ------ |  | ---- | ----- |  | ----- | --------- | - |  | ----------- | --- | - | ---- |  | -- | - |  |  | ---- | - |  |  | ------ | -
|                                                 |  |             |        |        |          | Financial     |       |            |  |       |                   |   |      |        |      |     |        |  |     
|                                                 |  |             |        |        |          | instruments & |       |            |  |       |                   |   |      |        |      |     |        |  |     
|                                                 |  |             |        | Share- |          |               | hedge |            |  |       |                   |   |      |       
|                                                 |  | As reported |        |        | based    |               |       | accounting |  |       | Other adjustments |   |      |        |      |    
|                                                 |  | under       |        |        | payments |               |       |            |  |       |                   |   |      | IFRS   |      |     |       
|                                                 |  | UK GAAP*    |        |        | IFRS 2   |               |       | IAS 21     |  |       | IAS 39            |   |      | IAS 38 |      |     | IAS 10 |  |      | IAS 7 |  |       | IAS 28/31 |   |  | adjustments |     |   | IFRS | 
|                                                 |  | £m          |        |        | £m       |               |       | £m         |  |       | £m                |   |      | £m     |      |     | £m     |  |      | £m    |  |       | £m        |   |  | £m          |     |   | £m   | 
|                                                 | 
|Notes                                            |  |             |        | (i)    |          |               | (ii)  |            |  | (iii) |                   |   | (iv) |        |      | (v) |        |  | (vi) |       |  | (vii) |           |   | 
|Non-current assets                               |  |             |        |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |      |   |  |  |        |  
|Goodwill                                         |  |             | 417    |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 417    |  
|Intangible assets                                |  |             |       |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  | 155  |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 155  |   |  |  | 155    |  
|Property, plant and equipment                    |  |             | 376    |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  | (155 | )     |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (155 | ) |  |  | 221    |  
|Investments in joint ventures and
    associates |  |             | 33     |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 33     |  
|Available for sale investments                   |  |             | 2      |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 2      |  
|Deferred tax assets (viii)                       |  |             | 151    |        |          |               | 1     |            |  |       | (37               | ) |      |        | 42   |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 6    |   |  |  | 157    |  
|Derivative financial assets                      |  |             |       |        |          |               |       |            |  |       |                   |   |      |        | 9    |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 9    |   |  |  | 9      |  
|                                                 |  |             | 979    |        |          |               | 1     |            |  |       | (37               | ) |      |        | 51   |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 15   |   |  |  | 994    |  
|                                                
|Current assets                                   |  |             |        |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |      |   |  |  |        |  
|Inventories                                      |  |             | 375    |        |          |               |       |            |  |       | (26               | ) |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (26  | ) |  |  | 349    |  
|Trade and other receivables                      |  |             | 363    |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 363    |  
|Short-term deposits                              |  |             | 173    |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             | (39 | ) |      |  |    |   |  |  | (39  | ) |  |  | 134    |  
|Cash and cash equivalents                        |  |             | 474    |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             | 39  |   |      |  |    |   |  |  | 39   |   |  |  | 513    |  
|Derivative financial assets                      |  |             |       |        |          |               |       |            |  |       |                   |   |      |        | 3    |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 3    |   |  |  | 3      |  
|                                                 |  |             | 1,385  |        |          |               |       |            |  |       | (26               | ) |      |        | 3    |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (23  | ) |  |  | 1,362  |  
|                                                
|                                                
|Total assets                                     |  |             | 2,364  |        |          |               | 1     |            |  |       | (63               | ) |      |        | 54   |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (8   | ) |  |  | 2,356  |  
|                                                
|Current liabilities                              |  |             |        |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |      |   |  |  |        |  
|Trade and other payables                         |  |             | 1,122  |        |          |               | (23   | )          |  |       | (31               | ) |      |        |      |     |        |  |      |       |  |       | (63       | ) |  |             |     |   |      |  | (3 | ) |  |  | (120 | ) |  |  | 1,002  |  
|Current tax liabilities                          |  |             | 48     |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 48     |  
|Derivative financial liabilities                 |  |             |       |        |          |               |       |            |  |       |                   |   |      |        | 43   |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 43   |   |  |  | 43     |  
|                                                 |  |             | 1,170  |        |          |               | (23   | )          |  |       | (31               | ) |      |        | 43   |     |        |  |      |       |  |       | (63       | ) |  |             |     |   |      |  | (3 | ) |  |  | (77  | ) |  |  | 1,093  |  
|                                                
|Non-current
    liabilities                      |  |             |        |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |      |   |  |  |        |  
|Borrowings                                       |  |             | 1,076  |        |          |               |       |            |  |       | (118              | ) |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (118 | ) |  |  | 958    |  
|Other payables                                   |  |             | 28     |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 28     |  
|Derivative financial liabilities                 |  |             |       |        |          |               |       |            |  |       |                   |   |      |        | 111  |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | 111  |   |  |  | 111    |  
|                                                 |  |             | 1,104  |        |          |               |       |            |  |       | (118              | ) |      |        | 111  |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (7   | ) |  |  | 1,097  |  
|                                                
|                                                
|Total liabilities                                |  |             | 2,274  |        |          |               | (23   | )          |  |       | (149              | ) |      |        | 154  |     |        |  |      |       |  |       | (63       | ) |  |             |     |   |      |  | (3 | ) |  |  | (84  | ) |  |  | 2,190  |  
|                                                
|Share capital                                    |  |             | 971    |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 971    |  
|Share premium                                    |  |             | 1,437  |        |          |               |       |            |  |       |                   |   |      |        |      |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  |     |   |  |  | 1,437  |  
|Other reserves                                   |  |             | 206    |        |          |               |       |            |  |       |                   |   |      |        | (1   | )   |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (1   | ) |  |  | 205    |  
|Retained earnings                                |  |             | (2,524 | )      |          |               | 24    |            |  |       | 86                |   |      |        | (99  | )   |        |  |      |       |  |       | 63        |   |  |             |     |   |      |  | 3  |   |  |  | 77   |   |  |  | (2,447 | )
|Shareholders
    equity                         |  |             | 90     |        |          |               | 24    |            |  |       | 86                |   |      |        | (100 | )   |        |  |      |       |  |       | 63        |   |  |             |     |   |      |  | 3  |   |  |  | 76   |   |  |  | 166    |  
|                                                
|Total liabilities and
    shareholders equity   |  |             | 2,364  |        |          |               | 1     |            |  |       | (63               | ) |      |        | 54   |     |        |  |      |       |  |       |           |   |  |             |     |   |      |  |    |   |  |  | (8   | ) |  |  | 2,356  |  
|                                                

* Presented on an IFRS basis


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##### Table of Contents

31. Explanation of transition to IFRS (continued)



Share-based Payments(i) IFRS 2  Share-based Payment

Under UK GAAP, certain amounts charged through the profit and
loss account for share-based payments were shown within accruals
in the balance sheet. Under IFRS, they are required to be
recorded within reserves. This resulted in a reclassification
between accruals and reserves of £23 million in the
Groups transitional balance sheet. In addition, the
requirements of IAS 12  Income Taxes led
to the recognition of £1 million of additional
deferred tax assets relating to share-based payments.



Financial instruments & hedge accountingFinancial instruments and hedge accounting under IFRS resulted
in a decrease in total assets of £9 million, an
increase in total liabilities of £5 million and a
decrease in shareholders equity of £14 million. The
breakdown of these adjustments is detailed below:

(ii) IAS 21  The Effects of Changes in
Foreign Exchange Rates

Under UK GAAP, where the Group has taken out financial
instruments to hedge foreign currency exposures economically,
the rates inherent in the hedging contracts have been used to
translate the hedged items into GBP. IAS 21 requires the Group
to record all foreign currency transactions at spot exchange
rates at the transaction date, and to state all foreign currency
monetary assets and liabilities at closing exchange rates each
balance sheet date. The restatement of foreign currency balances
led to a decrease in programming creditors of
£31 million, a decrease in programming inventory of
£26 million, and a decrease in borrowings of
£118 million. These adjustments also led to a
£37 million decrease in deferred tax assets.

(iii) IAS 39  Financial Instruments:
Recognition and Measurement

Under IAS 39, the Group is required to recognise its derivative
financial instruments on the balance sheet at fair value from
inception of the contract, with changes in fair value being
initially recognised in the hedging reserve or the income
statement. In the transitional balance sheet, this resulted in
the recognition of additional assets of £2 million and
additional liabilities of £43 million in respect of
financial instruments used to hedge programming foreign currency
exposures. Additional assets of £9 million and
liabilities of £111 million were recognised in respect
of financial instruments used to hedge the Groups foreign
currency debt exposure, and £1 million of additional
assets relating to embedded derivatives. These adjustments
increased deferred tax assets by £42 million.

Other adjustments

(iv) IAS 38  Intangible Assets

IAS 38 requires certain expenditure, which was capitalised as
tangible fixed assets under UK GAAP, to be capitalised as
intangible assets under IFRS. These assets include software that
is not integral to a related item of hardware and software
development. The assets have been reclassified on transition to
IFRS, and have continued to be amortised over their useful
economic lives, which have not changed as a result of the
reclassification. This resulted in a reclassification between
Property, plant and equipment and Intangible
assets of £155 million in the Groups
transitional balance sheet.

(v) IAS 10  Events after the Balance
Sheet Date

Under UK GAAP, dividends declared after the Balance Sheet date,
but before the date of signing the financial statements, are
treated as adjusting post-balance sheet events, and the
associated dividend payable has been recorded as a liability
within the year-end balance sheet. Under IAS 10 such a dividend
is recorded as a liability in the accounting period in which it
is approved. This resulted in the removal of the final dividend
of £63 million declared in August 2004 in respect of
the year ended 30 June 2004 from the Groups
transitional balance sheet.

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31. Explanation of transition to IFRS (continued)

(vi) IAS 7  Cash Flow Statements

Under IAS 7, the definition of cash and cash equivalents
normally includes investments with a short maturity (less than
three months) from the date of acquisition, which are readily
convertible to a known amount of cash with an insignificant risk
of changes in value. The definition of short-term deposits
includes commercial paper and other term deposits with a
maturity of more than three months from the date of acquisition.
This resulted in an IFRS reclassification in the transitional
balance sheet from Short-term deposits to Cash
and cash equivalents of £39 million for items
with a maturity of less than three months at the date of
acquisition.



(vii) IAS 28  Investments in
    Associates and IAS 31 Investments in Joint
    VenturesIn accordance with the equity accounting requirements of
IAS 28, the Groups accumulated share of losses in
certain joint ventures that exceed its interest in those
entities and its obligations to provide further funding are not
recognised. This resulted in an adjustment of
£3 million in the transitional balance sheet for
losses recognised under UK GAAP.



(viii) IAS 1  Presentation of Financial
    StatementsUnder IAS 1, all deferred tax balances must be classified
as non-current assets or liabilities, which has led to a
reclassification of deferred tax assets previously classified
within current assets under UK GAAP.

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##### Table of Contents

31. Explanation of transition to IFRS (continued)



Consolidated IFRS Balance Sheetas at 30 June 2005

|                                                 |  |             |        |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |      |   |  |  |        |  
|------------------------------------------------ |  | ----------- | ------ | ------ | -------- | ------------- | ----- | ---------- |  |  | -------- | - | ----------------- | ------ | ----- | - | ------ |  | ---- | ------ |  |  | ----- | - |  | ----------- | ---- | - | ---- |  | ----- | - |  |  | ---- | - |  |  | ------ | -
|                                                 |  |             |        |        |          | Financial     |       |            |  |  |          |   |                   |        |       |   |        |  |     
|                                                 |  |             |        |        |          | instruments & |       |            |  |  |          |   |                   |        |       |   |        |  |     
|                                                 |  |             |        | Share- |          |               | hedge |            |  |  |          |   |                   |        |       |  
|                                                 |  | As reported |        |        | based    |               |       | accounting |  |  |          |   | Other adjustments |        |       |   |        | 
|                                                 |  | under       |        |        | payments |               |       |            |  |  | Goodwill |   |                   |        |       |   | IFRS   |  |      |       
|                                                 |  | UK GAAP*    |        |        | IFRS 2   |               |       | IAS 21     |  |  | IAS 39   |   |                   | IFRS 3 |       |   | IAS 38 |  |      | IAS 10 |  |  | IAS 7 |   |  | adjustments |      |   | IFRS | 
|                                                 |  | £m          |        |        | £m       |               |       | £m         |  |  | £m       |   |                   | £m     |       |   | £m     |  |      | £m     |  |  | £m    |   |  | £m          |      |   | £m   | 
|                                                 | 
|Notes                                            |  |             |        |        |          |               | (i)   |            |  |  | (ii)     |   |                   |        | (iii) |   |        |  | (iv) |        |  |  | (v)   |   |  |             | (vi) |   |      |  | (vii) |   |  |  |      |   |  |  |        |  
|Non-current assets                               |  |             |        |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |      |   |  |  |        |  
|Goodwill                                         |  |             | 301    |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  | 116  |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 116  |   |  |  | 417    |  
|Intangible assets                                |  |             |       |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  | 202   |   |  |             |      |   |      |  |       |   |  |  | 202  |   |  |  | 202    |  
|Property, plant and equipment                    |  |             | 526    |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  | (191  | ) |  |             |      |   |      |  |       |   |  |  | (191 | ) |  |  | 335    |  
|Investments in joint ventures and
    associates |  |             | 23     |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 23     |  
|Available for sale investments                   |  |             | 2      |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 2      |  
|Deferred tax assets (viii)                       |  |             | 100    |        |          |               | 2     |            |  |  | (23      | ) |                   |        | 29    |   |        |  |      |        |  |  | (3    | ) |  |             |      |   |      |  |       |   |  |  | 5    |   |  |  | 105    |  
|Derivative financial assets                      |  |             |       |        |          |               |       |            |  |  |          |   |                   |        | 9     |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 9    |   |  |  | 9      |  
|                                                 |  |             | 952    |        |          |               | 2     |            |  |  | (23      | ) |                   |        | 38    |   |        |  | 116  |        |  |  | 8     |   |  |             |      |   |      |  |       |   |  |  | 141  |   |  |  | 1,093  |  
|                                                
|Current assets                                   |  |             |        |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |      |   |  |  |        |  
|Inventories                                      |  |             | 340    |        |          |               |       |            |  |  | (19      | ) |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | (19  | ) |  |  | 321    |  
|Trade and other receivables                      |  |             | 331    |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 331    |  
|Short-term deposits                              |  |             | 54     |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  | 140   |   |  |  | 140  |   |  |  | 194    |  
|Cash and cash equivalents                        |  |             | 643    |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  | (140  | ) |  |  | (140 | ) |  |  | 503    |  
|Derivative financial assets                      |  |             |       |        |          |               |       |            |  |  |          |   |                   |        | 14    |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 14   |   |  |  | 14     |  
|                                                 |  |             | 1,368  |        |          |               |       |            |  |  | (19      | ) |                   |        | 14    |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | (5   | ) |  |  | 1,363  |  
|                                                
|                                                
|Total assets                                     |  |             | 2,320  |        |          |               | 2     |            |  |  | (42      | ) |                   |        | 52    |   |        |  | 116  |        |  |  | 8     |   |  |             |      |   |      |  |       |   |  |  | 136  |   |  |  | 2,456  |  
|                                                
|Current liabilities                              |  |             |        |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |      |   |  |  |        |  
|Trade and other payables                         |  |             | 1,140  |        |          |               | (14   | )          |  |  | (2       | ) |                   |        |       |   |        |  |      |        |  |  |       |   |  |             | (93  | ) |      |  |       |   |  |  | (109 | ) |  |  | 1,031  |  
|Current tax liabilities                          |  |             | 100    |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 100    |  
|Provisions (viii)                                |  |             | 13     |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 13     |  
|Derivative financial liabilities                 |  |             |       |        |          |               |       |            |  |  |          |   |                   |        | 6     |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 6    |   |  |  | 6      |  
|                                                 |  |             | 1,253  |        |          |               | (14   | )          |  |  | (2       | ) |                   |        | 6     |   |        |  |      |        |  |  |       |   |  |             | (93  | ) |      |  |       |   |  |  | (103 | ) |  |  | 1,150  |  
|                                                
|Non-current
    liabilities                      |  |             |        |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |      |   |  |  |        |  
|Borrowings                                       |  |             | 1,076  |        |          |               |       |            |  |  | (94      | ) |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | (94  | ) |  |  | 982    |  
|Other payables                                   |  |             | 25     |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 25     |  
|Derivative financial liabilities                 |  |             |       |        |          |               |       |            |  |  |          |   |                   |        | 112   |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 112  |   |  |  | 112    |  
|                                                 |  |             | 1,101  |        |          |               |       |            |  |  | (94      | ) |                   |        | 112   |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 18   |   |  |  | 1,119  |  
|                                                
|                                                
|Total liabilities                                |  |             | 2,354  |        |          |               | (14   | )          |  |  | (96      | ) |                   |        | 118   |   |        |  |      |        |  |  |       |   |  |             | (93  | ) |      |  |       |   |  |  | (85  | ) |  |  | 2,269  |  
|                                                
|Share capital                                    |  |             | 934    |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 934    |  
|Share premium                                    |  |             | 1,437  |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 1,437  |  
|Capital redemption reserve                       |  |             | 37     |        |          |               |       |            |  |  |          |   |                   |        |       |   |        |  |      |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  |     |   |  |  | 37     |  
|Other reserves                                   |  |             | 131    |        |          |               |       |            |  |  |          |   |                   |        | (14   | ) |        |  | 73   |        |  |  |       |   |  |             |      |   |      |  |       |   |  |  | 59   |   |  |  | 190    |  
|Retained earnings                                |  |             | (2,573 | )      |          |               | 16    |            |  |  | 54       |   |                   |        | (52   | ) |        |  | 43   |        |  |  | 8     |   |  |             | 93   |   |      |  |       |   |  |  | 162  |   |  |  | (2,411 | )
|Shareholders
    equity                         |  |             | (34    | )      |          |               | 16    |            |  |  | 54       |   |                   |        | (66   | ) |        |  | 116  |        |  |  | 8     |   |  |             | 93   |   |      |  |       |   |  |  | 221  |   |  |  | 187    |  
|                                                
|Total liabilities and
    shareholders equity   |  |             | 2,320  |        |          |               | 2     |            |  |  | (42      | ) |                   |        | 52    |   |        |  | 116  |        |  |  | 8     |   |  |             |      |   |      |  |       |   |  |  | 136  |   |  |  | 2,456  |  
|                                                

* Presented on an IFRS basis


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31. Explanation of transition to IFRS (continued)

Share-based payments



(i) IFRS 2  Share-based PaymentUnder UK GAAP, certain amounts charged through the profit and
loss account for share-based payments are shown within accruals
in the balance sheet. Under IFRS, they are required to be
recorded within reserves. This resulted in a reclassification
between accruals and reserves of £14 million at
30 June 2005. In addition, the requirements of IAS
12  Income Taxes led to the recognition
of £2 million of additional deferred tax assets
relating to share-based payments.

Financial instruments & hedge accounting

Financial instruments and hedge accounting under IFRS resulted
in an increase in total assets of £10 million, an
increase in total liabilities of £22 million and a
decrease in shareholders equity of £12 million.
The breakdown of these adjustments is detailed below:



(ii) IAS 21  The Effects of Changes in
    Foreign Exchange RatesUnder UK GAAP, where the Group has taken out financial
instruments to hedge foreign currency exposures economically,
the rates inherent in the hedging contracts have been used to
translate the hedged items into GBP. IAS 21 requires the Group
to record all foreign currency transactions at spot exchange
rates at the transaction date, and to state all foreign currency
monetary assets and liabilities at closing exchange rates each
balance sheet date. The restatement of foreign currency balances
led to a decrease in programming creditors of
£2 million, a decrease in programming inventory of
£19 million, and a decrease in borrowings of
£94 million. These adjustments also led to a
£23 million decrease in deferred tax assets.



(iii) IAS 39  Financial
    Instruments  Recognition and MeasurementUnder IAS 39, the Group is required to recognise its derivative
financial instruments on the balance sheet at fair value from
inception of the contract, with changes in fair value being
recognised in the income statement. In the Balance Sheet at
30 June 2005 this resulted in the recognition of additional
assets of £13 million and additional liabilities of
£6 million in respect of financial instruments used to
hedge the Groups programming foreign currency exposures.
Additional assets of £9 million and liabilities of
£112 million were recognised in respect of financial
instruments used to hedge the Groups foreign currency debt
exposure, and £1 million of additional assets relating
to embedded derivatives. These adjustments increased deferred
tax assets by £29 million.

Goodwill



(iv)
    IFRS 3  Business CombinationsThe adjustment of £116 million reinstates the goodwill
amortisation charged under UK GAAP in the period, and is partly
offset by an adjustment of £73 million in reserves,
which reverses a release from the merger reserve to the Profit
and Loss reserve made under UK GAAP in relation to the
acquisitions on which the goodwill arose.

Other adjustments



(v) IAS 38  Intangible AssetsIAS 38 requires certain expenditure, which was capitalised as
tangible fixed assets under UK GAAP, to be capitalised as
intangible assets under IFRS. These assets include software that
is not integral to a related item of hardware and software
development. The assets have been reclassified on transition to
IFRS, and have continued to be amortised over their useful
economic lives, which have not changed as a result of the
reclassification. This resulted in a reclassification between
Property, plant and equipment and Intangible
assets of £191 million in the balance sheet.

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31. Explanation of transition to IFRS (continued)

IAS 38 requires development expenditure to be recognised in the
balance sheet if it is probable that it will provide future
economic benefits to the Group and its cost can be measured
reliably. Under IFRS, certain development expenditure arising in
the year meets these criteria and has therefore been
capitalised. Under UK GAAP the Group has elected to expense all
such expenditure as incurred. This results in an increase of
£11 million in intangible assets in the balance sheet
at 30 June 2005. This adjustment decreases deferred tax
assets by £3 million.



(vi) IAS 10  Events after the Balance
    Sheet DateUnder UK GAAP, dividends declared after the balance sheet date,
but before the date of signing the financial statements, are
treated as adjusting post-balance sheet events, and the
associated dividend payable has been recorded as a liability
within the year-end balance sheet. Under IAS 10 such a dividend
is recorded as a liability in the accounting period in which it
is approved. This resulted in the removal of the final dividend
of £93 million declared in August 2005 in respect of
the year ended 30 June 2005 from the Groups balance
sheet.



(vii) IAS 7  Cash Flow StatementsUnder IAS 7, the definition of cash and cash equivalents
normally includes investments with a short maturity (less than
three months) from the date of acquisition, which are readily
convertible to a known amount of cash with an insignificant risk
of changes in value. The definition of short-term deposits
includes commercial paper and other term deposits with a
maturity of more than three months from the date of acquisition.
This resulted in an IFRS reclassification in the balance sheet
from Cash and cash equivalents to Short-term
deposits of £140 million for items with a
maturity of more than three months at the date of acquisition.



(viii) IAS 1  Presentation of Consolidated
    Financial StatementsUnder IAS 1, all deferred tax balances must be classified
as non-current assets or liabilities, which has led to a
reclassification of deferred tax assets previously classified
within current assets under UK GAAP.

