FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Special Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934

For the month of March 2004

30 March 2004

British Sky Broadcasting Group plc

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F [X]                  Form 40-F [   ]

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934

Yes [   ]                  No [X]

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not Applicable.

This Report is incorporated by reference in the prospectus contained in Registration Statements on Form F-3 (SEC File No. 333-08246) and Form F-3/S-3 (SEC File No. 333-106837) filed by the Registrant under the Securities Act of 1933.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BRITISH SKY BROADCASTING GROUP PLC

SIX MONTH PERIOD ENDED 31 DECEMBER 2003

TABLE OF CONTENTS

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FORWARD LOOKING STATEMENTS

This Interim Report on Form 6-K contains forward looking statements. These forward looking statements are not historical facts, but rather are based on our current expectations, estimates and projections about our industry, our beliefs and assumptions.

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

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

These risks and uncertainties are described in Item 2 “Operating and Financial Review and Prospects” and elsewhere in this Interim Report on Form 6-K. We caution you not to place undue reliance on these forward looking statements, which reflect our management’s view only as of the date of this Interim Report. The forward looking statements made in this Interim Report on Form 6-K relate only to events, of which we are aware, as of the date on which the statements are made.

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ITEM 1: INTERIM FINANCIAL STATEMENTS (UK GAAP)

Consolidated Profit and Loss Account for the half year ended 31 December 2003

*The half year results for 2002/03 have been restated following the adoption of UITF abstract 38 “Accounting for ESOP trusts”. There were no recognised gains or losses in either period other than those included within the profit and loss account, with the exception of a prior period adjustment in respect of the adoption of UITF abstract 38. The cumulative effect of this adjustment was a £12 million reduction to the brought forward profit and loss reserve at 1 July 2003.

All results relate to continuing activities. The accompanying notes are an integral part of this consolidated profit and loss account.

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Consolidated Balance Sheet as at 31 December 2003

*The balance sheet as at 30 June 2003 has been restated following the adoption of UITF abstract 38 “Accounting for ESOP trusts”.

The accompanying notes are an integral part of this consolidated balance sheet.

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Consolidated Cash Flow Statement for the half year ended 31 December 2003

The accompanying notes are an integral part of this consolidated cash flow statement.

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Notes to Accounts

The interim accounts for the half year ended 31 December 2003 have been prepared in accordance with accounting policies consistent with those applied in the accounts for the year ended 30 June 2003, which were approved by the Directors on 11 August 2003, with the exception of the change in accounting policy following the adoption of UITF abstract 38 “Accounting for ESOP trusts”, for which the half year results for 2002/03 have been restated (see note 10(iv)). The interim accounts for the six months ended 31 December 2003 do not constitute statutory accounts and are unaudited.

The financial information for the 2002/2003 full year is extracted from the financial statements for that year, with the exception of the restatement arising from the change in accounting policy described above, which have been filed with the Registrar of Companies. The auditors’ report on those accounts was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985.

The Consolidated Profit and Loss Account presentation includes the Group’s results before goodwill and exceptional items in addition to results after goodwill and exceptional items as this presentation provides an alternative basis that may be used to asses the ongoing operating performance of the Group.

The Group’s turnover, whilst deriving from one class of business, has been analysed as follows:

(i) The amounts shown are net of £8 million (2002/2003: £7 million) receivable from the disposal of programming rights not acquired for use by the Group, and £13 million (2002/2003: £12 million) in respect of the provision to third party broadcasters of spare transponder capacity.

*Total exceptional items for the half year ended 31 December 2003 are net of a tax charge of nil (2002/2003: £2 million tax charge).

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(i) Profit on disposal of fixed asset investments

On 7 October 2003, the Group disposed of its listed investment in Manchester United plc, realising a profit on disposal of £2 million (see note 9). The profit on disposal is a non-operating exceptional item as defined by FRS 3 “Reporting Financial Performance” and is therefore recorded as an exceptional item below operating profit.

(ii) Amounts written back to (written off) fixed asset investments, net

2003

The Group reduced its provision against its minority equity investments in football clubs by £33 million, following the disposal of its investment in Manchester United plc in October 2003 for £62 million in cash. The Group also increased its provision against its remaining minority equity investments in football clubs by a further £9 million. The reduction of £33 million in the provision is recorded as an exceptional item below operating profit as it relates directly to the disposal of the investment as detailed above. The increase of £9 million in the remaining provision is recorded as an exceptional item below operating profit due to the distortion that its inclusion within operating expenses would have on the individual operating expenses line item to which it was attributed.

2002

At 31 December 2002, the Group made a provision against its minority investments in football clubs, leading to a non-cash exceptional charge of £21 million. The provision is recorded as an exceptional item below operating profit due to the distortion that its inclusion within operating expenses would have on the individual operating expenses line item to which it was attributed.

At 31 December 2002, the Group reduced its deferred revenue balance relating to minority investments in new media companies by £5 million, and reduced both its investment and its provision against the investment in these companies accordingly. The reduction is recorded as an exceptional item below operating profit due to the distortion that its inclusion within operating expenses would have on the individual operating expenses line item to which it was attributed.

At 31 December 2002, the Group made a provision against its investment in Open TV shares, leading to a non-cash exceptional charge of £3 million, bringing the carrying value of the Group’s investment in Open TV to nil. The provision is recorded as an exceptional item below operating profit due to the distortion that its inclusion within operating expenses would have on the individual operating expenses line item to which it was attributed.

Analysis of charge (credit) in period:

(i) The current tax charge for the half year to 31 December 2003 includes an exceptional charge of nil (2002/2003: £2 million). The deferred tax charge for the half year to 31 December 2003 includes an exceptional charge of nil (2002/2003: nil).

(ii) At 31 December 2003, a deferred tax asset of £18 million (2002/2003: £134 million) principally arising from UK losses in the Group has not been recognised