In addition, £13 million of provisions, disclosed
separately under UK GAAP, have been reclassified to current
liabilities.

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31. Explanation of transition to IFRS (continued)



Consolidated IFRS cash flow statementfor the year ended
    30 June 2005

|                                                             |  |          |      |   |            |  |      |            |  |  |             |   |  |      |      |   |  |  |      |  
|------------------------------------------------------------ |  | -------- | ---- | - | ---------- |  | ---- | ---------- |  |  | ----------- | - |  | ---- | ---- | - |  |  | ---- | -
|                                                             |  | As       |      |   |            |  |      |            |  |  |            
|                                                             |  | reported |      |   | Cash flow  |  |      | Intangible |  |  |             |   | 
|                                                             |  | under    |      |   | statements |  |      | assets     |  |  | IFRS        |   |  |     
|                                                             |  | UK GAAP* |      |   | IAS 7      |  |      | IAS 38     |  |  | adjustments |   |  | IFRS |     
|                                                             |  | £m       |      |   | £m         |  |      | £m         |  |  | £m          |   |  | £m   |     
|                                                             | 
|Notes                                                        |  |          |      |   |            |  | (i)  |            |  |  | (ii)        |   |  |      |      |   |  |  |      |  
|                                                            
|Cash flows from operating
    activities                     |  |          |      |   |            |  |      |            |  |  |             |   |  |      |      |   |  |  |      |  
|Cash generated from operations                               |  |          | 978  |   |            |  |      |            |  |  | 11          |   |  |      | 11   |   |  |  | 989  |  
|Interest received                                            |  |          | 28   |   |            |  |      |            |  |  |             |   |  |      |     |   |  |  | 28   |  
|Taxation paid                                                |  |          | (103 | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (103 | )
|Net cash from operating
    activities                       |  |          | 903  |   |            |  |      |            |  |  | 11          |   |  |      | 11   |   |  |  | 914  |  
|                                                            
|                                                            
|Cash flows from investing
    activities                     |  |          |      |   |            |  |      |            |  |  |             |   |  |      |      |   |  |  |      |  
|Dividends received from joint
    ventures and associates    |  |          | 12   |   |            |  |      |            |  |  |             |   |  |      |     |   |  |  | 12   |  
|Funding to joint ventures and
    associates                 |  |          | (4   | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (4   | )
|Repayments of funding from joint
    ventures and associates |  |          | 8    |   |            |  |      |            |  |  |             |   |  |      |     |   |  |  | 8    |  
|Proceeds from the sale of a joint
    venture                |  |          | 14   |   |            |  |      |            |  |  |             |   |  |      |     |   |  |  | 14   |  
|Purchase of property, plant and
    equipment                |  |          | (230 | ) |            |  |      |            |  |  | 81          |   |  |      | 81   |   |  |  | (149 | )
|Purchase of intangible assets                                |  |          |     |   |            |  |      |            |  |  | (92         | ) |  |      | (92  | ) |  |  | (92  | )
|Proceeds from the sale of equity
    investments             |  |          | 1    |   |            |  |      |            |  |  |             |   |  |      |     |   |  |  | 1    |  
|Decrease (increase) in short-term
    deposits               |  |          | 164  |   |            |  | (224 | )          |  |  |             |   |  |      | (224 | ) |  |  | (60  | )
|Net cash used in investing
    activities                    |  |          | (35  | ) |            |  | (224 | )          |  |  | (11         | ) |  |      | (235 | ) |  |  | (270 | )
|                                                            
|                                                            
|Cash flows from financing
    activities                     |  |          |      |   |            |  |      |            |  |  |             |   |  |      |      |   |  |  |      |  
|Proceeds from issue of shares held
    in ESOP               |  |          | 4    |   |            |  |      |            |  |  |             |   |  |      |     |   |  |  | 4    |  
|Purchase of own shares for ESOP                              |  |          | (14  | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (14  | )
|Purchase of own shares for
    cancellation                  |  |          | (416 | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (416 | )
|Interest paid                                                |  |          | (91  | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (91  | )
|Dividends paid to shareholders                               |  |          | (138 | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (138 | )
|Net cash used in financing
    activities                    |  |          | (655 | ) |            |  |      |            |  |  |             |   |  |      |     |   |  |  | (655 | )
|                                                            
|                                                            
|Effect of foreign exchange rate
    movements                |  |          |     |   |            |  | 1    |            |  |  |             |   |  |      | 1    |   |  |  | 1    |  
|                                                            
|Net increase (decrease) in cash
    and cash equivalents     |  |          | 213  |   |            |  | (223 | )          |  |  |             |   |  |      | (223 | ) |  |  | (10  | )
|                                                            









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32.
    Summary of differences between IFRS and US GAAP

(i)
    Differences giving rise to accounting adjustmentsThe Groups accounts are prepared in accordance with IFRS,
which differs in certain respects from US GAAP.

The following is a summary of the significant adjustments to
operating income, net income, shareholders equity and
certain other balance sheet items required when reconciling such
amounts recorded in the accounts to the corresponding amounts in
accordance with US GAAP.

|                                                    |                                                 |                         |       |      |   |  |       |     |  
|--------------------------------------------------- | ----------------------------------------------- | ----------------------- | ----- | ---- | - |  | ----- | --- | -
|                                                    |                                                 | Year ended 30 June     
|                                                    |                                                 |                        
|                                                    |                                                 | 2006                    |       | 2005
|                                                    |                                                 | £m                      |       | £m  
|                                                    |                                                 | (Except per share data)
|                                                   
|Operating income:                                   |                                                 |                         |       |      |   |  |       |    
|Operating profit under
    IFRS                     |                                                 |                         | 877   |      |   |  | 822   |    
|Adjustments:                                        |                                                 |                         |       |      |   |  |       |    
|                                                    | Employee stock-based
    compensation(2)        |                         |       | 1    |   |  |       | 20  |  
|                                                    | Derivative
    accounting(3)                    |                         |       | (2   | ) |  |       |    |  
|                                                    | Capitalised
    interest(4)                     |                         |       | (3   | ) |  |       | (2  | )
|Operating income under US
    GAAP                  |                                                 |                         | 873   |      |   |  | 840   |    
|                                                   
|Net income:                                         |                                                 |                         |       |      |   |  |       |    
|Profit for the year under
    IFRS                  |                                                 |                         | 551   |      |   |  | 578   |    
|Adjustments:                                        |                                                 |                         |       |      |   |  |       |    
|                                                    | Goodwill(1)                                     |                         |       |     |   |  |       | (23 | )
|                                                    | Employee stock-based
    compensation(2)        |                         |       | 1    |   |  |       | 20  |  
|                                                    | Derivative
    accounting(3)                    |                         |       | (8   | ) |  |       | (2  | )
|                                                    | Capitalised
    interest(4)                     |                         |       | 4    |   |  |       | 11  |  
|                                                    | Pre-consolidation
    results(5)                |                         |       | (2   | ) |  |       |    |  
|                                                    | Deferred taxation on US GAAP
    adjustments(6) |                         |       | 5    |   |  |       | (7  | )
|Net income under US
    GAAP                        |                                                 |                         | 551   |      |   |  | 577   |    
|                                                   
|Basic earnings per share under
    US
    GAAP(8)   |                                                 |                         | 30.2p |      |   |  | 30.2p |    
|                                                   
|Diluted earnings per share under
    US
    GAAP(8) |                                                 |                         | 30.1p |      |   |  | 30.1p |    
|                                                   

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32. Summary of differences between IFRS and US GAAP
(continued)

|                                       |                                          |               |       |     |      |  |       |     |  
|-------------------------------------- | ---------------------------------------- | ------------- | ----- | --- | ---- |  | ----- | --- | -
|                                       |                                          | As at 30 June |      
|                                       |                                          |               |      
|                                       |                                          | 2006          |       |     | 2005 | 
|                                       |                                          | £m            |       |     | £m   | 
|                                       |                                         
|Shareholders
    equity:              |                                          |               |       |     |      |  |       |    
|Capital and reserves under
    IFRS    |                                          |               | 121   |     |      |  | 187   |    
|Adjustments:                           |                                          |               |       |     |      |  |       |    
|                                       | Goodwill(1)                              |               |       | 616 |      |  |       | 616 |  
|                                       | Employee stock-based
    compensation(2) |               |       | 7   |      |  |       | 5   |  
|                                       | Capitalised
    interest(4)              |               |       | 24  |      |  |       | 20  |  
|                                       | Deferred
    taxation(6)                 |               |       | (9  | )    |  |       | (10 | )
|Shareholders equity under
    US GAAP |                                          |               | 759   |     |      |  | 818   |    
|                                      
|Total assets:                          |                                          |               |       |     |      |  |       |    
|Under IFRS                             |                                          |               | 3,773 |     |      |  | 2,456 |    
|Adjustments:                           |                                          |               |       |     |      |  |       |    
|                                       | Goodwill(1)                              |               |       | 616 |      |  |       | 616 |  
|                                       | Capitalised
    interest(4)              |               |       | 24  |      |  |       | 20  |  
|                                       | Deferred
    taxation(6)                 |               |       | (9  | )    |  |       | (10 | )
|                                       | Debt issue
    costs(7)                  |               |       | 15  |      |  |       |    |  
|Under US GAAP                          |                                          |               | 4,419 |     |      |  | 3,082 |    
|                                      
|Total liabilities:                     |                                          |               |       |     |      |  |       |    
|Under IFRS                             |                                          |               | 3,652 |     |      |  | 2,269 |    
|Adjustments:                           |                                          |               |       |     |      |  |       |    
|                                       | Employee stock-based
    compensation(2) |               |       | (7  | )    |  |       | (5  | )
|                                       | Debt issue
    costs(7)                  |               |       | 15  |      |  |       |    |  
|Under US GAAP                          |                                          |               | 3,660 |     |      |  | 2,264 |    
|                                      

Notes




|    |         
|--- | --------
|(1) | Goodwill







154



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32. Summary of differences between IFRS and US GAAP
(continued)



Subsidiaries

Sky Television LimitedGoodwill of £492 million arising on the acquisition of
Sky Television Limited on 3 November 1990 was being
amortised under US GAAP on a straight-line basis over
40 years. From 1 July 2002, no further amortisation
has been recorded under US GAAP following the adoption of
SFAS No. 142. The goodwill balance under US GAAP
at that date was £309 million. Prior to the adoption
of IFRS, under UK GAAP, the goodwill arising on the
acquisition of Sky Television Limited was eliminated against
reserves. Goodwill written off to reserves under UK GAAP is
not reinstated on transition to IFRS, as required by
IFRS 1, leading to an increase in total assets under
US GAAP compared to IFRS of £309 million.



BiBThe Group completed the acquisition of a 67.5% interest in BiB
during fiscal 2001. Under IFRS, the goodwill arising on the
acquisition has been included at its deemed cost of
£302 million, representing its carrying value under
UK GAAP at the IFRS Transition Date. Under US GAAP,
the goodwill arising on acquisition was £664 million.
No amortisation has been charged from 1 July 2002 following
the adoption of SFAS No. 142. The goodwill balance
under US GAAP at that date was £560 million.

During fiscal 2003, under US GAAP, the Group recognised a
deferred tax asset of £24 million in respect of BiB
tax losses carried forward. The tax benefits of BiBs tax
losses carried forward that were not recognised at the
acquisition date of £21 million were applied to reduce
goodwill relating to the acquisition. This reduced the goodwill
balance under US GAAP to £539 million, resulting
in a goodwill balance which is currently £237 million
higher than that under IFRS.



SIGThe Group completed the acquisition of SIG on 12 July 2000.
Under IFRS, the goodwill arising on the acquisition has been
included at its deemed cost at the IFRS Transition Date of
£112 million. Under US GAAP, goodwill of
£272 million was being amortised on a straight-line
basis over seven years. From 1 July 2002, no further
amortisation has been recorded following the adoption of
SFAS No. 142. The goodwill balance under US GAAP
at that date was £189 million.

During fiscal 2003, under US GAAP, the Group recorded an
impairment charge of £5 million against goodwill which
arose on the acquisition of BSkyB Sports Holdings Limited
(formerly Opta Index Limited), a subsidiary of SIG. This reduced
the goodwill balance under US GAAP to
£184 million, resulting in a goodwill balance which is
currently £72 million higher than that under IFRS.

In addition, there is £3 million of goodwill under
IFRS, which has a carrying value of nil under US GAAP, which has
arisen on certain other acquisitions.



Joint venturesOn 1 November 2004, the Group sold its 49.5% investment in
GSB, realising a profit on disposal under IFRS of
£9 million. This was included as an item below
operating profit. Prior to the adoption of IFRS, under UK GAAP,
the goodwill arising on the acquisition of an additional 9.5%
interest in GSB in March 1998 was eliminated against reserves.
Goodwill written off to reserves under UK GAAP is not
included in determining any subsequent gain or loss on disposal
under IFRS, as required by IFRS 1. Under US GAAP, the
carrying value of the goodwill at the time of the disposal was
£23 million, which resulted in a loss on disposal of
£14 million.

Under US GAAP, £1 million of goodwill has arisen on
the purchase of certain other joint ventures and associates. No
amortisation charge is being recognised. Under IFRS, the deemed
cost of this goodwill at the IFRS Transition Date was nil.

155



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##### Table of Contents

32. Summary of differences between IFRS and US GAAP
(continued)



(2)
    Employee stock-based compensationUnder IFRS, the Group recognises an expense for all share
options and awards based on fair values, measured at the date of
grant using appropriate option-pricing models, taking into
account the terms and conditions upon which the awards are
granted. The expense is recognised over the period during which
employees become unconditionally entitled to the awards,
adjusted for the Groups estimate of the number of awards
which will lapse, either due to employees leaving the Group
prior to vesting or due to non-market based performance
conditions not being met.

Under US GAAP, prior to 1 July 2005, the Group accounted
for the cost of options and awards in accordance with APB
Opinion No. 25 Accounting for Stock Issued to
Employees (APB No. 25). For
performance-related options deemed to be variable plans under
APB No. 25, compensation expense was measured as the
difference between the quoted market price and the exercise
price at the date when the number of shares that would vest and
the exercise price was known (the measurement date);
the cost was recognised over the period the employee performed
the related services. Since the ultimate compensation was
unknown until the performance conditions were satisfied,
estimates of compensation expense were recorded before the
measurement date based on the quoted market price of the common
shares at the intervening dates, in situations where it was
probable that the performance conditions would be attained.
Options that vested conditional only on continued employment
over the life of the options were deemed to be fixed plans under
APB No. 25, with the excess of the market price over the
exercise price on the date of grant being charged against income
over the vesting period of the options.

Under US GAAP, following the adoption of SFAS No. 123
(revised 2004) Share-Based Payment
(SFAS No. 123R), from 1 July 2005,
the accounting for share options and awards has changed.
SFAS No. 123R requires the recognition of an expense
for all share options and awards granted to employees, based on
the fair value at the grant date of those awards, as estimated
using appropriate option-pricing models.

Under IFRS, in accordance with the transition provisions in
IFRS 1 and IFRS 2 Share-based Payment, an
expense has only been recognised in respect of options and
awards granted after 7 November 2002, that had not vested
by 1 January 2005. Under US GAAP, the Group adopted
SFAS No. 123R using the modified prospective
application transition method and was therefore required to
recognise an expense in respect of the portion of any requisite
vesting period which had not been completed for all options and
awards at 1 July 2005, regardless of the original date of
grant of those awards. Furthermore, under IFRS, the Group is
required to recognise compensation cost for awards with graded
vesting on an accelerated basis, as though each separately
vesting portion of the award is a separate award. Under US GAAP,
the Group is required to recognise compensation cost under
SFAS No. 123R using the attribution method that was
used under SFAS No. 123 Accounting for
Stock-based Compensation
(SFAS No. 123). Under
SFAS No. 123, the Group recognised compensation cost
for such awards using a straight-line method, and is therefore
required to continue to follow that same recognition method for
the unvested portion of these awards after adopting
SFAS No. 123R. The extra US GAAP charge for the year
in respect of these differences amounts to £1 million,
as the charge recognised was greater than that recognised during
the year under IFRS. The total tax benefit recognised under US
GAAP relating to stock-based compensation was
£8 million and the tax benefit recognised in respect
of options exercised during the year was £3 million.

As the Group adopted SFAS No. 123R using the modified
prospective application transition method, prior periods have
not been restated. The effect of adopting
SFAS No. 123R was to reduce income before taxation for
the year ended 30 June 2006 by £10 million,
compared to that which would have arisen if share options and
awards had been accounted for in accordance with APB
No. 25, to reduce net income for the year by
£5 million, and to reduce basic and diluted earnings
per share by 0.3 pence. Had compensation expense for share
options been determined

156



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##### Table of Contents

32. Summary of differences between IFRS and US GAAP
(continued)

in accordance with SFAS No. 123 for periods prior to
1 July 2005, the Groups net income and earnings per
share would have been reduced to the
pro-forma amounts shown
below:

|                                  |                                                                                                                         |                     |  |      |    |  
|--------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------- |  | ---- | -- | -
|                                  |                                                                                                                         | Year ended          | 
|                                  |                                                                                                                         | 30 June             | 
|                                  |                                                                                                                         | 2005                | 
|                                  |                                                                                                                         | £m                  | 
|                                  |                                                                                                                        
|Net income under US GAAP:         |                                                                                                                         |                     |  |     
|                                  | As reported                                                                                                             |                     |  | 577  |   
|                                  | Add: APB No. 25
    stock-based employee compensation expense included in reported
    net income                       |                     |  | 5    |   
|                                  |                                                                                                                         | Related tax effects |  |      | (1 | )
|                                  | Deduct: Total stock-based
    employee compensation expense determined under fair value based
    method for all awards |                     |  | (31  | ) 
|                                  |                                                                                                                         | Related tax effects |  |      | 9  |  
|                                  | Pro-forma                                                                                                               |                     |  | 559  |   
|                                 
|Earnings per share under US GAAP: |                                                                                                                         |                     |  |     
|                                  | Basic  as reported                                                                                                     |                     |  | 30.2 | p 
|                                  | Basic  pro-forma                                                                                                       |                     |  | 29.3 | p 
|                                  | Diluted  as reported                                                                                                   |                     |  | 30.1 | p 
|                                  | Diluted  pro-forma                                                                                                     |                     |  | 29.2 | p 
|                                 

00-16




|    |                      
|--- | ---------------------
|(3) | Derivative accounting











|    |                     
|--- | --------------------
|(4) | Capitalised interest



157



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##### Table of Contents

32. Summary of differences between IFRS and US GAAP
(continued)

construction of major capital assets are required to be
capitalised and amortised over the estimated useful life of the
assets concerned.

Cumulative capitalised interest on assets under construction
(net of amortisation) at 30 June 2006 amounted to
£24 million (2005: £20 million). During the
year, interest of £7 million (2005:
£13 million) was capitalised in respect of assets
under construction, and amortisation of £3 million
(2005: £2 million) was charged in respect of
capitalised interest on assets in use.



(5)
    Pre-consolidation resultsOn 21 October 2005, the Group made a recommended cash offer
for the entire issued and to be issued share capital of Easynet.
On 6 January 2006, the offer was declared unconditional in
all respects, and this is considered to be the acquisition date.
Under IFRS, the Groups ownership interest in Easynet
shares up until the date of acquisition were treated as an
available for sale investment.

Under US GAAP, the Group has applied the requirements of
Accounting Principles Board Opinion No. 18 The equity
method of accounting for investments in common stock,
which require that when an investment previously accounted for
using other than the equity method becomes qualified for
consolidation, an investors retained earnings and results
of operations should be adjusted retrospectively to adopt the
equity method for its ownership interest in previous periods.
Accordingly, under US GAAP, the Groups share of
Easynets net loss for the period to 6 January 2006 of
£2 million has been included within net income.



(6)
    Deferred taxationUnder IFRS, IAS 12 Income taxes
(IAS 12) requires that deferred tax assets and
liabilities are recognised using the balance sheet liability
method, providing for temporary differences between the carrying
value of assets and liabilities and their corresponding tax
bases. A deferred tax asset is only recognised to the extent
that it is probable that future taxable profits will be
available against which the asset can be utilised. The carrying
amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.

Under US GAAP, SFAS No. 109 Accounting for
Income Taxes (SFAS No. 109) requires
that deferred income taxes reflect the net tax effects of
temporary differences (differences between the carrying value of
assets and liabilities and their corresponding tax bases). A
valuation allowance is recorded when it is more likely than not
that some or all of a deferred tax asset will not be realised.

The net deferred tax asset recognised under IFRS and US GAAP
primarily differs in respect of deferred tax on IFRS to US GAAP
adjustments.

A further difference arises in relation to the recognition of
deferred tax assets in respect of employee stock-based
compensation expense. Under IFRS, the deferred tax asset is
based on the compensation expense recognised in the income
statement, but is adjusted to reflect the Groups estimate
of the actual future tax deduction which will arise, based on
the Groups share price at the balance sheet date. Under US
GAAP, the deferred tax asset is also based on the compensation
expense recognised in the income statement, however
SFAS No. 123R requires that no consideration is given
to the Groups share price at the balance sheet date in
either measuring the gross asset or any valuation allowance
required.

Under IFRS, at 30 June 2006, there is a deferred tax asset
of £100 million (2005: £105 million).

158



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##### Table of Contents

32. Summary of differences between IFRS and US GAAP
(continued)

The net deferred tax asset under US GAAP comprises the following:

|                                                 |  |                    |     |   |                    |  |      |       |  |  |       |   |  |               |     |   |       |  |      |   |  |  |     |  
|------------------------------------------------ |  | ------------------ | --- | - | ------------------ |  | ---- | ----- |  |  | ----- | - |  | ------------- | --- | - | ----- |  | ---- | - |  |  | --- | -
|                                                 |  | Deferred tax asset |     |   | Deferred tax asset | 
|                                                 |  | 30 June 2006       |     |   | 30 June 2005       | 
|                                                 |  |                    |     |   |                    | 
|                                                 |  | Gross              |     |   | Valuation          |  |      | Net   |  |  | Gross |   |  | Valuation     |     |   | Net   | 
|                                                 |  | asset              |     |   | allowance(iv)      |  |      | Asset |  |  | asset |   |  | allowance(iv) |     |   | asset | 
|                                                 |  | £m                 |     |   | £m                 |  |      | £m    |  |  | £m    |   |  | £m            |     |   | £m    | 
|                                                 | 
|Accelerated capital allowances                   |  |                    | 45  |   |                    |  | (19  | )     |  |  | 26    |   |  |               | 30  |   |       |  | (16  | ) |  |  | 14  |  
|Tax losses carried
    forward(i)                |  |                    | 277 |   |                    |  | (244 | )     |  |  | 33    |   |  |               | 146 |   |       |  | (78  | ) |  |  | 68  |  
|Fixed asset
    investments(ii)                  |  |                    | 354 |   |                    |  | (354 | )     |  |  |      |   |  |               | 354 |   |       |  | (354 | ) |  |  |    |  
|Short-term timing differences                    |  |                    | 2   |   |                    |  |     |       |  |  | 2     |   |  |               | 4   |   |       |  |     |   |  |  | 4   |  
|Share-based payment timing
    differences       |  |                    | 12  |   |                    |  |     |       |  |  | 12    |   |  |               | 7   |   |       |  |     |   |  |  | 7   |  
|Financial instrument timing
    differences(iii) |  |                    | 43  |   |                    |  |     |       |  |  | 43    |   |  |               | 29  |   |       |  |     |   |  |  | 29  |  
|Foreign exchange timing differences              |  |                    | (21 | ) |                    |  |     |       |  |  | (21   | ) |  |               | (23 | ) |       |  |     |   |  |  | (23 | )
|Other                                            |  |                    | (4  | ) |                    |  |     |       |  |  | (4    | ) |  |               | (4  | ) |       |  |     |   |  |  | (4  | )
|                                                 |  |                    | 708 |   |                    |  | (617 | )     |  |  | 91    |   |  |               | 543 |   |       |  | (448 | ) |  |  | 95  |  
|                                                



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | At 30 June 2006, there is a valuation allowance of
    £169 million (2005: £64 million) against a
    deferred tax asset in respect of overseas trading losses,
    including £64 million (2005: £64 million)
    with respect to the Groups German holding companies of
    KirchPayTV, on the basis that these temporary differences are
    not more likely than not to be realised. There is also a
    valuation allowance of £75 million (2005:
    £14 million) against a deferred tax asset arising from
    UK losses in the Group. These losses can be offset only against
    taxable profits generated in the entities concerned. 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.
    Under US GAAP, the subsequent recognition of tax benefits
    relating to the deferred tax asset of £75 million
    (2005: £14 million) arising from UK losses in the
    Group will be allocated to reduce goodwill, then intangible
    assets arising on previously acquired entities.
|     
|(ii)  |  | At 30 June 2006, there is a valuation allowance of
    £330 million (2005: £330 million) against a
    deferred tax asset in respect of potential capital losses
    related to the Groups holding of KirchPayTV on the basis
    that these temporary differences are not more likely than not to
    be realised. There is also a valuation allowance of
    £24 million (2005: £24 million) against a
    deferred tax asset in respect of realised and unrealised capital
    losses in respect of football club and other investments, on the
    basis that it is more likely than not that they will not be
    realised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     
|(iii) |  | During the current year, the deferred tax asset relating to
    financial instruments increased by £14 million (2005:
    increased by £3 million) through OCI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     
|(iv)  |  | The current period charge to the income statement in respect of
    these valuation allowances was £3 million (2005:
    credit of £3 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



|                                          |  |            |      |   |      |  |      |  
|----------------------------------------- |  | ---------- | ---- | - | ---- |  | ---- | -
|                                          |  | Year ended |     
|                                          |  | 30 June    |     
|                                          |  |            |     
|                                          |  | 2006       |      |   | 2005 | 
|                                          |  | %          |      |   | %    | 
|                                          | 
|UK corporation tax rate                   |  |            | 30.0 |   |      |  | 30.0 |  
|Permanent differences                     |  |            | 1.7  |   |      |  | (0.2 | )
|Loss on disposals of investments,
    net |  |            |     |   |      |  | 0.5  |  
|Joint venture profits                     |  |            | (0.2 | ) |      |  | (0.1 | )
|Valuation allowance                       |  |            | 0.4  |   |      |  | 0.2  |  
|Credits relating to prior periods         |  |            | (0.8 | ) |      |  | (3.1 | )
|Other                                     |  |            | (0.6 | ) |      |  | (0.1 | )
|US GAAP income tax
    charge             |  |            | 30.5 |   |      |  | 27.2 |  
|                                         

159



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##### Table of Contents

32.
    Summary of differences between IFRS and US GAAP
    (continued)

(7)
    Debt issue costsUnder IFRS, borrowings are recorded at the proceeds received,
net of direct issue costs.

Under US GAAP, the Group has applied the requirements of
Accounting Principles Board Opinion No. 21 Interest
on Receivables and Payables, which require that direct
issue costs should be reported in the balance sheet as deferred
charges, within assets.



(8)
    Per share dataThe equivalent earnings per American Depositary Share
(ADS) outstanding is as follows:

|                                           |  |                    |        |  |      |  |        | 
|------------------------------------------ |  | ------------------ | ------ |  | ---- |  | ------ | 
|                                           |  | Year ended 30 June |       
|                                           |  |                    |       
|                                           |  | 2006               |        |  | 2005 | 
|                                           | 
|Basic earnings per ADS under US GAAP       |  |                    | 120.8p |  |      |  | 120.8p | 
|Diluted earnings per ADS under US
    GAAP |  |                    | 120.4p |  |      |  | 120.4p | 
|                                          



|    |                            
|--- | ---------------------------
|(9) | Consolidated Balance Sheets



-paid-in


-paid-in


-paid-in




| |                                    
| | -----------------------------------
| | (ii) Additional US GAAP Disclosures



| |                              
| | -----------------------------
| | (a) Adoption of new standards



| |                                                            
| | -----------------------------------------------------------
| | SFAS No. 154 Accounting Changes and Error
    Corrections





| |                                                                       
| | ----------------------------------------------------------------------
| | SFAS No. 155 Accounting for Certain Hybrid
    Financial Instruments



160



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##### Table of Contents

32.
    Summary of differences between IFRS and US GAAP
    (continued)

SFAS No. 156 Accounting for Servicing of
    Financial AssetsIn March 2006, the FASB issued SFAS No. 156
Accounting for Servicing of Financial Assets
(SFAS No. 156). This standard addresses
the recognition of separately recognised servicing assets and
liabilities arising each time an entity undertakes an obligation
to service a financial asset. The standard is effective for
fiscal years beginning after 15 September 2006, and will
therefore be adopted by the Group from 1 July 2007. The
adoption of SFAS No. 156 is not expected to have a
material impact on the Group results of operations or its
financial position.



FASB Interpretation No. 48 Accounting for
    Uncertainty in Income TaxesIn June 2006, the FASB issued FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes
(FIN 48), which clarifies the accounting for
uncertainty in tax positions. The evaluation of a tax position
under FIN 48 is a two-step process. The first step is
recognition: tax positions taken or expected to be taken in a
tax return should be recognised only if those positions are more
likely than not of being sustained upon examination, based on
the technical merits of the position. In evaluating whether a
tax position has met the more likely than not recognition
threshold, it should be presumed that the position will be
examined by the relevant taxing authority that would have full
knowledge of all relevant information. The second step is
measurement: tax positions that meet the recognition criteria
are measured at the largest amount of benefit that is greater
than 50 percent likely of being recognised upon ultimate
settlement.

FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for
fiscal years beginning after 15 December 2006 and is therefore
effective for the Group from 1 July 2007. The Group is currently
assessing FIN 48 and has not yet determined the impact that
the adoption of this interpretation will have on its financial
position or results of operations.

33. Guarantor statements

From time to time the Company may issue debt securities that are
registered with the Securities and Exchange Commission, and
which are guaranteed, on a full and unconditional basis, by
certain of the Companys subsidiaries. Currently, two of
the Companys subsidiaries, British Sky Broadcasting
Limited (BSkyB Limited) and Sky Subscribers Services
Limited (SSSL), are joint and several guarantors of
the Companys registered debt securities. In October 1996,
the Company issued 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 bonds
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 applied in the year ended
30 June 2006, 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 SEC. The Groups accounting policies are in
accordance with IFRS. This supplemental financial information
should be read in conjunction with the consolidated financial
statements.

161



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##### Table of Contents

33. Guarantor statements (continued)

Supplemental condensed consolidating balance sheet as at
30 June
2006(2)

|                                                                   |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |     |  
|------------------------------------------------------------------ | --------------------------------- | ------------ | ----- | --- | ------------ |  | ----- | ------------- | - |  | ------------- | ----- |  | ------------ | ------ | ---- | - |  | ----- | --- | -
|                                                                   |                                   | (3)          |       |     |              |  |       |               |   |  |              
|                                                                   |                                   | British Sky  |       |     | (1)(3)       |  |       |               |   |  |               | BSkyB | 
|                                                                   |                                   | Broadcasting |       |     | Guarantor    |  |       | Non-Guarantor |   |  | Consolidation |       |  | Group and    |       
|                                                                   |                                   | Group plc    |       |     | Subsidiaries |  |       | Subsidiaries  |   |  | adjustments   |       |  | subsidiaries |       
|                                                                   |                                   | £m           |       |     | £m           |  |       | £m            |   |  | £m            |       |  | £m           |       
|                                                                   |                                  
|Non-current assets                                                 |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Goodwill                                                           |                                   |              |      |     |              |  |      |               |   |  | 623           |       |  |              |       |      |   |  | 623   |    
|Intangible assets                                                  |                                   |              |      |     |              |  | 181   |               |   |  | 37            |       |  |              |       |      |   |  | 218   |    
|Property, plant and equipment                                      |                                   |              | 23    |     |              |  | 354   |               |   |  | 133           |       |  |              | 9      |      |   |  | 519   |    
|Investments in subsidiary
    undertakings under the equity method |                                   |              | 929   |     |              |  | 409   |               |   |  | 319           |       |  |              | (1,657 | )    |   |  |      |    
|Investments in joint ventures and
    associates                   |                                   |              |      |     |              |  |      |               |   |  | 28            |       |  |              |       |      |   |  | 28    |    
|Available for sale investments                                     |                                   |              | 1     |     |              |  | 26    |               |   |  |              |       |  |              | (25    | )    |   |  | 2     |    
|Deferred tax assets                                                |                                   |              | 40    |     |              |  | 17    |               |   |  | 43            |       |  |              |       |      |   |  | 100   |    
|Derivative financial assets                                        |                                   |              | 76    |     |              |  |      |               |   |  |              |       |  |              | (76    | )    |   |  |      |    
|                                                                   |                                   |              | 1,069 |     |              |  | 987   |               |   |  | 1,183         |       |  |              | (1,749 | )    |   |  | 1,490 |    
|                                                                  
|Current assets                                                     |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Inventories                                                        |                                   |              |      |     |              |  | 277   |               |   |  | 47            |       |  |              |       |      |   |  | 324   |    
|Trade and other receivables                                        |                                   |              | 1,431 |     |              |  | 2,393 |               |   |  | 2,884         |       |  |              | (6,219 | )    |   |  | 489   |    
|Short-term deposits                                                |                                   |              |      |     |              |  | 297   |               |   |  | 350           |       |  |              |       |      |   |  | 647   |    
|Cash and cash equivalents                                          |                                   |              |      |     |              |  | 785   |               |   |  | 31            |       |  |              |       |      |   |  | 816   |    
|Derivative financial assets                                        |                                   |              | 1     |     |              |  | 6     |               |   |  |              |       |  |              |       |      |   |  | 7     |    
|                                                                   |                                   |              | 1,432 |     |              |  | 3,758 |               |   |  | 3,312         |       |  |              | (6,219 | )    |   |  | 2,283 |    
|                                                                  
|Total assets                                                       |                                   |              | 2,501 |     |              |  | 4,745 |               |   |  | 4,495         |       |  |              | (7,968 | )    |   |  | 3,773 |    
|                                                                  
|Current liabilities                                                |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Borrowings                                                         |                                   |              | 162   |     |              |  |      |               |   |  | 1             |       |  |              |       |      |   |  | 163   |    
|Trade and other payables                                           |                                   |              | 1,205 |     |              |  | 3,406 |               |   |  | 2,945         |       |  |              | (6,309 | )    |   |  | 1,247 |    
|Current tax liabilities                                            |                                   |              |      |     |              |  | 68    |               |   |  |              |       |  |              |       |      |   |  | 68    |    
|Provisions                                                         |                                   |              |      |     |              |  | 1     |               |   |  | 5             |       |  |              |       |      |   |  | 6     |    
|Derivative financial liabilities                                   |                                   |              | 28    |     |              |  | 21    |               |   |  |              |       |  |              |       |      |   |  | 49    |    
|                                                                   |                                   |              | 1,395 |     |              |  | 3,496 |               |   |  | 2,951         |       |  |              | (6,309 | )    |   |  | 1,533 |    
|                                                                  
|Non-current
    liabilities                                        |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Borrowings                                                         |                                   |              | 776   |     |              |  | 266   |               |   |  | 1,103         |       |  |              | (320   | )    |   |  | 1,825 |    
|Other payables                                                     |                                   |              |      |     |              |  | 15    |               |   |  | 15            |       |  |              | 36     |      |   |  | 66    |    
|Provisions                                                         |                                   |              |      |     |              |  | 7     |               |   |  | 12            |       |  |              |       |      |   |  | 19    |    
|Derivative financial liabilities                                   |                                   |              | 209   |     |              |  |      |               |   |  | 76            |       |  |              | (76    | )    |   |  | 209   |    
|                                                                   |                                   |              | 985   |     |              |  | 288   |               |   |  | 1,206         |       |  |              | (360   | )    |   |  | 2,119 |    
|                                                                  
|Total liabilities                                                  |                                   |              | 2,380 |     |              |  | 3,784 |               |   |  | 4,157         |       |  |              | (6,669 | )    |   |  | 3,652 |    
|                                                                  
|Shareholders
    equity                                           |                                   |              | 121   |     |              |  | 961   |               |   |  | 338           |       |  |              | (1,299 | )    |   |  | 121   |    
|                                                                  
|Total liabilities and
    shareholders equity                     |                                   |              | 2,501 |     |              |  | 4,745 |               |   |  | 4,495         |       |  |              | (7,968 | )    |   |  | 3,773 |    
|                                                                  
|Reconciliation to US
    GAAP:                                     |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Shareholders equity under IFRS                                    |                                   |              | 121   |     |              |  | 961   |               |   |  | 338           |       |  |              | (1,299 | )    |   |  | 121   |    
|Adjustments:                                                       |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|                                                                   | Goodwill                          |              |       | 616 |              |  |       |              |   |  |               | 616   |  |              |        | (616 | ) |  |       | 616 |  
|                                                                   | Employee stock-based compensation |              |       | 7   |              |  |       | 7             |   |  |               |      |  |              |        | (7   | ) |  |       | 7   |  
|                                                                   | Capitalised interest              |              |       | 24  |              |  |       | 24            |   |  |               |      |  |              |        | (24  | ) |  |       | 24  |  
|                                                                   | Deferred taxation                 |              |       | (9  | )            |  |       | (9            | ) |  |               |      |  |              |        | 9    |   |  |       | (9  | )
|Capital and reserves under
    US GAAP                             |                                   |              | 759   |     |              |  | 983   |               |   |  | 954           |       |  |              | (1,937 | )    |   |  | 759   |    
|                                                                  

See notes to supplemental guarantor statements


162



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##### Table of Contents

33. Guarantor statements (continued)

Supplemental condensed consolidating balance sheetas at
30 June
2005(2)

|                                                                   |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |     |  
|------------------------------------------------------------------ | --------------------------------- | ------------ | ----- | --- | ------------ |  | ----- | ------------- | - |  | ------------- | ----- |  | ------------ | ------ | ---- | - |  | ----- | --- | -
|                                                                   |                                   | (3)          |       |     |              |  |       |               |   |  |              
|                                                                   |                                   | British Sky  |       |     | (1)(3)       |  |       |               |   |  |               | BSkyB | 
|                                                                   |                                   | Broadcasting |       |     | Guarantor    |  |       | Non-Guarantor |   |  | Consolidation |       |  | Group and    |       
|                                                                   |                                   | Group plc    |       |     | Subsidiaries |  |       | Subsidiaries  |   |  | adjustments   |       |  | subsidiaries |       
|                                                                   |                                   | £m           |       |     | £m           |  |       | £m            |   |  | £m            |       |  | £m           |       
|                                                                   |                                  
|Non-current assets                                                 |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Goodwill                                                           |                                   |              |      |     |              |  |      |               |   |  | 417           |       |  |              |       |      |   |  | 417   |    
|Intangible assets                                                  |                                   |              |      |     |              |  | 191   |               |   |  | 11            |       |  |              |       |      |   |  | 202   |    
|Property, plant and equipment                                      |                                   |              | 24    |     |              |  | 291   |               |   |  | 11            |       |  |              | 9      |      |   |  | 335   |    
|Investments in subsidiary
    undertakings under the equity method |                                   |              | 1,396 |     |              |  | 378   |               |   |  | 45            |       |  |              | (1,819 | )    |   |  |      |    
|Investments in joint ventures and
    associates                   |                                   |              |      |     |              |  |      |               |   |  | 23            |       |  |              |       |      |   |  | 23    |    
|Available for sale investments                                     |                                   |              | 1     |     |              |  | 33    |               |   |  |              |       |  |              | (32    | )    |   |  | 2     |    
|Deferred tax assets                                                |                                   |              | 70    |     |              |  | 35    |               |   |  |              |       |  |              |       |      |   |  | 105   |    
|Derivative financial assets                                        |                                   |              | 9     |     |              |  |      |               |   |  |              |       |  |              |       |      |   |  | 9     |    
|                                                                   |                                   |              | 1,500 |     |              |  | 928   |               |   |  | 507           |       |  |              | (1,842 | )    |   |  | 1,093 |    
|                                                                  
|Current assets                                                     |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Inventories                                                        |                                   |              |      |     |              |  | 292   |               |   |  | 29            |       |  |              |       |      |   |  | 321   |    
|Trade and other receivables                                        |                                   |              | 719   |     |              |  | 1,317 |               |   |  | 1,473         |       |  |              | (3,178 | )    |   |  | 331   |    
|Short-term deposits                                                |                                   |              |      |     |              |  |      |               |   |  | 194           |       |  |              |       |      |   |  | 194   |    
|Cash and cash equivalents                                          |                                   |              | 26    |     |              |  | 354   |               |   |  | 123           |       |  |              |       |      |   |  | 503   |    
|Derivative financial assets                                        |                                   |              |      |     |              |  | 14    |               |   |  |              |       |  |              |       |      |   |  | 14    |    
|                                                                   |                                   |              | 745   |     |              |  | 1,977 |               |   |  | 1,819         |       |  |              | (3,178 | )    |   |  | 1,363 |    
|                                                                  
|Total assets                                                       |                                   |              | 2,245 |     |              |  | 2,905 |               |   |  | 2,326         |       |  |              | (5,020 | )    |   |  | 2,456 |    
|                                                                  
|Current liabilities                                                |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Trade and other payables                                           |                                   |              | 971   |     |              |  | 2,070 |               |   |  | 1,304         |       |  |              | (3,314 | )    |   |  | 1,031 |    
|Current tax liabilities                                            |                                   |              |      |     |              |  | 100   |               |   |  |              |       |  |              |       |      |   |  | 100   |    
|Provisions                                                         |                                   |              |      |     |              |  | 11    |               |   |  | 2             |       |  |              |       |      |   |  | 13    |    
|Derivative financial liabilities                                   |                                   |              |      |     |              |  | 6     |               |   |  |              |       |  |              |       |      |   |  | 6     |    
|                                                                   |                                   |              | 971   |     |              |  | 2,187 |               |   |  | 1,306         |       |  |              | (3,314 | )    |   |  | 1,150 |    
|                                                                  
|Non-current
    liabilities                                        |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Borrowings                                                         |                                   |              | 975   |     |              |  | 72    |               |   |  | 33            |       |  |              | (98    | )    |   |  | 982   |    
|Other payables                                                     |                                   |              |      |     |              |  | 25    |               |   |  |              |       |  |              |       |      |   |  | 25    |    
|Derivative financial liabilities                                   |                                   |              | 112   |     |              |  |      |               |   |  |              |       |  |              |       |      |   |  | 112   |    
|                                                                   |                                   |              | 1,087 |     |              |  | 97    |               |   |  | 33            |       |  |              | (98    | )    |   |  | 1,119 |    
|                                                                  
|Total liabilities                                                  |                                   |              | 2,058 |     |              |  | 2,284 |               |   |  | 1,339         |       |  |              | (3,412 | )    |   |  | 2,269 |    
|                                                                  
|Shareholders
    equity                                           |                                   |              | 187   |     |              |  | 621   |               |   |  | 987           |       |  |              | (1,608 | )    |   |  | 187   |    
|                                                                  
|Total liabilities and
    shareholders equity                     |                                   |              | 2,245 |     |              |  | 2,905 |               |   |  | 2,326         |       |  |              | (5,020 | )    |   |  | 2,456 |    
|                                                                  
|Reconciliation to US
    GAAP:                                     |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|Shareholders equity under IFRS                                    |                                   |              | 187   |     |              |  | 621   |               |   |  | 987           |       |  |              | (1,608 | )    |   |  | 187   |    
|Adjustments:                                                       |                                   |              |       |     |              |  |       |               |   |  |               |       |  |              |        |      |   |  |       |    
|                                                                   | Goodwill                          |              |       | 616 |              |  |       |              |   |  |               | 616   |  |              |        | (616 | ) |  |       | 616 |  
|                                                                   | Employee stock-based compensation |              |       | 5   |              |  |       | 5             |   |  |               |      |  |              |        | (5   | ) |  |       | 5   |  
|                                                                   | Capitalised interest              |              |       | 20  |              |  |       | 20            |   |  |               |      |  |              |        | (20  | ) |  |       | 20  |  
|                                                                   | Deferred taxation                 |              |       | (10 | )            |  |       | (10           | ) |  |               |      |  |              |        | 10   |   |  |       | (10 | )
|Capital and reserves under US
    GAAP                             |                                   |              | 818   |     |              |  | 636   |               |   |  | 1,603         |       |  |              | (2,239 | )    |   |  | 818   |    
|                                                                  

See notes to supplemental guarantor statements


163



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##### Table of Contents

33. Guarantor statements (continued)

Supplemental condensed consolidating statement of operationsfor the year ended 30 June
2006(2)

|                                                         |                                   |              |       |    |              |  |        |               |   |  |               |       |   |              |        |    |   |  |        |    |  
|-------------------------------------------------------- | --------------------------------- | ------------ | ----- | -- | ------------ |  | ------ | ------------- | - |  | ------------- | ----- | - | ------------ | ------ | -- | - |  | ------ | -- | -
|                                                         |                                   | (3)          |       |    |              |  |        |               |   |  |              
|                                                         |                                   | British Sky  |       |    | (1)(3)       |  |        |               |   |  |               | BSkyB |  
|                                                         |                                   | Broadcasting |       |    | Guarantor    |  |        | Non-Guarantor |   |  | Consolidation |       |   | Group and    |       
|                                                         |                                   | Group plc    |       |    | Subsidiaries |  |        | Subsidiaries  |   |  | adjustments   |       |   | subsidiaries |       
|                                                         |                                   | £m           |       |    | £m           |  |        | £m            |   |  | £m            |       |   | £m           |       
|                                                         |                                  
|Revenue                                                  |                                   |              | 118   |    |              |  | 4,206  |               |   |  | 915           |       |   |              | (1,091 | )  |   |  | 4,148  |   
|Operating expense                                        |                                   |              | (1    | )  |              |  | (3,494 | )             |   |  | (877          | )     |   |              | 1,101  |    |   |  | (3,271 | ) 
|Operating profit                                         |                                   |              | 117   |    |              |  | 712    |               |   |  | 38            |       |   |              | 10     |    |   |  | 877    |   
|                                                        
|Share of results of joint ventures
    and associates   |                                   |              |      |    |              |  | 12     |               |   |  |              |       |   |              | 12     |   
|Share of (losses) profits of
    subsidiary undertakings |                                   |              | (458  | )  |              |  |       |               |   |  | 262           |       |   |              | 196    |    |   |  |       |   
|Investment income                                        |                                   |              | 1,015 |    |              |  | 56     |               |   |  | 87            |       |   |              | (1,106 | )  |   |  | 52     |   
|Finance costs                                            |                                   |              | (88   | )  |              |  | (112   | )             |   |  | (93           | )     |   |              | 150    |    |   |  | (143   | ) 
|Profit on disposal of investment                         |                                   |              |      |    |              |  | 2      |               |   |  |              |       |   |              | (2     | )  |   |  |       |   
|Profit before tax                                        |                                   |              | 586   |    |              |  | 658    |               |   |  | 306           |       |   |              | (752   | )  |   |  | 798    |   
|                                                        
|Taxation                                                 |                                   |              | (35   | )  |              |  | (152   | )             |   |  | (60           | )     |   |              |       |    |   |  | (247   | ) 
|Profit for the year                                      |                                   |              | 551   |    |              |  | 506    |               |   |  | 246           |       |   |              | (752   | )  |   |  | 551    |   
|                                                        
|Reconciliation to US
    GAAP:                           |                                   |              |       |    |              |  |        |               |   |  |               |       |   |              |        |    |   |  |        |   
|Profit for the period under IFRS                         |                                   |              | 551   |    |              |  | 506    |               |   |  | 246           |       |   |              | (752   | )  |   |  | 551    |   
|Adjustments:                                             |                                   |              |       |    |              |  |        |               |   |  |               |       |   |              |        |    |   |  |        |   
|                                                         | Employee stock based compensation |              |       | 1  |              |  |        | 1             |   |  |               |      |   |              |        | (1 | ) |  |        | 1  |  
|                                                         | Derivative accounting             |              |       | (8 | )            |  |        | (2            | ) |  |               |      |   |              |        | 2  |   |  |        | (8 | )
|                                                         | Capitalised interest              |              |       | 4  |              |  |        | 4             |   |  |               |      |   |              |        | (4 | ) |  |        | 4  |  
|                                                         | Pre-consolidation results         |              |       | (2 | )            |  |        |              |   |  |               | (2    | ) |              |        | 2  |   |  |        | (2 | )
|                                                         | Deferred taxation                 |              |       | 5  |              |  |        | 3             |   |  |               |      |   |              |        | (3 | ) |  |        | 5  |  
|Net income under US
    GAAP                             |                                   |              | 551   |    |              |  | 512    |               |   |  | 244           |       |   |              | (756   | )  |   |  | 551    |   
|                                                        

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33. Guarantor statements (continued)

Supplemental condensed consolidating statement of operationsfor the year ended 30 June
2005(2)

|                                                         |                                   |              |      |     |              |  |        |               |   |  |               |       |   |              |        |     |   |  |        |     |  
|-------------------------------------------------------- | --------------------------------- | ------------ | ---- | --- | ------------ |  | ------ | ------------- | - |  | ------------- | ----- | - | ------------ | ------ | --- | - |  | ------ | --- | -
|                                                         |                                   | (3)          |      |     |              |  |        |               |   |  |              
|                                                         |                                   | British Sky  |      |     | (1)(3)       |  |        |               |   |  |               | BSkyB |  
|                                                         |                                   | Broadcasting |      |     | Guarantor    |  |        | Non-Guarantor |   |  | Consolidation |       |   | Group and    |       
|                                                         |                                   | Group plc    |      |     | Subsidiaries |  |        | Subsidiaries  |   |  | adjustments   |       |   | subsidiaries |       
|                                                         |                                   | £m           |      |     | £m           |  |        | £m            |   |  | £m            |       |   | £m           |       
|                                                         |                                  
|Revenue                                                  |                                   |              | 116  |     |              |  | 3,977  |               |   |  | 606           |       |   |              | (857   | )   |   |  | 3,842  |    
|Operating expense                                        |                                   |              | (1   | )   |              |  | (3,327 | )             |   |  | (557          | )     |   |              | 865    |     |   |  | (3,020 | )  
|Operating profit                                         |                                   |              | 115  |     |              |  | 650    |               |   |  | 49            |       |   |              | 8      |     |   |  | 822    |    
|                                                        
|Share of results of joint ventures
    and associates    |                                   |              |     |     |              |  |       |               |   |  | 14            |       |   |              |       |     |   |  | 14     |    
|Share of (losses) profits of
    subsidiary undertakings |                                   |              | (247 | )   |              |  | 46     |               |   |  | 44            |       |   |              | 157    |     |   |  |       |    
|Investment income                                        |                                   |              | 829  |     |              |  | 74     |               |   |  | 210           |       |   |              | (1,084 | )   |   |  | 29     |    
|Finance costs                                            |                                   |              | (84  | )   |              |  | (55    | )             |   |  | (14           | )     |   |              | 66     |     |   |  | (87    | )  
|Amounts written back to equity
    investments           |                                   |              |     |     |              |  | 130    |               |   |  |              |       |   |              | (130   | )   |   |  |       |    
|Profit on disposal of joint venture                      |                                   |              |     |     |              |  |       |               |   |  | 9             |       |   |              |       |     |   |  | 9      |    
|Profit before tax                                        |                                   |              | 613  |     |              |  | 845    |               |   |  | 312           |       |   |              | (983   | )   |   |  | 787    |    
|                                                        
|Taxation                                                 |                                   |              | (35  | )   |              |  | (157   | )             |   |  | (17           | )     |   |              |       |     |   |  | (209   | )  
|Profit for the year                                      |                                   |              | 578  |     |              |  | 688    |               |   |  | 295           |       |   |              | (983   | )   |   |  | 578    |    
|                                                        
|Reconciliation to US
    GAAP:                           |                                   |              |      |     |              |  |        |               |   |  |               |       |   |              |        |     |   |  |        |    
|Profit for the period under IFRS                         |                                   |              | 578  |     |              |  | 688    |               |   |  | 295           |       |   |              | (983   | )   |   |  | 578    |    
|Adjustments:                                             |                                   |              |      |     |              |  |        |               |   |  |               |       |   |              |        |     |   |  |        |    
|                                                         | Goodwill                          |              |      | (23 | )            |  |        |              |   |  |               | (23   | ) |              |        | 23  |   |  |        | (23 | )
|                                                         | Employee stock-based compensation |              |      | 20  |              |  |        | 20            |   |  |               |      |   |              |        | (20 | ) |  |        | 20  |  
|                                                         | Derivative accounting             |              |      | (2  | )            |  |        |              |   |  |               |      |   |              |        |    |   |  |        | (2  | )
|                                                         | Capitalised interest              |              |      | 11  |              |  |        | 11            |   |  |               |      |   |              |        | (11 | ) |  |        | 11  |  
|                                                         | Deferred taxation                 |              |      | (7  | )            |  |        | (7            | ) |  |               |      |   |              |        | 7   |   |  |        | (7  | )
|Net income under US
    GAAP                             |                                   |              | 577  |     |              |  | 712    |               |   |  | 272           |       |   |              | (984   | )   |   |  | 577    |    
|                                                        

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33. Guarantor statements (continued)

Supplemental condensed consolidating statements of cash flowfor the year ended 30 June
2006(2)

|                                                                       |  |              |      |   |              |  |      |              |  |  |               |   |       |              |     |   |  |  |       |  
|---------------------------------------------------------------------- |  | ------------ | ---- | - | ------------ |  | ---- | ------------ |  |  | ------------- | - | ----- | ------------ | --- | - |  |  | ----- | -
|                                                                       |  | British Sky  |      |   | (1)          |  |      | Non-         |  |  |               |   | BSkyB |             
|                                                                       |  | Broadcasting |      |   | Guarantor    |  |      | Guarantor    |  |  | Consolidation |   |       | Group and    |    
|                                                                       |  | Group plc    |      |   | Subsidiaries |  |      | Subsidiaries |  |  | adjustments   |   |       | subsidiaries |    
|                                                                       |  | £m           |      |   | £m           |  |      | £m           |  |  | £m            |   |       | £m           |    
|                                                                       | 
|Cash flows from operating
    activities                               |  |              |      |   |              |  |      |              |  |  |               |   |       |              |     |   |  |  |       |  
|Cash generated from operations                                         |  |              | 32   |   |              |  | 747  |              |  |  | 132           |   |       |              | 93  |   |  |  | 1,004 |  
|Interest received                                                      |  |              |     |   |              |  | 31   |              |  |  | 12            |   |       |              |    |   |  |  | 43    |  
|Taxation paid                                                          |  |              |     |   |              |  | (172 | )            |  |  |              |   |       |              |    |   |  |  | (172  | )
|Net cash from operating
    activities                                 |  |              | 32   |   |              |  | 606  |              |  |  | 144           |   |       |              | 93  |   |  |  | 875   |  
|                                                                      
|Cash flows from investing
    activities                               |  |              |      |   |              |  |      |              |  |  |               |   |       |              |     |   |  |  |       |  
|Dividends received from joint
    ventures and associates             |  |              |     |   |              |  | 7    |              |  |  |              |   |       |              | 7   |  
|Funding to joint ventures and
    associates                           |  |              |     |   |              |  |     |              |  |  | (3            | ) |       |              |    |   |  |  | (3    | )
|Repayments of funding from joint
    ventures and associates           |  |              |     |   |              |  |     |              |  |  | 1             |   |       |              |    |   |  |  | 1     |  
|Purchase of property, plant and
    equipment                          |  |              |     |   |              |  | (135 | )            |  |  | (34           | ) |       |              |    |   |  |  | (169  | )
|Purchase of intangible assets                                          |  |              |     |   |              |  | (38  | )            |  |  | (5            | ) |       |              |    |   |  |  | (43   | )
|Increase in short-term deposits                                        |  |              |     |   |              |  | (297 | )            |  |  | (156          | ) |       |              |    |   |  |  | (453  | )
|Purchase of subsidiary, net of cash
    and cash equivalents purchased |  |              |     |   |              |  |     |              |  |  | (209          | ) |       |              |    |   |  |  | (209  | )
|Net cash used in investing
    activities                              |  |              |     |   |              |  | (470 | )            |  |  | (399          | ) |       |              |    |   |  |  | (869  | )
|                                                                      
|Cash flows from financing
    activities                               |  |              |      |   |              |  |      |              |  |  |               |   |       |              |     |   |  |  |       |  
|Proceeds from issue of guaranteed
    notes                            |  |              |     |   |              |  |     |              |  |  | 1,014         |   |       |              |    |   |  |  | 1,014 |  
|Proceeds from disposal of shares in
    ESOP                           |  |              | 13   |   |              |  |     |              |  |  |              |   |       |              |    |   |  |  | 13    |  
|Purchase of own shares for ESOP                                        |  |              |     |   |              |  | (17  | )            |  |  |              |   |       |              |    |   |  |  | (17   | )
|Purchase of own shares for
    cancellation                            |  |              | (406 | ) |              |  | (2   | )            |  |  |              |   |       |              |    |   |  |  | (408  | )
|Interest paid                                                          |  |              |     |   |              |  | (101 | )            |  |  | (4            | ) |       |              |    |   |  |  | (105  | )
|Dividends paid to shareholders                                         |  |              |     |   |              |  | (191 | )            |  |  |              |   |       |              |    |   |  |  | (191  | )
|Loans from (to) Group companies                                        |  |              | 335  |   |              |  | 605  |              |  |  | (847          | ) |       |              | (93 | ) |  |  |      |  
|Net cash from financing
    activities                                 |  |              | (58  | ) |              |  | 294  |              |  |  | 163           |   |       |              | (93 | ) |  |  | 306   |  
|                                                                      
|Effect of foreign exchange rate
    movements                          |  |              |     |   |              |  | 1    |              |  |  |              |   |       |              |    |   |  |  | 1     |  
|Net (decrease) increase in cash
    and cash equivalents               |  |              | (26  | ) |              |  | 431  |              |  |  | (92           | ) |       |              |    |   |  |  | 313   |  
|                                                                      
|Cash and cash equivalents at the
    beginning of the year             |  |              | 26   |   |              |  | 354  |              |  |  | 123           |   |       |              |    |   |  |  | 503   |  
|Cash and cash equivalents at the
    end of the year                   |  |              |     |   |              |  | 785  |              |  |  | 31            |   |       |              |    |   |  |  | 816   |  
|                                                                      

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33. Guarantor statements (continued)

Supplemental condensed consolidating statements of cash flowfor the year ended 30 June
2005(2)

|                                                             |  |              |      |   |              |  |      |              |  |  |               |   |       |              |    |   |  |  |      |  
|------------------------------------------------------------ |  | ------------ | ---- | - | ------------ |  | ---- | ------------ |  |  | ------------- | - | ----- | ------------ | -- | - |  |  | ---- | -
|                                                             |  | British Sky  |      |   | (1)          |  |      | Non-         |  |  |               |   | BSkyB |             
|                                                             |  | Broadcasting |      |   | Guarantor    |  |      | Guarantor    |  |  | Consolidation |   |       | Group and    |   
|                                                             |  | Group plc    |      |   | Subsidiaries |  |      | Subsidiaries |  |  | Adjustments   |   |       | subsidiaries |   
|                                                             |  | £m           |      |   | £m           |  |      | £m           |  |  | £m            |   |       | £m           |   
|                                                             | 
|Cash flows from operating
    activities                     |  |              |      |   |              |  |      |              |  |  |               |   |       |              |    |   |  |  |      |  
|Cash generated from operations                               |  |              | 114  |   |              |  | 795  |              |  |  | 72            |   |       |              | 8  |   |  |  | 989  |  
|Interest received                                            |  |              | 4    |   |              |  | 18   |              |  |  | 6             |   |       |              |   |   |  |  | 28   |  
|Taxation paid                                                |  |              |     |   |              |  | (103 | )            |  |  |              |   |       |              |   |   |  |  | (103 | )
|Net cash from operating
    activities                       |  |              | 118  |   |              |  | 710  |              |  |  | 78            |   |       |              | 8  |   |  |  | 914  |  
|                                                            
|Cash flows from investing
    activities                     |  |              |      |   |              |  |      |              |  |  |               |   |       |              |    |   |  |  |      |  
|Dividends received from joint
    ventures and associates   |  |              |     |   |              |  | 12   |              |  |  |              |   |       |              | 12 |  
|Funding to joint ventures and
    associates                 |  |              |     |   |              |  |     |              |  |  | (4            | ) |       |              |   |   |  |  | (4   | )
|Repayments of funding from joint
    ventures and associates |  |              |     |   |              |  |     |              |  |  | 8             |   |       |              |   |   |  |  | 8    |  
|Proceeds from the sale of a joint
    venture                |  |              |     |   |              |  |     |              |  |  | 14            |   |       |              |   |   |  |  | 14   |  
|Purchase of property, plant and
    equipment                |  |              |     |   |              |  | (135 | )            |  |  | (14           | ) |       |              |   |   |  |  | (149 | )
|Purchase of intangible assets                                |  |              |     |   |              |  | (87  | )            |  |  | (5            | ) |       |              |   |   |  |  | (92  | )
|Proceeds from the sale of equity
    investments             |  |              |     |   |              |  |     |              |  |  | 1             |   |       |              |   |   |  |  | 1    |  
|Decrease (increase) in short-term
    deposits               |  |              |     |   |              |  | 134  |              |  |  | (194          | ) |       |              |   |   |  |  | (60  | )
|Net cash used in investing
    activities                    |  |              |     |   |              |  | (88  | )            |  |  | (182          | ) |       |              |   |   |  |  | (270 | )
|                                                            
|Cash flows from financing
    activities                     |  |              |      |   |              |  |      |              |  |  |               |   |       |              |    |   |  |  |      |  
|Proceeds from disposal of shares in
    ESOP                 |  |              | 4    |   |              |  |     |              |  |  |              |   |       |              |   |   |  |  | 4    |  
|Purchase of own shares for ESOP                              |  |              |     |   |              |  | (14  | )            |  |  |              |   |       |              |   |   |  |  | (14  | )
|Purchase of own shares for
    cancellation                  |  |              | (57  | ) |              |  | (359 | )            |  |  |              |   |       |              |   |   |  |  | (416 | )
|Interest paid                                                |  |              |     |   |              |  | (91  | )            |  |  |              |   |       |              |   |   |  |  | (91  | )
|Dividends paid to shareholders                               |  |              | (75  | ) |              |  | (63  | )            |  |  |              |   |       |              |   |   |  |  | (138 | )
|Loans (to) from Group companies                              |  |              | (10  | ) |              |  | (196 | )            |  |  | 214           |   |       |              | (8 | ) |  |  |     |  
|Net cash (used in) from
    financing activities             |  |              | (138 | ) |              |  | (723 | )            |  |  | 214           |   |       |              | (8 | ) |  |  | (655 | )
|                                                            
|Effect of foreign exchange rate
    movements                |  |              |     |   |              |  | 1    |              |  |  |              |   |       |              |   |   |  |  | 1    |  
|Net (decrease) increase in cash
    and cash equivalents     |  |              | (20  | ) |              |  | (100 | )            |  |  | 110           |   |       |              |   |   |  |  | (10  | )
|                                                            
|Cash and cash equivalents at the
    beginning of the year   |  |              | 46   |   |              |  | 454  |              |  |  | 13            |   |       |              |   |   |  |  | 513  |  
|Cash and cash equivalents at the
    end of the year         |  |              | 26   |   |              |  | 354  |              |  |  | 123           |   |       |              |   |   |  |  | 503  |  
|                                                            

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33. Guarantor statements (continued)

Notes to supplemental guarantor statements



(1)
    The Guarantors are:

BSkyB Limited
    
    Operates one of the leading pay-television broadcasting services
    in the UK and Ireland. The companys principal activities
    consist of the operation and distribution of
    30 wholly-owned television channels in digital across
    various genres, including movies, sports, news, arts and general
    entertainment. In addition, the company currently markets to DTH
    viewers channels owned and broadcast by third parties.SSSL
    
    Provides support services (including conditional access and
    subscriber management) and acts as an agent for the DTH pay
    television business of its fellow subsidiary undertaking, BSkyB
    Limited. SSSL also provides similar services to another fellow
    subsidiary undertaking and to third party broadcasters.

(2)
    Certain reclassifications were made to conform all of the
    financial information to the financial presentation of the
    Group. The principal consolidation adjustments relate to
    investments in subsidiaries and intercompany balances.(3)
    Investments in Group subsidiaries are accounted for by their
    parent company under the equity method of accounting for the
    purposes of the supplemental combining presentation only. Under
    the equity method, earnings of subsidiary undertakings are
    reflected in the parent companys investment account and
    earnings.Separate financial statements of the subsidiary guarantors are
not included herein because the Company has determined that such
financial statements are not material to investors.

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34. British Sky Broadcasting Group plc Company only
financial statements

Company Income Statementfor the year ended 30 June
2006

|                                  |  |       |   |      |    |  |       |    |  |  |     |  
|--------------------------------- |  | ----- | - | ---- | -- |  | ----- | -- |  |  | --- | -
|                                  |  |       |   | 2006 |    |  | 2005  |   
|                                  |  | Notes |   |      | £m |  |       | £m | 
|                                  | 
|Revenue                           |  |       |   |      |    |  | 118   |    |  |  | 116 |  
|Operating expense                 |  |       |   |      |    |  | (1    | )  |  |  | (1  | )
|Operating profit                  |  |       |   |      |    |  | 117   |    |  |  | 115 |  
|                                 
|                                 
|Dividend income from subsidiaries |  |       |   |      |    |  | 950   |    |  |  | 770 |  
|Investment income                 |  |       | B |      |    |  | 65    |    |  |  | 59  |  
|Finance costs                     |  |       | B |      |    |  | (88   | )  |  |  | (84 | )
|Profit before tax                 |  |       | C |      |    |  | 1,044 |    |  |  | 860 |  
|                                 
|                                 
|Taxation                          |  |       | D |      |    |  | (35   | )  |  |  | (35 | )
|Profit for the year               |  |       |   |      |    |  | 1,009 |    |  |  | 825 |  
|                                 

Statement of Recognised Income and Expenses for the Company


|                                                       |  |      |       |   |      |  |     |  
|------------------------------------------------------ |  | ---- | ----- | - | ---- |  | --- | -
|                                                       |  | 2006 |       |   | 2005 | 
|                                                       |  | £m   |       |   | £m   | 
|                                                       | 
|Profit for the year                                    |  |      | 1,009 |   |      |  | 825 |  
|                                                      
|                                                      
|Net (expense) income recognised
    directly in equity |  |      |       |   |      |  |     |  
|Cash flow hedges                                       |  |      | (75   | ) |      |  | (22 | )
|Tax on cash flow hedges                                |  |      | 23    |   |      |  | 7   |  
|                                                       |  |      | (52   | ) |      |  | (15 | )
|                                                      
|Less amounts reported in profit
    for the year       |  |      |       |   |      |  |     |  
|Losses on cash flow hedges                             |  |      | 61    |   |      |  | (11 | )
|Tax on cash flow hedges                                |  |      | (18   | ) |      |  | 3   |  
|                                                       |  |      | 43    |   |      |  | (8  | )
|                                                      
|                                                      
|Net losses not recognised in profit
    for the year   |  |      | (9    | ) |      |  | (23 | )
|                                                      
|                                                      
|Total recognised income and
    expense for the year   |  |      | 1,000 |   |      |  | 802 |  
|                                                      

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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

Company Balance Sheetas at 30 June 2006

|                                               |  |       |   |      |    |  |       |    |  |  |       | 
|---------------------------------------------- |  | ----- | - | ---- | -- |  | ----- | -- |  |  | ----- | 
|                                               |  |       |   | 2006 |    |  | 2005  |   
|                                               |  | Notes |   |      | £m |  |       | £m | 
|                                               | 
|Non-current assets                             |  |       |   |      |    |  |       |    |  |  |       | 
|Property, plant and equipment                  |  |       | E |      |    |  | 1     |    |  |  | 1     | 
|Investment property                            |  |       | E |      |    |  | 22    |    |  |  | 23    | 
|Investments in subsidiaries                    |  |       | F |      |    |  | 4,777 |    |  |  | 4,777 | 
|Available for sale investments                 |  |       | G |      |    |  | 1     |    |  |  | 1     | 
|Deferred tax assets                            |  |       | H |      |    |  | 40    |    |  |  | 70    | 
|Derivative financial assets                    |  |       | L |      |    |  | 76    |    |  |  | 9     | 
|                                               |  |       |   |      |    |  | 4,917 |    |  |  | 4,881 | 
|                                              
|Current assets                                 |  |       |   |      |    |  |       |    |  |  |       | 
|Other receivables                              |  |       | I |      |    |  | 1,431 |    |  |  | 719   | 
|Cash and cash equivalents                      |  |       |   |      |    |  |      |    |  |  | 26    | 
|Derivative financial assets                    |  |       | L |      |    |  | 1     |    |  |  |      | 
|                                               |  |       |   |      |    |  | 1,432 |    |  |  | 745   | 
|                                              
|Total assets                                   |  |       |   |      |    |  | 6,349 |    |  |  | 5,626 | 
|                                              
|Current liabilities                            |  |       |   |      |    |  |       |    |  |  |       | 
|Borrowings                                     |  |       | J |      |    |  | 162   |    |  |  |      | 
|Other payables                                 |  |       | K |      |    |  | 1,205 |    |  |  | 971   | 
|Derivative financial liabilities               |  |       | L |      |    |  | 28    |    |  |  |      | 
|                                               |  |       |   |      |    |  | 1,395 |    |  |  | 971   | 
|                                              
|Non-current
    liabilities                    |  |       |   |      |    |  |       |    |  |  |       | 
|Borrowings                                     |  |       | J |      |    |  | 776   |    |  |  | 975   | 
|Derivative financial liabilities               |  |       | L |      |    |  | 209   |    |  |  | 112   | 
|                                               |  |       |   |      |    |  | 985   |    |  |  | 1,087 | 
|                                              
|                                              
|Total liabilities                              |  |       |   |      |    |  | 2,380 |    |  |  | 2,058 | 
|                                              
|                                              
|Shareholders
    equity                       |  |       | M |      |    |  | 3,969 |    |  |  | 3,568 | 
|                                              
|                                              
|Total liabilities and
    shareholders equity |  |       |   |      |    |  | 6,349 |    |  |  | 5,626 | 
|                                              



|                        |  |                         |  |  |  | 
|----------------------- |  | ----------------------- |  |  |  | 
|James Murdoch           |  | Jeremy Darroch         
|Chief Executive Officer |  | Chief Financial Officer

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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

Company Cash Flow Statementfor the year ended
30 June 2006

|                                                        |  |       |   |      |    |  |      |    |  |  |      |  
|------------------------------------------------------- |  | ----- | - | ---- | -- |  | ---- | -- |  |  | ---- | -
|                                                        |  |       |   | 2006 |    |  | 2005 |   
|                                                        |  | Notes |   |      | £m |  |      | £m | 
|                                                        | 
|Cash flows from operating
    activities                |  |       |   |      |    |  |      |    |  |  |      |  
|Cash generated from operations                          |  |       | N |      |    |  | 32   |    |  |  | 114  |  
|Interest received                                       |  |       |   |      |    |  |     |    |  |  | 4    |  
|Net cash from operating
    activities                  |  |       |   |      |    |  | 32   |    |  |  | 118  |  
|                                                       
|                                                       
|Cash flows from financing
    activities                |  |       |   |      |    |  |      |    |  |  |      |  
|Proceeds from the exercise of share
    options         |  |       |   |      |    |  | 13   |    |  |  | 4    |  
|Purchase of own shares for
    cancellation             |  |       |   |      |    |  | (406 | )  |  |  | (57  | )
|Borrowing from (loan to)
    subsidiaries               |  |       |   |      |    |  | 335  |    |  |  | (10  | )
|Dividends paid to shareholders                          |  |       |   |      |    |  |     |    |  |  | (75  | )
|Net cash used in financing
    activities               |  |       |   |      |    |  | (58  | )  |  |  | (138 | )
|                                                       
|                                                       
|Net decrease in cash and cash
    equivalents           |  |       |   |      |    |  | (26  | )  |  |  | (20  | )
|                                                       
|                                                       
|Cash and cash equivalents the
    beginning of the year |  |       |   |      |    |  | 26   |    |  |  | 46   |  
|                                                       
|Cash and cash equivalents at the
    end of the year    |  |       |   |      |    |  |     |    |  |  | 26   |  
|                                                       

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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

A. Accounting policies

British Sky Broadcasting Group plc (the Company) is
a limited liability company incorporated in England and Wales,
and domiciled in the United Kingdom.



i) Statement of complianceThe Company financial statements have been prepared in
accordance with IFRS, consistently with the accounting policies
set out in note 1 of the Group accounts.

An explanation of how the transition from UK GAAP to IFRSs has
affected the financial position, financial performance and cash
flows of the Company is provided in note Q.



ii) RevenueRevenue, which excludes value added tax, represents the gross
inflow of economic benefit from the Companys operating
activities. Revenue is measured at the fair value of the
consideration received or receivable. The Companys main
sources of revenue are recognised as follows:




    Revenue from licensing the Companys brand name asset to
    subsidiaries. This revenue is recognised on an accruals basis
    under the terms of the relevant leasing agreements.
    Revenue from leasing the Companys investment properties to
    subsidiaries. This revenue is recognised on an accruals basis.

iii) Investment propertyInvestment property is initially stated at cost, which comprises
the purchase price and any expenditure directly attributable to
acquisition of the property. Subsequent to initial recognition,
investment property is held at cost net of accumulated
depreciation less impairment. Any properties classified as held
for sale are stated at the lower of carrying amount and fair
value less costs to sell.



iv) Investments in subsidiariesAn investment in a subsidiary is recognised at cost less
impairment. As permitted by section 133 of the Companies
Act 1985, where the relief afforded under section 131 of
the Companies Act 1985 applies, cost is the aggregate of the
nominal value of the relevant number of the Companys
shares and the fair value of any other consideration given to
acquire the share capital of the subsidiary undertakings.
Dividends received from subsidiaries are recognised as income
only to the extent that the Company receives distributions from
accumulated profits of the subsidiary arising after the date of
acquisition. Distributions received in excess of such profits
are recognised as a reduction in the cost of investment.

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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

B. Investment income and finance costs

|                                                     |  |      |    |  |      |  |    | 
|---------------------------------------------------- |  | ---- | -- |  | ---- |  | -- | 
|                                                     |  | 2006 |    |  | 2005 | 
|                                                     |  | £m   |    |  | £m   | 
|                                                     | 
|Investment income                                    |  |      |    |  |      |  |    | 
|Investment income from subsidiaries                  |  |      | 65 |  |      |  | 55 | 
|Investment income from cash and
    cash-equivalents |  |      |   |  |      |  | 4  | 
|                                                     |  |      | 65 |  |      |  | 59 | 
|                                                    

|                                                                         |  |      |     |   |      |  |     |  
|------------------------------------------------------------------------ |  | ---- | --- | - | ---- |  | --- | -
|                                                                         |  | 2006 |     |   | 2005 | 
|                                                                         |  | £m   |     |   | £m   | 
|                                                                         | 
|Finance costs                                                            |  |      |     |   |      |  |     |  
|RCF agreements                                                           |  |      | (2  | ) |      |  | (6  | )
|Guaranteed Notes (see note J)                                            |  |      | (83 | ) |      |  | (85 | )
|Remeasurement of borrowings-related
    derivative financial instruments |  |      | (3  | ) |      |  | 7   |  
|                                                                         |  |      | (88 | ) |      |  | (84 | )
|                                                                        



|   |                       
|-- | ----------------------
|C. | Profit before taxation



|                                    |  |      |   |  |      |  |   | 
|----------------------------------- |  | ---- | - |  | ---- |  | - | 
|                                    |  | 2006 |   |  | 2005 | 
|                                    |  | £m   |   |  | £m   | 
|                                    | 
|Depreciation of investment property |  |      | 1 |  |      |  |  | 
|Rental income from subsidiaries     |  |      | 1 |  |      |  | 2 | 
|                                    |  |      | 2 |  |      |  | 2 | 
|                                   



| |           
| | ----------
| | Audit fees





| |                  
| | -----------------
| | Employee benefits



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34. British Sky Broadcasting Group plc Company only
financial statements (continued)



D.
    Taxation(i) Taxation recognised in the income statement

|                                                      |  |      |    |  |      |  |    | 
|----------------------------------------------------- |  | ---- | -- |  | ---- |  | -- | 
|                                                      |  | 2006 |    |  | 2005 | 
|                                                      |  | £m   |    |  | £m   | 
|                                                      | 
|Current tax expense                                   |  |      |    |  |      |  |    | 
|Current year                                          |  |      |   |  |      |  |   | 
|Adjustment in respect of prior years                  |  |      |   |  |      |  |   | 
|Total current tax                                     |  |      |   |  |      |  |   | 
|                                                     
|                                                     
|Deferred tax expense                                  |  |      |    |  |      |  |    | 
|Origination and reversal of
    temporary differences |  |      |   |  |      |  | 2  | 
|Reversal of deferred tax asset                        |  |      | 35 |  |      |  | 33 | 
|Total deferred tax charge                             |  |      | 35 |  |      |  | 35 | 
|                                                     
|Taxation                                              |  |      | 35 |  |      |  | 35 | 
|                                                     



| |                                                
| | -----------------------------------------------
| | (ii) Deferred tax recognised directly in equity

|                                     |  |      |   |  |      |  |    | 
|------------------------------------ |  | ---- | - |  | ---- |  | -- | 
|                                     |  | 2006 |   |  | 2005 | 
|                                     |  | £m   |   |  | £m   | 
|                                     | 
|Deferred tax credit on hedging items |  |      | 5 |  |      |  | 10 | 
|                                     |  |      | 5 |  |      |  | 10 | 
|                                    



| |                                           
| | ------------------------------------------
| | (iii) Reconciliation of effective tax rate



|                                                                                                  |  |      |       |   |      |  |      |  
|------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ---- | -
|                                                                                                  |  | 2006 |       |   | 2005 | 
|                                                                                                  |  | £m   |       |   | £m   | 
|                                                                                                  | 
|Profit before tax                                                                                 |  |      | 1,044 |   |      |  | 860  |  
|Profit before tax multiplied by
    standard rate of corporation tax in the UK of 30% (2005: 30%) |  |      | 313   |   |      |  | 258  |  
|                                                                                                 
|                                                                                                 
|Effects of:                                                                                       |  |      |       |   |      |  |      |  
|Non taxable income                                                                                |  |      | (285  | ) |      |  | (231 | )
|Group relief surrendered for no
    consideration                                                 |  |      | 7     |   |      |  | 8    |  
|Taxation                                                                                          |  |      | (35   | ) |      |  | (35  | )
|                                                                                                 



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34. British Sky Broadcasting Group plc Company only
financial statements (continued)



E.
    Property, plant and equipment and investment property

|                                            |  |               |     |            |                |  |     |            |  |  |              |  |  |  |     | 
|------------------------------------------- |  | ------------- | --- | ---------- | -------------- |  | --- | ---------- |  |  | ------------ |  |  |  | --- | 
|                                            |  |               |     | Investment |                |  |     |            | 
|                                            |  | Investment    |     |            | properties not |  |     | Total      |  |  | Total plant, | 
|                                            |  | properties in |     |            | yet available  |  |     | investment |  |  | property and | 
|                                            |  | use (i), (ii) |     |            | for use        |  |     | properties |  |  | equivalent   | 
|                                            |  | £m            |     |            | £m             |  |     | £m         |  |  | £m           | 
|                                            | 
|Cost                                        |  |               |     |            |                |  |     |            |  |  |              |  |  |  |     | 
|At 1 July 2004                              |  |               |    |            |                |  | 9   |            |  |  | 9            |  |  |  | 3   | 
|Additions                                   |  |               | 14  |            |                |  |    |            |  |  | 14           |  |  |  |    | 
|At 30 June 2005                             |  |               | 14  |            |                |  | 9   |            |  |  | 23           |  |  |  | 3   | 
|                                           
|Investment properties brought in to
    use |  |               | 9   |            |                |  | (9) |            |  |  |             |  |  |  |    | 
|At 30 June 2006                             |  |               | 23  |            |                |  |    |            |  |  | 23           |  |  |  | 3   | 
|                                           
|                                           
|Depreciation                                |  |               |     |            |                |  |     |            |  |  |              |  |  |  |     | 
|At 1 July 2004 and at
    30 June 2005      |  |               |    |            |                |  |    |            |  |  |             |  |  |  | (2) | 
|                                           
|Depreciation                                |  |               | (1) |            |                |  |    |            |  |  | (1)          |  |  |  |    | 
|At 30 June 2006                             |  |               | (1) |            |                |  |    |            |  |  | (1)          |  |  |  | (2) | 
|                                           
|                                           
|Carrying amounts                            |  |               |     |            |                |  |     |            |  |  |              |  |  |  |     | 
|At 1 July 2004                              |  |               |    |            |                |  | 9   |            |  |  | 9            |  |  |  | 1   | 
|At 30 June 2005                             |  |               | 14  |            |                |  | 9   |            |  |  | 23           |  |  |  | 1   | 
|At 30 June 2006                             |  |               | 22  |            |                |  |    |            |  |  | 22           |  |  |  | 1   | 
|                                           



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | The Companys investment properties were valued on
    10 July 2006 by independent qualified valuers. The
    valuations were undertaken in accordance with the Appraisal and
    Valuation Manual of the Royal Institution of Chartered Surveyors
    in the United Kingdom by CB Richard Ellis Surveyors, a firm
    of Independent Chartered Surveyors. The values are based on
    active market prices. The properties had a fair value of
    £35 million at 30 June 2006 (2005:
    £30 million).
|     
|(ii)  |  | Depreciation was not charged on £12 million of land
    (2005: £12 million).                                                                                                                                                                                                                                                                                                                                                                                                                            
|     
|(iii) |  | Rental revenue received from leasing out investment properties
    during the year is £1 million (2005:
    £2 million).                                                                                                                                                                                                                                                                                                                                                                                

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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

F. Investments in subsidiaries

|                                     |  |                |        |  
|------------------------------------ |  | -------------- | ------ | -
|                                     |  | Investments in |       
|                                     |  | subsidiaries   |       
|                                     |  | £m             |       
|                                     | 
|Cost                                 |  |                |        |  
|At 1 July 2004                       |  |                | 7,380  |  
|Additions(i),(ii)                    |  |                | 1,935  |  
|Liquidations(iii)                    |  |                | (214   | )
|Disposals(ii),(iv)                   |  |                | (3,319 | )
|At 30 June 2005 and
    30 June 2006 |  |                | 5,782  |  
|                                    
|Provision                            |  |                |        |  
|At 1 July 2004                       |  |                | 2,519  |  
|Disposals(iv)                        |  |                | (1,514 | )
|At 30 June 2005 and
    30 June 2006 |  |                | 1,005  |  
|                                    
|Carrying amounts                     |  |                |        |  
|At 1 July 2004                       |  |                | 4,861  |  
|At 30 June 2005 and
    30 June 2006 |  |                | 4,777  |  
|                                    



|      |  |                                                                                                                                                                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | On 3 March 2005, the Company acquired 19.9% of the share
    capital of British Interactive Broadcasting Holdings Limited
    from British Sky Broadcasting Limited, a subsidiary undertaking,
    for consideration of £130 million.                                                                     
|     
|(ii)  |  | On 4 March 2005, the Company disposed of 49.99% of its
    investment in BSkyB Limited to BSkyB Investments Limited, a
    subsidiary undertaking, for consideration of
    £1,805 million satisfied by the issue of shares in
    BSkyB Investments Limited. There was no profit or loss on
    disposal.
|     
|(iii) |  | On 17 March 2005, two Company investments, BSkyB Finance
    (No. 2) Limited and BSkyB Finance (No. 3) Limited were
    dissolved.                                                                                                                                                                        
|     
|(iv)  |  | On 22 February 2005, the Company disposed of its 100%
    investment in BSkyB GmbH to BSkyB German Investments Limited, a
    subsidiary undertaking. Prior to the disposal, the Company had
    held the investment at a cost of £1,514 million, which
    was fully provided for.                       



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34. British Sky Broadcasting Group plc Company only
financial statements (continued)



G.
    Available for sale investmentsThe Company held a listed football club investment at fair value
of £1 million (2005: £1 million).



H.
    Deferred tax assetsRecognised deferred tax assets

|                 |  |        |     |   |       |  |    |       |  |  |     |  
|---------------- |  | ------ | --- | - | ----- |  | -- | ----- |  |  | --- | -
|                 |  | Tax    |     |   |       |  |   
|                 |  | losses |     |   | Other |  |    | Total | 
|                 |  | £m     |     |   | £m    |  |    | £m    | 
|                 | 
|At 1 July 2004   |  |        | 101 |   |       |  | (6 | )     |  |  | 95  |  
|Charge to income |  |        | (33 | ) |       |  | (2 | )     |  |  | (35 | )
|Credit to equity |  |        |    |   |       |  | 10 |       |  |  | 10  |  
|At 30 June 2005  |  |        | 68  |   |       |  | 2  |       |  |  | 70  |  
|                
|Charge to income |  |        | (35 | ) |       |  |   |       |  |  | (35 | )
|Credit to equity |  |        |    |   |       |  | 5  |       |  |  | 5   |  
|At 30 June 2006  |  |        | 33  |   |       |  | 7  |       |  |  | 40  |  
|                









|   |                  
|-- | -----------------
|I. | Other receivables

|                                                                                                                      |  |      |       |  |      |  |     | 
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- |  | ---- |  | --- | 
|                                                                                                                      |  | 2006 |       |  | 2005 | 
|                                                                                                                      |  | £m   |       |  | £m   | 
|                                                                                                                      | 
|Prepayments and other receivables                                                                                     |  |      | 3     |  |      |  | 3   | 
|Amounts receivable from subsidiaries                                                                                  |  |      | 1,428 |  |      |  | 716 | 
|                                                                                                                      |  |      | 1,431 |  |      |  | 719 | 
|                                                                                                                     
|Included within the amounts shown
    above are the following receivables which are due in greater
    than one year: |  |      |       |  |      |  |     | 
|Prepayments                                                                                                           |  |      | 2     |  |      |  | 3   | 
|                                                                                                                     



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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

£121 million (2005: £121 million) at a
compounding interest rate of 6 month LIBOR. These loans are
repayable on demand. All other amounts receivable from
subsidiaries are non interest bearing and also repayable on
demand.



J.
    Borrowings

|                                                                |  |      |     |  |      |  |     | 
|--------------------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                                                |  | 2006 |     |  | 2005 | 
|                                                                |  | £m   |     |  | £m   | 
|                                                                | 
|Current borrowings                                              |  |      |     |  |      |  |     | 
|US$300 million of 7.300%
    Guaranteed Notes repayable in 2006 |  |      | 162 |  |      |  |    | 
|                                                               
|Non current borrowings                                          |  |      |     |  |      |  |     | 
|US$300 million of 7.300%
    Guaranteed Notes repayable in 2006 |  |      |    |  |      |  | 169 | 
|US$600 million of 6.875%
    Guaranteed Notes repayable in 2009 |  |      | 325 |  |      |  | 339 | 
|£100 million of 7.750%
    Guaranteed Notes repayable in 2009   |  |      | 100 |  |      |  | 100 | 
|US$650 million of 8.200%
    Guaranteed Notes repayable in 2009 |  |      | 351 |  |      |  | 367 | 
|                                                                |  |      | 776 |  |      |  | 975 | 
|                                                               



|   |               
|-- | --------------
|K. | Other payables

|                                            |  |      |       |  |      |  |     | 
|------------------------------------------- |  | ---- | ----- |  | ---- |  | --- | 
|                                            |  | 2006 |       |  | 2005 | 
|                                            |  | £m   |       |  | £m   | 
|                                            | 
|Other payables                              |  |      |       |  |      |  |     | 
|Amounts owed to subsidiary
    undertakings |  |      | 1,173 |  |      |  | 939 | 
|Accruals                                    |  |      | 32    |  |      |  | 32  | 
|                                            |  |      | 1,205 |  |      |  | 971 | 
|                                           





|   |                                            
|-- | -------------------------------------------
|L. | Derivatives and other financial instruments



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34. British Sky Broadcasting Group plc Company only
financial statements (continued)

M. Reconciliation of shareholders equity

|                                                 |  |         |     |   |         |  |       |         |  |  |            |  |  |         |    |  |         |  |     |          |  |  |               |   |  |  |       |   |  |  |       |  
|------------------------------------------------ |  | ------- | --- | - | ------- |  | ----- | ------- |  |  | ---------- |  |  | ------- | -- |  | ------- |  | --- | -------- |  |  | ------------- | - |  |  | ----- | - |  |  | ----- | -
|                                                 |  |         |     |   |         |  |       | Capital |  |  |            |  |  |         |    |  | Total   | 
|                                                 |  | Share   |     |   | Share   |  |       | Special |  |  | redemption |  |  | Capital |    |  | Hedging |  |     | Retained |  |  | shareholders |  
|                                                 |  | capital |     |   | premium |  |       | reserve |  |  | reserve    |  |  | reserve |    |  | reserve |  |     | earnings |  |  | equity        |  
|                                                 |  | £m      |     |   | £m      |  |       | £m      |  |  | £m         |  |  | £m      |    |  | £m      |  |     | £m       |  |  | £m            |  
|                                                 | 
|At 1 July 2004                                   |  |         | 971 |   |         |  | 1,437 |         |  |  | 14         |  |  |         |   |  |         |  | 844 |          |  |  | 16            |   |  |  | 40    |   |  |  | 3,322 |  
|Purchase of own shares for
    cancellation      |  |         | (37 | ) |         |  |      |         |  |  |           |  |  |         | 37 |  |         |  |    |          |  |  |              |   |  |  | (416  | ) |  |  | (416  | )
|Recognition and transfer of cash
    flow hedges |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  | (33           | ) |  |  |      |   |  |  | (33   | )
|Tax on items taken directly to
    equity        |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  | 10            |   |  |  |      |   |  |  | 10    |  
|Profit for the year                              |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  |              |   |  |  | 825   |   |  |  | 825   |  
|Dividends                                        |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  |              |   |  |  | (140  | ) |  |  | (140  | )
|At 30 June 2005                                  |  |         | 934 |   |         |  | 1,437 |         |  |  | 14         |  |  |         | 37 |  |         |  | 844 |          |  |  | (7            | ) |  |  | 309   |   |  |  | 3,568 |  
|Purchase of own shares for
    cancellation      |  |         | (38 | ) |         |  |      |         |  |  |           |  |  |         | 38 |  |         |  |    |          |  |  |              |   |  |  | (408  | ) |  |  | (408  | )
|Recognition and transfer of cash
    flow hedges |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  | (14           | ) |  |  |      |   |  |  | (14   | )
|Tax on items taken directly to
    equity        |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  | 5             |   |  |  |      |   |  |  | 5     |  
|Profit for the year                              |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  |              |   |  |  | 1,009 |   |  |  | 1,009 |  
|Dividends                                        |  |         |    |   |         |  |      |         |  |  |           |  |  |         |   |  |         |  |    |          |  |  |              |   |  |  | (191  | ) |  |  | (191  | )
|At 30 June 2006                                  |  |         | 896 |   |         |  | 1,437 |         |  |  | 14         |  |  |         | 75 |  |         |  | 844 |          |  |  | (16           | ) |  |  | 719   |   |  |  | 3,969 |  
|                                                







| |                
| | ---------------
| | Capital reserve





| |                
| | ---------------
| | Hedging reserve





|   |                                                                   
|-- | ------------------------------------------------------------------
|N. | Reconciliation of net profit to cash generated from
    operations

|                                          |  |      |       |   |      |  |      |  
|----------------------------------------- |  | ---- | ----- | - | ---- |  | ---- | -
|                                          |  | 2006 |       |   | 2005 | 
|                                          |  | £m   |       |   | £m   | 
|                                          | 
|Profit before taxation                    |  |      | 1,044 |   |      |  | 860  |  
|Depreciation of investment
    properties |  |      | 1     |   |      |  |     |  
|Dividend income                           |  |      | (950  | ) |      |  | (770 | )
|Net finance costs                         |  |      | 23    |   |      |  | 25   |  
|Other receivables                         |  |      | (320  | ) |      |  | 69   |  
|Other payables                            |  |      | 234   |   |      |  | (70  | )
|Cash generated from
    operations        |  |      | 32    |   |      |  | 114  |  
|                                         

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34. British Sky Broadcasting Group plc Company only
financial statements (continued)



O.
    Contingent liabilities and guaranteesThe Company and certain 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 as
they fall due. The liabilities of these subsidiaries are already
included in the Groups consolidated accounts. These
undertakings have been given for at least one year from the date
of the signing of the UK statutory accounts of the subsidiary
entity. A payment under these undertakings would be required in
the event of a subsidiary being unable to pay its liabilities.
The maximum potential amount of future payments which would be
made by the Company to its wholly-owned subsidiaries under these
undertakings cannot be determined as the net liability position
of the subsidiaries up to at least one year into the future is
not known.

Two of the Groups subsidiary undertakings, British Sky
Broadcasting Limited and Sky Subscribers Services Limited, have
given joint and several guarantees in relation to the
Companys £1 billion RCF and the
US$650 million, US$600 million, US$300 million
and £100 million Guaranteed Notes (see note 21).
Additionally, the Companys £1 billion RCF is
guaranteed by BSkyB Investments Limited and the
US$750 million, US$350 million and
£400 million Guaranteed Notes are guaranteed by the
Company.



P.
    Transactions with related parties and major shareholders

|                                                   |  |      |        |   |      |  |      |  
|-------------------------------------------------- |  | ---- | ------ | - | ---- |  | ---- | -
|                                                   |  | 2006 |        |   | 2005 | 
|                                                   |  | £m   |        |   | £m   | 
|                                                   | 
|Supply of services to subsidiaries                 |  |      | 118    |   |      |  | 116  |  
|Interest received from funding to
    subsidiaries |  |      | 65     |   |      |  | 55   |  
|Amounts owed by subsidiaries                       |  |      | 1,428  |   |      |  | 716  |  
|Amounts owed to subsidiaries                       |  |      | (1,173 | ) |      |  | (939 | )
|                                                  







180



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##### Table of Contents

34. British Sky Broadcasting Group plc Company only
financial statements (continued)



Q.
    Explanation of transition to IFRSsThe following is a summary of the significant adjustments to
profit for the year and shareholders equity at 1 July
2004 and 30 June 2005, required when reconciling such
amounts recorded in the accounts to the corresponding amounts in
accordance with IFRS.

The analysis below shows a reconciliation of profit for the year
reported under UK GAAP to the profit reported for the year under
IFRS for the year ended 30 June 2005 and reconciliations of
the Companys shareholders equity reported under UK
GAAP to the Companys shareholders equity reported
under IFRS at the Transition Date and at 30 June 2005.

|                                                       |  |    |       |  
|------------------------------------------------------ |  | -- | ----- | -
|                                                       |  | £m |      
|                                                       | 
|Profit for the year under UK
    GAAP                  |  |    | 576   |  
|Financial instruments and hedge
    accounting         |  |    | 7     |  
|Deferred taxation                                      |  |    | (2    | )
|Dividend income                                        |  |    | 244   |  
|                                                      
|Profit for the year under
    IFRS                     |  |    | 825   |  
|                                                      
|                                                      
|Shareholders equity at
    1 July 2004 under UK GAAP  |  |    | 3,591 |  
|Financial instruments and hedge
    accounting         |  |    | 18    |  
|Dividends payable                                      |  |    | 63    |  
|Dividends receivable                                   |  |    | (344  | )
|Deferred taxation                                      |  |    | (6    | )
|                                                      
|Shareholders equity at
    1 July 2004 under IFRS     |  |    | 3,322 |  
|                                                      
|                                                      
|Shareholders equity at
    30 June 2005 under UK GAAP |  |    | 3,581 |  
|Financial instruments and hedge
    accounting         |  |    | (8    | )
|Dividends payable                                      |  |    | 93    |  
|Dividends receivable                                   |  |    | (100  | )
|Deferred taxation                                      |  |    | 2     |  
|                                                      
|Shareholders equity at
    30 June 2005 under IFRS    |  |    | 3,568 |  
|                                                      



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GROUP FINANCIAL RECORD  UNAUDITED

Consolidated results

Below is selected financial information for the Group under IFRS
as at and for each of the years in the two years ended
30 June 2006, derived from the audited consolidated
financial statements included in this Annual Report.

|                                                     |  |            |  |           
|---------------------------------------------------- |  | ---------- |  | ----------
|                                                     |  | Year ended |  | Year ended
|                                                     |  | 30 June    |  | 30 June   
|                                                     |  | 2006       |  | 2005      
|Income Statement                                     |  | £m         |  | £m        
|                                                    
|DTH subscribers                                      |  | 3,154      |  | 2,968     
|Cable subscribers                                    |  | 224        |  | 219       
|Advertising                                          |  | 342        |  | 329       
|Sky Bet                                              |  | 37         |  | 32        
|Sky Active                                           |  | 91         |  | 92        
|Other                                                |  | 300        |  | 202       
|Revenue                                              |  | 4,148      |  | 3,842     
|                                                    
|                                                    
|Operating expense                                    |  | (3,271)    |  | (3,020)   
|Operating profit                                     |  | 877        |  | 822       
|                                                    
|                                                    
|Share of result of joint ventures
    and associates |  | 12         |  | 14        
|Investment income                                    |  | 52         |  | 29        
|Finance costs                                        |  | (143)      |  | (87)      
|Profit on disposal of joint venture                  |  |           |  | 9         
|Profit before tax                                    |  | 798        |  | 787       
|                                                    
|                                                    
|Taxation                                             |  | (247)      |  | (209)     
|Profit for the year                                  |  | 551        |  | 578       
|                                                    
|                                                    
|Net losses not recognised in profit
    for the year |  | (38)       |  | (13)      
|Total recognised income and
    expense for the year |  | 513        |  | 565       
|                                                    

|                                                                              |  |        |  |       
|----------------------------------------------------------------------------- |  | ------ |  | ------
|Cash flow statement                                                           |  | £m     |  | £m    
|                                                                             
|Cash and cash equivalents                                                     |  | 816    |  | 503   
|                                                                             
|                                                                             
|Statistics                                                                    |  |        |  |       
|                                                                             
|Basic earnings per share (in pence)
    from profit for the year              |  | 30.2p  |  | 30.2p 
|Diluted earnings per share (in
    pence) from profit for the year            |  | 30.1p  |  | 30.2p 
|                                                                             
|Payments to acquire plant,
    property, equipment and intangible assets (£m) |  | 212    |  | 241   
|Capital stock (£m)(i)                                                         |  | 2,567  |  | 2,598 
|                                                                             
|DTH homes (000)                                                              |  | 8,176  |  | 7,787 
|Cable homes (000) (ii)                                                       |  | 3,898  |  | 3,872 
|Total Sky pay homes                                                           |  | 12,074 |  | 11,659
|DTT homes (000) (iii)                                                        |  | 7,326  |  | 4,940 
|                                                                             
|Average number of full-time
    equivalent employees                          |  | 11,216 |  | 9,958 
|                                                                             

182



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##### Table of Contents



|                                                   |  |         |        |   |         |  |        |  
|-------------------------------------------------- |  | ------- | ------ | - | ------- |  | ------ | -
|                                                   |  | 30 June |        |   | 30 June | 
|                                                   |  | 2006    |        |   | 2005    | 
|Assets employed                                    |  | £m      |        |   | £m      | 
|                                                   | 
|Non-current assets                                 |  |         | 1,490  |   |         |  | 1,093  |  
|Current assets                                     |  |         | 2,283  |   |         |  | 1,363  |  
|Current liabilities                                |  |         | (1,533 | ) |         |  | (1,150 | )
|Non-current liabilities                            |  |         | (2,119 | ) |         |  | (1,119 | )
|Net assets                                         |  |         | 121    |   |         |  | 187    |  
|                                                  
|                                                  
|Number of shares in issue (number
    in millions) |  |         | 1,791  |   |         |  | 1,868  |  
|                                                  



|      |                                                                                                                                                                                                                                                                                                    
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Capital stock includes
    called-up share
    capital, share premium, Employee Share Ownership Plan
    (ESOP) reserve, merger reserve, special reserve,
    hedging reserve and capital redemption reserve.                                                                                    
|     
|(ii)  | The number of cable subscribers is as reported to us by the
    cable operators.                                                                                                                                                                                                                   
|     
|(iii) | The DTT subscriber number consists of the Broadcasters
    Audience Research Boards BARB estimate of the number of
    homes with access to Freeview (the free DTT offering operating
    in the UK). These figures may include Sky or Cable homes that
    already take multichannel television.

Group financial record  US GAAP






20-F


|                                                                              |  |                                     |        |  |      |   |        |      |  |   |       |   |  |      |       |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ----------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ------- | -
|                                                                              |  | Year ended 30 June                  |       
|                                                                              |  |                                     |       
|                                                                              |  | 2006                                |        |  | 2005 |   |        | 2004 |  |   | 2003  |   |  | 2002 |      
|                                                                              |  | (In millions except per share data) |       
|                                                                              | 
|Selected income statement
    data                                            |  |                                     |        |  |      |   |        |      |  |   |       |   |  |      |       |   |  |   |         |  
|Amounts in accordance with US GAAP                                            |  |                                     |        |  |      |   |        |      |  |   |       |   |  |      |       |   |  |   |         |  
|Total revenues                                                                |  | £                                   | 4,148  |  |      | £ | 3,842  |      |  | £ | 3,535 |   |  | £    | 3,082 |   |  | £ | 2,707   |  
|Amortisation and impairment of
    intangible fixed assets                    |  |                                     |       |  |      |   |       |      |  |   |      |   |  |      | (5    | ) |  |   | (145    | )
|Operating profit (loss)                                                       |  |                                     | 873    |  |      |   | 840    |      |  |   | 666   |   |  |      | 370   |   |  |   | (30     | )
|Joint ventures and
    associates goodwill amortisation and impairment, net |  |                                     |       |  |      |   |       |      |  |   | (3    | ) |  |      |      |   |  |   | (712    | )
|Loss on disposal of investments in
    joint ventures                         |  |                                     |       |  |      |   | (14    | )    |  |   |      |   |  |      |      |   |  |   |        |  
|Income (loss) before income tax                                               |  |                                     | 793    |  |      |   | 793    |      |  |   | 595   |   |  |      | 260   |   |  |   | (940    | )
|Net income (loss)                                                             |  |                                     | 551    |  |      |   | 577    |      |  |   | 434   |   |  |      | 286   |   |  |   | (1,047  | )
|Basic earnings (loss) per share                                               |  |                                     | 30.2p  |  |      |   | 30.2p  |      |  |   | 22.4p |   |  |      | 14.9p |   |  |   | (55.5p  | )
|Diluted earnings (loss) per share                                             |  |                                     | 30.1p  |  |      |   | 30.1p  |      |  |   | 22.3p |   |  |      | 14.7p |   |  |   | (55.5p  | )
|Basic earnings (loss) per
    ADS(1)                                          |  |                                     | 120.8p |  |      |   | 120.8p |      |  |   | 89.7p |   |  |      | 59.7p |   |  |   | (221.9p | )
|Diluted earnings (loss) per
    ADS(1)                                        |  |                                     | 120.4p |  |      |   | 120.4p |      |  |   | 89.3p |   |  |      | 58.9p |   |  |   | (221.9p | )
|Dividends declared per
    share(2)                                           |  |                                     | 10.5p  |  |      |   | 7.25p  |      |  |   | 2.75p |   |  |      |      |   |  |   |        |  
|Dividends declared per
    share(2)                                           |  |                                     | 18.4¢  |  |      |   | 13.7¢  |      |  |   | 4.9¢  |   |  |      |      |   |  |   |        |  
|                                                                             

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|                                   |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        |  
|---------------------------------- |  | ------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  |  |  | ------ | -
|                                   |  | As at 30 June |       
|                                   |  |               |       
|                                   |  | 2006          |        |  | 2005 |  |        | 2004 |  |  | 2003   |  |  | 2002 |       
|                                   |  | (In millions) |       
|                                   | 
|Selected balance sheet
    data    |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        |  
|Amounts in accordance with US GAAP |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        |  
|Total assets                       |  |               | £4,419 |  |      |  | £3,082 |      |  |  | £2,988 |  |  |      | £2,810 |  |  |  | £2,853 |  
|Net assets (liabilities)           |  |               | 759    |  |      |  | 818    |      |  |  | 812    |  |  |      | 448    |  |  |  | (141   | )
|Number of shares in issue (number) |  |               | 1,791  |  |      |  | 1,868  |      |  |  | 1,942  |  |  |      | 1,938  |  |  |  | 1,893  |  
|                                  



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In our Annual Report filed on
    Form 20-F for
    fiscal 2002, the earnings (loss) per American Depositary Share
    (ADS) was calculated using the weighted average
    number of ADSs outstanding on the basis of 1 ADS for
    6 Ordinary Shares. On 23 December 2002, the ratio was
    revised to reflect a new ratio of 1 ADS representing
    4 Ordinary Shares. Therefore, the current and prior periods
    earnings (loss) per ADS have been calculated using a weighted
    average number of ADSs outstanding on the basis of 1 ADS
    for 4 Ordinary Shares. Earnings (loss) per ADS is not
    exactly four times earnings (loss) per share due to rounding
    differences.
|   
|(2) | Dividends are recognised in the period in which they are
    approved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Factors which materially affect the comparability of the
selected financial data




| |                   
| | ------------------
| | Accounting changes



00-21, 20-F


20-F


Business combinations




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##### Table of Contents

SHAREHOLDER INFORMATION

Share information

Our sole outstanding class of voting securities is ordinary
shares with a nominal value of 50p.

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

Registrars

Lloyds TSB Registrars

The Causeway

Worthing

West Sussex BN99 6DA

Telephone 0870 195 6600

Overseas +44 121 415 7567

ADR depositary

The Bank of New York

Investor Services

P.O. Box 11258

Church Street Station

New York, NY 10286-1258

Telephone (US) 1-888-BNY-ADRS

Telephone (International) +1 (212) 815-3700

www.adrbny.com

Shares on-line

Lloyds TSB Registrars provide a range of shareholder information
on-line. Shareholders can access their shareholdings and find
advice on transferring shares and updating their details at
www.shareview.co.uk.

ShareGift

Shareholders who only have a small number of shares whose value
makes it uneconomic to sell them may wish to consider donating
them to charity through ShareGift, the independent charity share
donation scheme (registered charity no. 1052686). Further
information about ShareGift may be obtained from Lloyds TSB
Registrars or from ShareGift on 020 7337 0501 or at
www.sharegift.org. There are no implications for capital gains
tax purposes (no gain or loss) on gifts of shares to charity and
it is also possible to claim income tax relief.

Shareholder enquiries

All administrative enquiries relating to shareholders, such as
notification of change of address or the loss of a share
certificate, should be made to the Companys registrars,
Lloyds TSB Registrars, whose address is given above.

Dividends

Shareholders can have their dividends paid directly into a UK
bank or building society account with the tax voucher sent
direct to their registered address. Please contact Lloyds TSB
Registrars for a dividend mandate form.

Dividend Reinvestment Plan

The Company operates a Dividend Reinvestment Plan
(DRIP) which enables shareholders to buy the
Companys shares on the London stock market with their cash
dividend. Further information about the DRIP is available from

185



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##### Table of Contents

Lloyds TSB Registrars. The helpline number is
0870 241 3018 from inside the UK and
+44 121 415 7173 from overseas.

Share price information

The Companys share price can be found on the
Companys corporate website at www.sky.com/corporate and is
broadcast on SkyText on the Sky News channel on page 145,
BBC Ceefax page 221 and on Channel 4 Teletext
page 520, all under the prefix BSkyB. It also appears in
the financial columns of the national press.

ADS holders can access the latest ADS price at www.nyse.com or
by visiting the Bank of New Yorks website, www.adrbny.com.

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

|                              |  |         |     |  |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|----------------------------- |  | ------- | --- |  | ------- |  | --- | ---- |  |  | --- | ------ |  |  | -- | ------ |  | 
|                              |  | Shares  |     |  | ADSs(i)
|                              |  | (Pence) |     |  | ($)    
|                              |  |         |     |  |        
|                              |  | High    |     |  | Low     |  |     | High |  |  | Low |        |  | 
|                             
|Fiscal year ended
    30 June |  |         |     |  |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|2002                          |  |         | 936 |  |         |  | 544 |      |  |  | 53  |        |  |  | 32 | 1/100  |  | 
|2003                          |  |         | 706 |  |         |  | 458 |      |  |  | 47  | 3/25   |  |  | 28 | 53/100 |  | 
|2004                          |  |         | 776 |  |         |  | 584 | 1/2  |  |  | 59  | 6/25   |  |  | 40 | 13/50  |  | 
|2005                          |  |         | 625 |  |         |  | 465 | 1/2  |  |  | 46  | 33/100 |  |  | 33 | 39/50  |  | 
|2006                          |  |         | 579 |  |         |  | 478 | 1/2  |  |  | 42  | 49/100 |  |  | 33 | 4/5    |  | 
|                             

|                              |  |         |     |     |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|----------------------------- |  | ------- | --- | --- | ------- |  | --- | ---- |  |  | --- | ------ |  |  | -- | ------ |  | 
|                              |  | Shares  |     |     | ADSs(i)
|                              |  | (Pence) |     |     | ($)    
|                              |  |         |     |     |        
|                              |  | High    |     |     | Low     |  |     | High |  |  | Low |        |  | 
|                             
|Fiscal year ended
    30 June |  |         |     |     |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|2005                          |  |         |     |     |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|First Quarter                 |  |         | 625 |     |         |  | 465 | 1/2  |  |  | 46  | 33/100 |  |  | 33 | 39/50  |  | 
|Second Quarter                |  |         | 570 | 3/4 |         |  | 483 |      |  |  | 44  | 1/2    |  |  | 34 | 67/100 |  | 
|Third Quarter                 |  |         | 595 |     |         |  | 540 | 1/2  |  |  | 44  | 93/100 |  |  | 40 | 39/100 |  | 
|Fourth Quarter                |  |         | 572 | 1/2 |         |  | 509 | 1/2  |  |  | 43  | 63/100 |  |  | 36 | 19/25  |  | 
|2006                          |  |         |     |     |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|First Quarter                 |  |         | 579 |     |         |  | 522 |      |  |  | 42  | 11/25  |  |  | 36 | 49/100 |  | 
|Second Quarter                |  |         | 560 | 1/2 |         |  | 485 | 1/2  |  |  | 39  | 3/25   |  |  | 33 | 4/5    |  | 
|Third Quarter                 |  |         | 546 | 1/2 |         |  | 478 | 1/2  |  |  | 38  | 29/50  |  |  | 34 | 1/5    |  | 
|Fourth Quarter                |  |         | 573 | 1/2 |         |  | 509 | 1/2  |  |  | 42  | 49/100 |  |  | 35 | 79/100 |  | 
|                             

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|                 |  |         |     |     |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|---------------- |  | ------- | --- | --- | ------- |  | --- | ---- |  |  | --- | ------ |  |  | -- | ------ |  | 
|                 |  | Shares  |     |     | ADSs(i)
|                 |  | (Pence) |     |     | ($)    
|                 |  |         |     |     |        
|                 |  | High    |     |     | Low     |  |     | High |  |  | Low |        |  | 
|                
|Month ended      |  |         |     |     |         |  |     |      |  |  |     |        |  |  |    |        |  | 
|31 January 2006  |  |         | 520 | 1/2 |         |  | 478 | 1/2  |  |  | 37  | 9/25   |  |  | 34 | 1/5    |  | 
|28 February 2006 |  |         | 533 | 1/2 |         |  | 496 | 1/2  |  |  | 37  | 7/20   |  |  | 35 | 57/100 |  | 
|31 March 2006    |  |         | 546 | 1/2 |         |  | 505 | 1/2  |  |  | 38  | 29/50  |  |  | 35 | 3/5    |  | 
|30 April 2006    |  |         | 535 |     |         |  | 509 | 1/2  |  |  | 38  | 14/25  |  |  | 35 | 79/100 |  | 
|31 May 2006      |  |         | 545 | 1/2 |         |  | 514 |      |  |  | 41  | 9/25   |  |  | 38 | 17/50  |  | 
|30 June 2006     |  |         | 573 | 1/2 |         |  | 532 |      |  |  | 42  | 49/100 |  |  | 39 | 81/100 |  | 
|                



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

Principal shareholders




|                                                              |  |              |             |         |          |       
|------------------------------------------------------------- |  | ------------ | ----------- | ------- | -------- | ------
|                                                              |  |              |             | Percent
|Identity of Person or Group                                   |  | Amount Owned |             |         | of Class
|                                                             
|News UK Nominees Limited(1)                                   |  |              | 686,021,700 |         |          | 38.36%
|Franklin Resources, Inc. and its
    affiliates               |  |              | 179,614,830 |         |          | 10.00%
|Janus Capital Management LLC                                  |  |              | 69,778,828  |         |          | 3.86% 
|Barclays PLC                                                  |  |              | 68,971,130  |         |          | 3.85% 
|Brandes Investment Partners
    L.P.                          |  |              | 56,867,820  |         |          | 3.12% 
|The Capital Group Companies,
    Inc.                         |  |              | 55,977,854  |         |          | 3.10% 
|FMR Corp. and Fidelity
    International Limited (Fidelity) |  |              | 54,943,657  |         |          | 3.06% 
|Harris Associates L.P.                                        |  |              | 54,839,000  |         |          | 3.03% 
|                                                             



|    |                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On 30 June 2004, BSkyB Holdco, Inc. transferred its entire
    shareholding in us to News UK Nominees Limited, a wholly-owned
    subsidiary of News Corporation which remains interested in the
    shares.





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Franklin Resources, Inc. notified us of the following changes in
its interest in our shares:

|                  |  |            |       |  
|----------------- |  | ---------- | ----- | -
|                  |  | Percentage |      
|Date Notified     |  | Ownership  |      
|                  | 
|9 August 2004     |  |            | 3.58  | %
|12 August 2004    |  |            | 4.08  | %
|15 September 2004 |  |            | 5.05  | %
|15 November 2004  |  |            | 6.00  | %
|3 May 2005        |  |            | 7.06  | %
|9 June 2005       |  |            | 8.03  | %
|11 July 2006      |  |            | 9.01  | %
|2 February 2006   |  |            | 10.09 | %
|23 May 2006       |  |            | 9.98  | %
|21 June 2006      |  |            | 10.00 | %
|                 

















Financial calendar




Q1


Q2


Q3


Q4


Companys registered office:










The Sky website




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Auditors

Deloitte & Touche LLP

Hill House

1 Little New Street

London EC4A 3TR

Principal bankers

Royal Bank of Scotland

St. Andrews Square

Edinburgh EH2 2YB

Solicitors

Herbert Smith LLP

Exchange House

Primrose Street

London EC2A 2HS

Company registration number

2247735

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 note 22 of the consolidated financial
statements Derivatives and other financial
instruments.

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

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

|              |  |      |        |  |     |  |        | 
|------------- |  | ---- | ------ |  | --- |  | ------ | 
|Month         |  | High |        |  | Low | 
|              | 
|January 2006  |  |      | 1.7885 |  |     |  | 1.7404 | 
|February 2006 |  |      | 1.7807 |  |     |  | 1.7343 | 
|March 2006    |  |      | 1.7567 |  |     |  | 1.7256 | 
|April 2006    |  |      | 1.8220 |  |     |  | 1.7389 | 
|May 2006      |  |      | 1.8911 |  |     |  | 1.8286 | 
|June 2006     |  |      | 1.8817 |  |     |  | 1.8108 | 
|             

|                   |  |            |        |  |            |  |        |      |  |  |        |  |  |  |        | 
|------------------ |  | ---------- | ------ |  | ---------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|Year ended 30 June |  | Period end |        |  | Average(1) |  |        | High |  |  | Low    | 
|                   | 
|2002               |  |            | 1.5347 |  |            |  | 1.4479 |      |  |  | 1.5347 |  |  |  | 1.4000 | 
|2003               |  |            | 1.6529 |  |            |  | 1.5915 |      |  |  | 1.6840 |  |  |  | 1.5192 | 
|2004               |  |            | 1.8126 |  |            |  | 1.7491 |      |  |  | 1.9045 |  |  |  | 1.5728 | 
|2005               |  |            | 1.7930 |  |            |  | 1.8596 |      |  |  | 1.9482 |  |  |  | 1.7733 | 
|2006               |  |            | 1.8491 |  |            |  | 1.7808 |      |  |  | 1.8911 |  |  |  | 1.7138 | 
|                  



|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(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.



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Memorandum and articles of association

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

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

The current Articles of Association (Articles) of
the Company, contain, inter alia, provisions to the following
effect:



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

Save as otherwise provided in the Articles, a Director shall be
prohibited from voting at a meeting of the Directors on material
matters in which he has directly or indirectly a material
interest (other than an interest in shares, debentures or other
securities of, or otherwise in or through the Company). A
Director shall not be counted in the quorum at a meeting in
relation to any resolution on which he is not entitled to vote.
Subject to the provisions of the Act and every other statute for
the time being in force concerning companies and affecting the
Company (the Statutes), a Director shall be entitled
to vote (and be counted in the quorum) in respect of any
resolution at a meeting of the Directors concerning any of the
following matters:

(i) the giving of any guarantee, security or indemnity to
him in respect of money lent to, or obligations incurred by him
at the request of, or for the benefit of, the Company or any of
its subsidiaries;

(ii) the giving of any guarantee, security or indemnity to
a third party in respect of a debt or obligation of the Company
or any of its subsidiaries for which he himself has assumed
responsibility in whole or in part under a guarantee or
indemnity or by the giving of security;

(iii) any proposal concerning an offer of any shares or
debentures or other securities of or by the Company for
subscription, purchase or exchange in which offer he is, or is
to be, interested as a participant in the underwriting or
sub-underwriting thereof;

(iv) any proposal concerning a superannuation fund or
retirement benefits scheme which has been approved by, or is
subject to, and conditional upon approval by the Board of the
HMRC 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
HMRC for taxation purposes and which does not accord to any
Directors any privilege not accorded to the employees to whom
the arrangement relates; and

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

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

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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 compensationThe 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
only part of the period in respect of which such remuneration is
payable shall be entitled only to rank in such division for a
proportion of remuneration related to the period during which he
has held office.

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

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

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



Borrowing powersThe 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 DirectorsNo 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 DirectorsDirectors 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.



DividendsSubject 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

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respect of such periods as they think fit. The profits of the
Company available for distribution and resolved to be
distributed shall be apportioned and paid proportionately to the
amounts paid up on the shares during any portion of the period
in respect of which the dividend is paid.

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

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



Directors appointment and removalThe 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 AGM and will
put himself forward to be elected by the shareholders.

At each AGM, there shall retire from office by rotation:

(i) all Directors of the Company who are subject to
retirement by rotation who held office at the time of the two
preceding AGMs and who did not retire by rotation at either of
them; and

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



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

Winding-upIf 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.



RedemptionNone 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 callsThe Directors may only make calls upon the members in respect of
amounts unpaid on the shares (whether in respect of nominal
value or premium).

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Variation of rightsSubject to the Act, the rights attached to any class of shares
may (unless otherwise provided by the terms of the issue of
shares of that class) be varied with the consent in writing of
the holders of three-quarters in nominal value of the issued
shares of the class or with the sanction of an extraordinary
resolution passed at a separate general meeting of the holders
of the shares of the class (but not otherwise) and may be so
varied either whilst the Company is a going concern or during,
or in contemplation of, a winding-up. At every such separate
general meeting the necessary quorum shall be at least two
persons holding or representing by proxy at least one-third in
nominal value of the issued shares of the class (but so that at
any adjourned meeting any holder of shares of the class present
in person or by proxy shall be a quorum).



General meetingsThe 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 shareholdersEnglish 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 sharesAny 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 favour of not more than four persons jointly.

The Directors of the Company may refuse to register the transfer
of a share in uncertificated form to a person who is to hold it
thereafter in certificated form in any case where the Company is
entitled to refuse (or is excepted from the requirements) under
the Uncertificated Securities Regulations 2001 to register the
transfer; and they may refuse to register any such transfer in
favour of more than four transferees. The Directors may refuse
to register any transfer if it is their opinion that such
transfer would or might (i) prejudice the Groups
right to hold, be awarded or granted or have renewed or
extended, any licence granted under the Broadcasting Acts, or
(ii) give rise to or cause a variation to be made to, or a
revocation or determination of, any such licence by Ofcom.

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

(i) and following consultation with Ofcom that, inter alia,
by reason of the interest of a person in any shares of the
Company transferred, Ofcom may vary, revoke, determine or refuse
to award, grant, renew or extend a licence granted under the
Broadcasting Acts; or

(ii) that any person has an interest in the shares of the
Company which, inter alia, makes the Company a disqualified
person under the Broadcasting Acts or which contravenes, or
would cause a contravention of, any of the restrictions set out
in Parts III, IV or V of Schedule 2 to the
Broadcasting Act 1990 or any order, direction or notice made
pursuant to the Broadcasting Acts or such other restrictions as
may be applied by Ofcom from time to time to disqualify certain
persons or bodies from having interests in such a licence or to
restrict the accumulation of interests in relevant services as
defined in Schedule 2 to the Broadcasting Act 1990;

the Directors shall be entitled to serve written notice (a
Disposal Notice) on the relevant transferee in
respect of the shares transferred stating that they have so
determined, specifying their grounds in general terms and
calling for the disposal of such transferred shares as are
specified in the Disposal Notice within 21 days of the date
of such notice or such longer period as the Directors may
consider reasonable and which they may extend. If the Disposal
Notice is not complied with to the satisfaction of the
Directors, they shall, so far as they are able, dispose of the
relevant shares for the best price reasonably obtainable in all
the circumstances. In addition, a member who has been served
with a Disposal Notice shall not, with effect from the
expiration of such period as the Directors shall specify in such
notice (not being longer than 30 days from the date of
service of the notice), be entitled to receive notice of, or to
attend or vote at, any general meeting of the Company by reason
of his holding the shares specified in the Disposal Notice.



Untraced shareholdersThe Company shall be entitled to sell, at the best price
reasonably obtainable, the shares of a member or the shares to
which a person is entitled by transmission if, during a period
of twelve years, no cheque for amounts payable in respect of the
share has been cashed and no communication has been received by
the Company from the member or the person entitled by
transmission and at least three dividends have been paid in
relation to such shares during those twelve years and no such
dividend has been claimed and, within a further period of three
months from the date of advertisements giving notice of its
intention to sell such shares placed after the expiry of the
period of twelve years, the Company has not received any
communication from the member or the person entitled by
transmission and notice has been given by the Company to the
London Stock Exchange of its intention to make such sale. The
Company shall be obligated to account to the former member or
person entitled by transmission for the net proceeds of the sale
of such shares but no trust shall be created in respect of the
debt and no interest shall be payable in respect of the same and
the Company shall not be required to account for any money
earned on the net proceeds.

Alteration of share capital

The authorised share capital of the Company currently consists
of 3,000,000,000 ordinary shares of 50p each.

The Company may from time to time by ordinary resolution:

(i) increase its share capital by such sum to be divided
into shares of such amounts as the resolution shall prescribe;

(ii) consolidate and divide all or any of its share capital
into shares of larger amount than its existing shares;

(iii) cancel any shares which, at the date of the passing
of the resolution, have not been taken, or agreed to be taken,
by any person and diminish the amount of its capital by the
amount of the shares so cancelled; or

(iv) sub-divide its shares, or any of them, into shares of
smaller amount than is fixed by the Memorandum of Association
(subject, nevertheless, to the provisions of the Statutes).

Subject to the provisions of the Act, the Company may reduce its
share capital redemption reserve, share premium account or other
undistributable reserve in any way.

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

At the AGM of the Company held on 12 November 2004,
shareholders approved a special resolution allowing the Company
to buy-back up to 97,000,000 ordinary shares in the market,
which was approximately 5% of the issued ordinary share capital
at 1 October 2004. The authority expired on
11 November 2005, 12 months from the date of the
passing of the special resolution. Buy-backs are by market
purchases through the London Stock Exchange. Any shares
purchased are cancelled thereby reducing the number of shares in
issue. Under this authority the Company purchased, and
subsequently cancelled, 97,000,000 ordinary shares of
50p each for a consideration of £544 million.

At the AGM held on 12 November 2004, shareholders approved
an ordinary resolution in relation to Rule 9 of the City
Code of Takeovers and Mergers (the City Code) which
waived the compulsory bid obligation that arises for News UK
Nominees Limited when the Company repurchases shares under the
authority granted by the special resolution detailed above.
Under Rule 9 of the City Code, any person who acquires
shares which, taken together with the shares already held by him
or acquired by persons acting in concert with him, carry
30% or more of the voting rights in a company which is
subject to the City Code is normally required to make a general
offer to all of the remaining shareholders to acquire their
shares. Similarly, when any person or persons acting in concert
already hold 30% or more but less than 50% of the
voting rights in such a company, a general offer will normally
be required to be made if any further shares are acquired. An
offer under Rule 9 must be in cash at the highest price
paid within the preceding 12 months for any shares acquired
in the Company by the person required to make the offer or any
person acting in concert with him. The holding of News UK
Nominees Limited as at the date of the AGM was
686,021,700 ordinary shares, representing 35.33% of
the voting rights in the Company. If the compulsory bid
obligation under Rule 9 had not been waived and the Company
had repurchased shares under the authority granted by the
special resolution detailed above and, at the time, the voting
rights attributable to the aggregate holding of News UK Nominees
Limited had continued to exceed 30% of the voting rights of
the Company or, if, in the meantime, its holding had fallen
below this level and, as a result had increased to 30% or more
of such voting rights, News UK Nominees Limited would have been
required to make a cash offer for the issued shares of the
Company which it did not already own. The Panel agreed to waive
the compulsory bid obligation arising in respect of a repurchase
by the Company of its shares subject to approval of the ordinary
resolution on a poll, subsequently received at the AGM, from
shareholders independent of News UK Nominees Limited. The waiver
in this ordinary resolution, which is valid only for so long as
the authority granted pursuant to the special resolution
detailed above remains in force, applies only in respect of
increases in the percentage interest of News UK Nominees Limited
resulting from market purchases by the Company of its own shares
and not in respect of other increases in its holding. The
authority granted by the special resolution detailed above has
been exercised in full and the holdings of News UK Nominees
Limited and the percentage of the voting rights in the Company
attributable to such holdings, following the exercise of the
authority increased from 35.33% to 37.19% of the Companys
issued share capital.

At the AGM of the Company held on 4 November 2005,
shareholders approved a special resolution that extended the
buy-back authority for a further year, allowing the Company to
buy-back up to 92,000,000 ordinary shares in the market,
which was approximately 5% of the issued share capital of the
Company at 27 September 2005. Shareholders also approved an
ordinary resolution in relation to Rule 9 of the City Code,
explained above, which waived the compulsory bid obligation
whilst the buy-back authority remains in force. In addition, in
pursuing a continued buy-back authority, the Board considered
that it was appropriate that the Company conditionally entered
into a voting agreement with News UK Nominees Limited,
dated 21 September 2005, which would limit the exercise of
its voting rights to 37.19%. The voting agreement was
conditional on the buy-back proposals being approved by
shareholders and therefore became unconditional on
4 November 2005. As at 27 July 2006, the Company had
purchased, and subsequently cancelled, 53,765,000 ordinary
shares of 50p each under this authority for a consideration of
£278 million.

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Issue of shares

Subject to the provisions of the Statutes relating to authority,
pre-emption rights and otherwise and of any resolution of the
Company passed in general meeting, all unissued shares shall be
at the disposal of the Directors and they may allot (with or
without conferring a right to renunciation), grant options over,
or otherwise dispose of them to such persons, at such times and
on such terms as they think proper.

Disclosure of interests in the Companys
shares

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

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



(i)
    he acquires (or becomes aware that he has acquired) or ceases to
    have (or becomes aware that he has ceased to have) an interest
    in shares comprising any class of the Companys issued and
    voting share capital; and

(ii)
    as a result, either he obtains, or ceases to have:

(a)
    a material interest in 3%, or more; or(b)
    an aggregate interest (whether material or not) in
    10%, or more of the Companys voting capital; or

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

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

Under Section 212 of the Companies Act, the Company may by
notice in writing require a person that the Company knows or has
reasonable cause to believe is or was during the preceding three
years interested in the Companys shares to indicate
whether or not that is correct and, if that person does or did
hold an interest in the Companys shares, to provide
certain information as set out in the Companies Act.

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

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

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

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

Exchange controls

There are no UK government laws, decrees, regulations or
other legislation which restrict or which may affect the import
or export of capital, including the availability of cash and
cash equivalents for use by us or the remittance of dividends,
interest and other payments to non-resident holders of our
securities, except as otherwise described in the
Memorandum and Articles of Association 
Dividends section above, and the Taxation
section below.

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

Taxation

This section summarises basic UK and US tax consequences of
the acquisition, ownership and disposition of shares and ADSs by
a US Holder. For purposes of this summary, a
US Holder is a beneficial owner of shares or
ADSs who is (i) an individual who is a citizen or resident
of the US for US income tax purposes, (ii) a corporation
organised under the laws of the US or any state thereof or the
District of Columbia, (iii) a domestic partnership,
(iv) an estate the income of which is subject to US federal
income taxation regardless of its source, or (v) a trust if
a court within the US is able to exercise primary supervision
over the administration of the trust and one or more
US persons have the authority to control all substantial
decisions of the trust. However, in the case of a partnership,
estate or trust, this discussion applies only to the extent such
entitys income is taxed to the entity or its partners or
beneficiaries on a net income basis under US tax law. This
summary is based (i) upon current UK law and
UK HMRC practice, (ii) upon the US Internal
Revenue Code, Treasury Regulations, cases and Internal Revenue
Service rulings, all of which are subject to change, possibly
with retroactive effect, (iii) upon the UK-US Income Tax
Convention currently in effect (the Treaty), and
(iv) in part upon representations of the Depositary and
assumes that each obligation provided for in or otherwise
contemplated by the Deposit Agreement and any related agreement
will be performed in accordance with their respective terms.

The summary of UK tax consequences relates to the material
aspects of the UK taxation position of US Holders and
does not address the tax consequences to a US Holder
(i) that is resident (or, in the case of an individual,
ordinarily resident) in the UK for UK tax purposes,
(ii) whose holding of shares or ADSs is effectively
connected with a permanent establishment in the UK through which
such US Holder carries on business activities or, in the
case of an individual who performs independent personal
services, with a fixed base situated therein, or (iii) that
is a corporation which alone or together with one or more
associated companies, controls directly or indirectly, 10% or
more of the voting stock of the Company. The discussion set
forth below is only a general summary and does not purport to be
a technical analysis nor a description of all possible tax
consequences.

The summary of US tax consequences may not completely or
accurately describe tax consequences to all US Holders. For
example, special rules may apply to US Holders of stock
representing 10% or more of the total combined voting power of
the Company, US expatriates, insurance companies,
tax-exempt organisations, banks and other financial
institutions, persons subject to the alternative minimum tax,
securities broker-dealers, traders in securities that elect to
mark-to-market, and
persons holding their shares or ADSs as part of a straddle,
hedging or conversion transaction, among others.

Tax consequences to each US Holder will depend upon the
particular facts and circumstances of each such holder.
Accordingly, each person should consult with his own
professional advisor with respect to the tax consequences of his
ownership and disposition of shares or ADSs. This summary does
not discuss any tax rules other than UK tax and
US federal income tax rules. The UK and US tax
authorities and courts are not bound by this summary and may
disagree with its conclusions.

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US Holders of ADSs will be treated as owners of the shares
underlying the ADSs. Accordingly, except as noted, the UK and
US tax consequences discussed below apply equally to
US Holders of ADSs and shares.

Taxation of distributions

Under current UK taxation legislation, no tax is withheld
from dividend payments by the Company and generally no
UK tax is payable by US Holders who are not resident
or ordinarily resident for tax purposes in the UK on
dividends declared on the shares.

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

For US federal income tax purposes, the gross amount of any
distribution made by the Company to a US Holder with
respect to any shares or ADSs held by the US Holder generally
will be includable in the income of the US Holder as
dividend income to the extent that such distribution is paid out
of the Companys current or accumulated earnings and
profits as determined under US federal income tax
principles (subject to the discussion below under
US passive foreign investment company rules).
Dividends will generally constitute foreign source
passive income for foreign tax credit purposes. The
dividend income generally will not be eligible for the dividends
received deduction allowed to corporations. If the amount of any
distribution exceeds the Companys current and accumulated
earnings and profits as so computed, such excess first will be
treated as a tax-free return of capital to the extent of the
US Holders tax basis in its shares or ADSs, and
thereafter as gain from the sale or exchange of property.

Dividends received by an individual US Holder before
1 January 2011 with respect to such US Holders
shares or ADSs will generally be subject to a reduced rate of
US federal taxation, provided that certain holding period
and other requirements are met, and provided further that the
Company is a qualified foreign corporation. A qualified foreign
corporation includes a foreign corporation that is eligible for
the benefits of certain comprehensive income tax treaties with
the US. US Treasury Department guidance indicates that a
foreign corporation organised in the UK, such as the Company,
will qualify. US Holders should consult their own tax
advisors regarding the application of these rules.

Any non-US withholding tax with respect to a dividend may be
used as a credit against a US Holders US federal
income tax liability, subject to certain conditions and
limitations.

The amount of any dividend paid in non-US currency will be equal
to the US dollar value of such currency on the date the dividend
is included in income, regardless of whether the payment is in
fact converted into US dollars. A US Holder will generally
be required to recognise US source ordinary income or loss
when such US Holder sells or disposes of non-US currency.
The US Holder will have a tax basis in this non-US currency
equal to the US dollar value of the currency on the date
the dividend is included in the US Holders income.
This foreign currency gain or loss will generally be
US source ordinary income or loss.

Taxation of capital gains

US Holders who are not resident or ordinarily resident for
tax purposes in the UK will not be liable for UK tax on
capital gains realised on the disposal of their ADSs or shares
unless they carry on a trade in the UK through a branch, agency
or permanent establishment, or a profession or vocation in the
UK through a branch or agency and such ADSs or shares are used,
held or acquired for the purposes of the trade, profession,
vocation, branch, agency or permanent establishment.

The surrender of ADSs in exchange for shares should not usually
give rise to UK corporation tax, or US or UK capital gains
tax, for US Holders who are not resident or ordinarily
resident for tax purposes in the UK.

In general, for US federal income tax purposes, a
US Holder will recognise capital gain or loss if such
US Holder sells or exchanges shares or ADSs, provided that
such shares or ADSs are capital assets in the hands of such US
Holder (subject to the discussion below under
US passive foreign investment company rules).
Any gain or loss will generally be US source gain or loss.
For an individual, any capital gain will generally be subject to
US federal income tax at preferential rates if the
individual has held the shares or ADSs for more than one year.

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US passive foreign investment company rules

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



(i)
    75% or more of its gross income is passive income; or

(ii)
    its assets that produce passive income or that are held for the
    production of passive income amount to at least 50% of the value
    of its total assets on average.For purposes of this test, the Company will be treated as
directly owning its proportionate share of the assets, and
directly receiving its proportionate share of the gross income,
of each corporation in which the Company owns, directly or
indirectly, at least 25% of the value of the shares of such
corporation.

If the Company were to become a PFIC, the tax applicable to
distributions on shares or ADSs and any gains a US Holder
recognises on disposition of shares or ADSs may be less
favourable to such US Holder. Accordingly, each person
should consult with his own professional advisor regarding the
PFIC rules.

Inheritance and gift taxes

An individual who is domiciled in the US for the purposes of the
United Kingdom-United States Estate and Gift Tax Convention (the
Estate Tax Treaty) and who is not a national of the
UK for the purposes of the Estate Tax Treaty will generally not
be subject to UK inheritance tax in respect of the shares or
ADSs on the individuals death or on a gift of the shares
or ADSs during the individuals lifetime provided that any
applicable US federal gift or estate tax liability is paid,
unless the shares or ADSs are part of the business property of a
permanent establishment in the UK of an enterprise or pertain to
a fixed base in the UK of an individual used for the performance
of independent personal services. Where the ADSs or shares have
been placed in trust by a settlor who, at time of settlement,
was a US Holder, the ADSs or shares will generally not be
subject to UK inheritance tax unless the settlor, at the time of
settlement, was not domiciled in the US and was a UK national.
In the exceptional case where the shares are subject both to UK
inheritance tax and to US federal gift or estate tax, the Estate
Tax Treaty generally provides for the tax paid in the UK to be
credited against tax paid in the US or for tax paid in the US to
be credited against tax payable in the UK based on priority
rules set out in that Treaty.

UK stamp duty and stamp duty reserve tax

A transfer for value of the shares executed on or after
1 October 1999 will generally be subject to UK ad valorem
stamp duty, normally at the rate of 0.5% of the amount or value
of the consideration given for the transfer, rounded up (if
necessary) to the nearest multiple of £5. Stamp duty is
normally a liability of the purchaser.

An agreement to transfer shares or any interest therein for
money or moneys worth will normally give rise to a charge
to stamp duty reserve tax (SDRT) at the rate of 0.5%
of the amount or value of the consideration for the shares or
interest therein (with no rounding up or down). However, if a
duly stamped instrument of transfer of the shares is executed in
pursuance of the agreement and duly produced within six years of
the date on which the agreement for sale is made (or, if the
agreement is conditional, the date on which the condition is
satisfied) any SDRT paid is generally repayable with interest,
and otherwise the SDRT charge is cancelled. SDRT is in general
payable by the purchaser. The UK Finance Act 1996 makes it clear
that (contrary to previous UK HMRC 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
usually be payable by the Depositary or such other persons. It
is possible for persons operating clearance services to make an
election to HMRC subject to certain conditions, pursuant to
which, instead of the

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

US information reporting and backup withholding

Dividend payments on the shares or ADSs and proceeds from the
sale, exchange or other disposition of the shares or ADSs may be
subject to information reporting to the Internal Revenue Service
and possible US backup withholding at a rate of 28%. US federal
backup withholding generally is imposed on specified payments to
persons that fail to furnish required information. Backup
withholding will not apply to a holder who furnishes a correct
taxpayer identification number or certificate of foreign status
and makes any other required certification, or who is otherwise
exempt from backup withholding. Any US persons required to
establish their exempt status generally must file Internal
Revenue Service
Form W-9, Request
for Taxpayer Identification Number and Certification.

Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against a
US Holders US federal income tax liability. A
US Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the
appropriate claim for refund with the Internal Revenue Service
and furnishing any required information.

Documents on display

Certain documents referred to in this Annual Report can be
inspected at our offices at Grant Way, Isleworth, Middlesex,
TW7 5QD, England. A copy of the Annual Report can be
downloaded from the Companys corporate website at
www.sky.com/corporate.

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 SEC. Copies of reports and other
information, when so filed, may be inspected without charge and
may be obtained at prescribed rates at the public reference
facilities maintained by the SEC at
100 F Street, N.E., Washington, D.C., 20549.
The public may obtain information regarding the SECs
Public Reference Room by calling the SEC at
1-202-551-8090. Our
public filings with the SEC are also available on the website
maintained by the SEC at www.sec.gov.

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.

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GLOSSARY OF TERMS



USEFUL DEFINITIONS
    
    DESCRIPTIONADS
    
    American Depositary ShareATC
    
    Advanced Technology CentreBasic Packages
    
    DTH subscription packages which exclude Premium Channelsbonus channel
    
    A channel provided to a subscriber in addition to one or more
    subscription channels, but at no incremental cost to the
    subscriberBSkyB or the Company
    
    British Sky Broadcasting Group plcChurn
    
    The number of DTH subscribers over a given period that terminate
    their subscription in its entirety, net of former subscribers
    who reinstate their subscription in that period (where such
    reinstatement is within a twelve month period of the termination
    of their original subscription), expressed as a percentage of
    total subscribers.Digibox
    
    Digital satellite reception equipmentDSL
    
    Digital Subscriber LineDTH
    
    Direct-to-Home: the transmission of satellite services with
    reception through a minidish. The Group also retails certain Sky
    Channels (in some cases together with channels broadcast by
    third parties) to a limited number of DSL subscribers
    (references throughout to DTH subscribers include
    DSL subscribers)DTT
    
    Digital Terrestrial Television: digital signals delivered to
    homes through a conventional aerial, converted through a set top
    box or integrated digital television setEITF
    
    Emerging Issues Task Force: a body which assists in providing
    financial reporting guidance under US GAAPEPG
    
    Electronic Programme GuideESOP
    
    Employee Share Ownership PlanFiscal year or fiscal
    
    Refers to the twelve months ended on the Sunday nearest to
    30 June of the given yearFreesat
    
    Non-subscription service offered by SkyFreeview
    
    The free DTT offering operating in the UKGAAP
    
    Generally Accepted Accounting Principlesthe Group
    
    BSkyB and its subsidiary undertakingsHDTV
    
    High Definition TelevisionIFRS
    
    International Financial Reporting StandardsIP
    
    Internet Protocol: the mechanism by which data packets may be
    routed between computers on a networkLLU
    
    Local Loop Unbundling: a process by which BTs exchange
    lines are physically disconnected from BTs network and
    connected to other

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operators networks. This enables operators other than BT
    to use the BT local loop to provide services to customersMinidish
    
    Satellite dish required to receive digital satellite televisionMPLS
    
    Multi Protocol Label Switching: a networking standard for
    including routing information in the data packets of an Internet
    Protocol network.Multichannel viewing share
    
    Share of viewers of non-analogue terrestrial televisionMultiroom
    
    Installation of an additional Digibox in the household of an
    existing subscriberOfcom
    
    Office of CommunicationsPremium Channels
    
    The Sky Premium Channels and the Premium Sky Distributed ChannelsPremium Sky Distributed Channels
    
    Disney Cinemagic (including a Disney multiplex channel,
    Disney Cinemagic +1) (from 16 March 2006,
    The Disney Channel (including three Disney multiplex channels,
    Toon Disney, Playhouse Disney and
    Disney Channel +1 hour) was replaced by Disney
    Cinemagic (including a Disney multiplex channel, Disney
    Cinemagic +1) and Toon Disney and
    Playhouse Disney became Basic Package channels,
    FilmFour (including the FilmFour multiplex channels,
    FilmFour +1 and FilmFour Weekly)
    (from 23 July 2006, FilmFour is being broadcast as a
    free-to-air channel), MUTV, Chelsea TV and Music Choice ExtraPub Channel
    
    A wholly-owned business-to-business television channel available
    only to the licensed retail tradePVR
    
    Personal Video Recorder: satellite decoder which utilises a
    built-in hard disk drive to enable viewers to record without
    videotapes, pause live television and record one programme while
    watching anotherRCF
    
    Revolving Credit FacilitySky
    
    British Sky Broadcasting Group plc and its subsidiary
    undertakingsSky+
    
    Skys fully-integrated Personal Video Recorder (PVR) and
    satellite decoderSky Active
    
    The brand name for Skys transactional interactive
    television services,
    including e-mail/messaging,
    games, betting, shopping, banking, travel services and ticket
    salesSky Basic Channels
    
    Sky One (and its multiplex versions, Sky Two and Sky Three, and
    its simulcast version, Sky One HD), Sky News, Sky Travel (and
    its multiplex versions, Sky Travel +1 and Sky Travel
    Extra), Sky Travel Shop, Sky Sports News, Artsworld (including
    its simulcast version, Artsworld HD) (all references to Sky
    Channels relating to periods prior to 4 March 2005 exclude
    Artsworld), Sky Vegas 845, Sky Vegas 846, Flaunt, Bliss (which
    was named The Amp until 2 March 2006) and ScuzzSky Bet
    
    Skys betting services, provided through digiboxes, the
    internet and via phoneSky Buy
    
    Interactive and internet shopping services

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Sky Channels
    
    Television channels wholly owned by the Group, being the Sky
    Basic Channels and Sky Premium ChannelsSky Distributed Channels
    
    Television channels owned and broadcast by third parties,
    retailed by the Group to DTH viewersSky Premium Channel Package
    
    DTH subscription package which includes one or more of the Sky
    Premium ChannelsSky Premium Channels
    
    Sky Movies 1 (and its multiplex versions, Sky
    Movies 3, Sky Movies 5, Sky Movies 7 and Sky
    Movies 9, and its simulcast version, Sky Movies 9 HD),
    Sky Movies 2 (and its multiplex versions, Sky
    Movies 4, Sky Movies 6, Sky Movies 8 and Sky
    Movies 10, and its simulcast version, Sky Movies 10
    HD), Sky Sports 1, Sky Sports 2 (and their simulcast
    version, Sky Sports HD) and Sky Sports Xtra. Sky
    Premium Channels include bonus channels, including Sky
    Sports 3 and Sky Cinema 1 (and its multiplex version,
    Sky Cinema 2)Sky Talk
    
    Home phone service provided exclusively for Sky digital
    subscribersSkyVenue
    
    A wholly-owned business television channel available only to the
    licensed retail trade for viewing by their customersSky World
    
    The top tier of packages that includes all Sky Premium ChannelsTerrestrial channels
    
    Television channels which have access to analogue spectrum. The
    UK currently has five terrestrial channels: BBC 1,
    BBC 2, ITV, Channel 4 and fiveTransmission costs
    
    Costs of transmitting channels to subscribersTransponder
    
    Wireless communication devices on satellites which send
    programming signals to minidishesVAT
    
    Value Added Tax: a UK sales tax levied on most goods and servicesViewing share
    
    Number of people viewing a channel as a percentage of total
    viewing audienceVoD
    
    Video-on-DemandVPN
    
    Virtual Private Network: a network that uses a public
    telecommunication infrastructure, such as the internet, to
    provide remote offices or individual users with secure access to
    their organisations networkWAN
    
    Wide Area Network. Companies link networks at different sites
    over the internet to form a secure WAN.

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FORM 20-F CROSS REFERENCE GUIDE

The information in this document that is referred to below shall
be deemed to be part of the Annual Report on
Form 20-F for 2006
that has been filed with the Securities and Exchange Commission.
This information is the only information that is intended to be
filed or incorporated by reference into any filing made by the
Company under applicable US securities laws.

|     |  |                                                           |  |                                                                                                        |  |      |     | 
|---- |  | --------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|Item |  | Form 20-F caption                                         |  | Location in this document                                                                              |  | Page |    
|     | 
|1    |  | Identity of directors, senior
    management and advisors |  | Not applicable                                                                                         |  |      | n/a | 
|    
|2    |  | Offer statistics and expected
    timetable               |  | Not applicable                                                                                         |  |      | n/a | 
|    
|3    |  | Key information                                           |  |                                                                                                        |  |      |     | 
|A    |  | Selected financial data                                   |  | Group financial record                                                                                 |  |      | 182 | 
|     |  |                                                           |  | Shareholder Information 
    Exchange rates                                                           |  |      | 189 | 
|B    |  | Capitalization and indebtedness                           |  | Not applicable                                                                                         |  |      | n/a | 
|C    |  | Reason for the offer and use of
    proceeds              |  | Not applicable                                                                                         |  |      | n/a | 
|D    |  | Risk factors                                              |  | Risk Factors                                                                                           |  |      | 30  | 
|    
|4    |  | Information on the
    Company                            |  |                                                                                                        |  |      |     | 
|A    |  | History and development of the
    Company                |  | The business, its objectives and
    its strategy                                                      |  |      | 5   | 
|B    |  | Business overview                                         |  | The business, its objectives and
    its strategy                                                      |  |      | 5   | 
|     |  |                                                           |  | Government regulation                                                                                  |  |      | 34  | 
|C    |  | Organizational structure                                  |  | Consolidated financial
    statements  Note 30 Group Investments                                    |  |      | 141 | 
|D    |  | Property, plants and equipment                            |  | Property                                                                                               |  |      | 61  | 
|    
|4A   |  | Unresolved staff
    comments                             |  | None                                                                                                   |  |      | n/a | 
|    
|5    |  | Operating and financial review
    and prospects          |  |                                                                                                        |  |      |     | 
|A    |  | Operating results                                         |  | Financial review                                                                                       |  |      | 46  | 
|     |  |                                                           |  | Financial and operating review                                                                         |  |      | 49  | 
|B    |  | Liquidity and capital resources                           |  | Financial and operating
    review  Liquidity and capital resources                                   |  |      | 53  | 
|C    |  | Research and development, patents
    and licenses, etc   |  | Financial and operating
    review  Research and development                                          |  |      | 58  | 
|D    |  | Trend information                                         |  | Financial and operating
    review  Trends and other information                                      |  |      | 56  | 
|E    |  | Off balance sheet arrangements                            |  | Financial and operating
    review  Off-balance sheet arrangements                                    |  |      | 58  | 
|F    |  | Tabular disclosure of contractual
    obligations         |  | Financial and operating
    review  Tabular disclosure of contractual obligations                     |  |      | 55  | 
|G    |  | Safe harbor                                               |  | Forward looking statements                                                                             |  |      | 2   | 
|    
|6    |  | Directors, senior management and
    employees            |  |                                                                                                        |  |      |     | 
|A    |  | Directors and senior management                           |  | Board of Directors and senior
    management                                                           |  |      | 63  | 
|B    |  | Compensation                                              |  | Report on Directors
    remuneration                                                                  |  |      | 78  | 
|C    |  | Board practices                                           |  | Report on Directors
    remuneration  8. Service agreements,
    9. Non-executive Directors          |  |      | 83  | 
|     |  |                                                           |  | Corporate governance
    report  Board committees                                                     |  |      | 74  | 
|D    |  | Employees                                                 |  | Board of Directors and senior
    management  Employees                                               |  |      | 67  | 
|     |  |                                                           |  | Consolidated financial
    statements  Note 7 Employee benefits and
    key management compensation |  |      | 108 | 
|E    |  | Share ownership                                           |  | Report on Directors
    remuneration  11. Share interests                                            |  |      | 86  | 
|     |  |                                                           |  | Report on Directors
    remuneration  13. LTIP, 14. Sharesave
    scheme options                     |  |      | 88  | 
|    

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|     |  |                                                                                  |  |                                                                                                                |  |      |     | 
|---- |  | -------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|Item |  | Form 20-F caption                                                                |  | Location in this document                                                                                      |  | Page |    
|     | 
|7    |  | Major shareholders and related
    party transactions                            |  |                                                                                                                |  |      |     | 
|A    |  | Major shareholders                                                               |  | Shareholder information 
    Principal shareholders                                                           |  |      | 187 | 
|B    |  | Related party transactions                                                       |  | Financial and operating
    review  Related party transactions                                                |  |      | 58  | 
|     |  |                                                                                  |  | Consolidated financial
    statements  Note 29 Transactions with
    related parties and major shareholders |  |      | 139 | 
|C    |  | Interests of experts and counsel                                                 |  | Not applicable                                                                                                 |  |      | n/a | 
|    
|8    |  | Financial information                                                            |  |                                                                                                                |  |      |     | 
|A    |  | Consolidated statements and other
    financial                                  |  | Auditors report                                                                                               |  |      | 90  | 
|     |  | information                                                                      |  | Consolidated financial statements                                                                              |  |      | 92  | 
|     |  |                                                                                  |  | Financial and operating
    review  Trends and other information                                              |  |      | 56  | 
|B    |  | Significant changes                                                              |  | None                                                                                                           |  |      | n/a | 
|    
|9    |  | The offer and listing                                                            |  |                                                                                                                |  |      |     | 
|A    |  | Offer and listing details                                                        |  | Shareholder information 
    Share price information                                                          |  |      | 186 | 
|B    |  | Plan of distribution                                                             |  | Not applicable                                                                                                 |  |      | n/a | 
|C    |  | Markets                                                                          |  | Shareholder information 
    Share information                                                                |  |      | 185 | 
|D    |  | Selling shareholders                                                             |  | Not applicable                                                                                                 |  |      | n/a | 
|E    |  | Dilution                                                                         |  | Not applicable                                                                                                 |  |      | n/a | 
|F    |  | Expenses of the issue                                                            |  | Not applicable                                                                                                 |  |      | n/a | 
|    
|10   |  | Additional information                                                           |  |                                                                                                                |  |      |     | 
|A    |  | Share capital                                                                    |  | Not applicable                                                                                                 |  |      | n/a | 
|B    |  | Memorandum and articles of
    association                                       |  | Shareholder information 
    Memorandum and articles of association                                           |  |      | 190 | 
|C    |  | Material contracts                                                               |  | The business, its objectives and
    its strategy  Material contracts                                         |  |      | 45  | 
|D    |  | Exchange controls                                                                |  | Shareholder information 
    Exchange controls                                                                |  |      | 197 | 
|E    |  | Taxation                                                                         |  | Shareholder information 
    Taxation                                                                         |  |      | 197 | 
|F    |  | Dividends and paying agents                                                      |  | Not applicable                                                                                                 |  |      | n/a | 
|G    |  | Statement by experts                                                             |  | Not applicable                                                                                                 |  |      | n/a | 
|H    |  | Documents on display                                                             |  | Shareholder information 
    Documents on Display                                                             |  |      | 200 | 
|I    |  | Subsidiary information                                                           |  | Not applicable                                                                                                 |  |      | n/a | 
|    
|11   |  | Quantitative and qualitative
    disclosures about market risk                   |  | Consolidated financial
    statements  Note 22 Derivatives and other
    financial instruments              |  |      | 124 | 
|    
|12   |  | Description of securities other
    than equity securities                       |  | Not applicable                                                                                                 |  |      | n/a | 
|    
|13   |  | Defaults, dividend arrearages
    and delinquencies                              |  | Not applicable                                                                                                 |  |      | n/a | 
|    
|14   |  | Material modifications to the
    rights of security holders and use of proceeds |  | Shareholder information 
    Material modifications to the rights of security holders and use
    of proceeds |  |      | 200 | 
|    
|15   |  | Controls and
    procedures                                                      |  | Corporate governance report                                                                                    |  |      | 71  | 
|    
|16A  |  | Audit committee financial
    expert                                             |  | Corporate governance
    report  Audit Committee                                                              |  |      | 75  | 
|    
|16B  |  | Code of ethics                                                                   |  | Corporate governance
    report  Corporate policies                                                           |  |      | 71  | 
|    

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|     |  |                                                                            |  |                                                                                                                                                          |  |      |     | 
|---- |  | -------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|Item |  | Form 20-F caption                                                          |  | Location in this document                                                                                                                                |  | Page |    
|     | 
|16C  |  | Principal accountant fees and
    services                                 |  | Consolidated financial
    statements  Note 6 Profit before
    taxation                                                                              |  |      | 108 | 
|     |  |                                                                            |  | Corporate governance
    report  Use of external auditors                                                                                               |  |      | 77  | 
|    
|16D  |  | Exemptions from the listing
    standards for audit committees             |  | None                                                                                                                                                     |  |      | n/a | 
|    
|16E  |  | Purchases of equity securities
    by the issuer and affiliated purchasers |  | Consolidated financial
    statements  Note 24 Reconciliation of
    shareholders equity  Purchase of own
    shares and capital redemption reserve |  |      | 133 | 
|    
|17   |  | Financial statements                                                       |  | Not applicable                                                                                                                                           |  |      | n/a | 
|    
|18   |  | Financial statements                                                       |  | Auditors report                                                                                                                                         |  |      | 90  | 
|     |  |                                                                            |  | Consolidated financial statements                                                                                                                        |  |      | 92  | 
|    
|19   |  | Exhibits                                                                   |  | Filed with the SEC                                                                                                                                       |  |      |     | 
|    

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##### Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F and that
it has duly caused and authorised the undersigned to sign this
annual report on its behalf.



British Sky Broadcasting
    Group plc

By:
    Jeremy DarrochJeremy DarrochChief Financial OfficerDate: 31 July 2006

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##### Table of Contents

EXHIBITS

The following exhibits are filed as part of this Annual Report
on Form 20-F.

|       |      |       |             |                                                                                                                                                                                                                                                                                    |              |  |      | 
|------ | ---- | ----- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ |  | ---- | 
|       |      |       |             | Exhibit No.                                                                                                                                                                                                                                                                        |             
|       |      |       |             | In Document                                                                                                                                                                                                                                                                        |             
|       |      |       |             | Incorporated                                                                                                                                                                                                                                                                       |             
|Number |      |       | Description |                                                                                                                                                                                                                                                                                    | By Reference | 
|       |      |       |             |                                                                                                                                                                                                                                                                                    |              | 
|       | 1    | (i)   |             | Memorandum and Articles of
    Association                                                                                                                                                                                                                                         |              |  | A    | 
|       | 2.1  | (ii)  |             | Specimen share certificate                                                                                                                                                                                                                                                         |              |  | 2    | 
|       | 2.2  | (iii) |             | Form of Indenture, dated as of
    15 September 1996, among the Company, as the Issuer, and
    British Sky Broadcasting Limited and Sky Subscribers Services
    Limited, as Initial Guarantors, and the Bank of New York, as
    Trustee, relating to Guaranteed Debt Securities |              |  | 4.1  | 
|       | 2.3  | (iv)  |             | Form of Indenture, dated as of
    2 July 1999, among the Company, as the Issuer, and British
    Sky Broadcasting Limited and Sky Subscribers Services Limited,
    as Initial Guarantors, and the Bank of New York, as Trustee,
    relating to Guaranteed Debt Securities       |              |  | 10.2 | 
|       | 2.4  |       |             | Form of Indenture, dated as of
    21 October 2005, among the Company, British Sky
    Broadcasting Limited and Sky Subscribers Services Limited, as
    Initial Guarantors, and the Bank of New York, as Trustee,
    relating to Guaranteed Debt Securities                      |              |  |     | 
|       | 4.1  | (v)   |             | Agreement dated 3 November
    2004 with respect to a £1,000,000,000 Revolving Credit
    Facility among British Sky Broadcasting Group plc, as borrower,
    Barclays Bank plc, as agent, and others                                                                              |              |  | 4.1  | 
|       | 4.2  | (vi)  |             | Service agreement dated 13 May 2004
    with the Chief Executive Officer                                                                                                                                                                                                           |              |  | 4.2  | 
|       | 4.3  | (vi)  |             | Service agreement dated 16 August
    2004 with the Chief Financial Officer                                                                                                                                                                                                        |              |  | 4.3  | 
|       | 8    |       |             | List of Subsidiaries                                                                                                                                                                                                                                                               |              |  |     | 
|       | 11   | (vii) |             | Code of Ethics                                                                                                                                                                                                                                                                     |              |  | 11   | 
|       | 12.1 |       |             | Certification of the Chief
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                     |              |  |     | 
|       | 12.2 |       |             | Certification of the Chief
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                     |              |  |     | 
|       | 13   |       |             | Written statement of the Chief
    Executive Officer and Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002
    (18 U.S.C. Section 1350)                                                                                                        |              |  |     | 
|       | 15   |       |             | Consent of Deloitte &
    Touche LLP                                                                                                                                                                                                                                               |              |  |     | 






|      |                                                                                                                                                                                            
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Incorporated by reference to the Special Report on
    Form 6-K of
    British Sky Broadcasting Group plc filed with the SEC on
    18 August 2003.                                        
|     
|(ii)  | Incorporated by reference to the Annual Report on
    Form 20-F of
    British Sky Broadcasting Group plc for the fiscal year ended
    30 June 2001 filed with the SEC on 1 October 2001. 
|     
|(iii) | Incorporated by reference to the Registration Statement on Form
    F-3, Registration Statement File No. 333-5538, as filed
    with the SEC on 2 October 1996.                            
|     
|(iv)  | Incorporated by reference to the Annual Report on
    Form 20-F of
    British Sky Broadcasting Group plc for the fiscal year ended
    30 June 1999 filed with the SEC on 27 October 1999.
|     
|(v)   | Incorporated by reference to the Annual Report on
    Form 20-F of
    British Sky Broadcasting Group plc for the fiscal year ended
    30 June 2005 filed with the SEC on 7 October 2005. 
|     
|(vi)  | Incorporated by reference to the Annual Report on
    Form 20-F of
    British Sky Broadcasting Group plc for the fiscal year ended
    30 June 2004 filed with the SEC on 26 October 2004.
|     
|(vii) | Incorporated by reference to the Annual Report on
    Form 20-F of
    British Sky Broadcasting Group plc for the fiscal year ended
    30 June 2003 filed with the SEC on 5 December 2003.

208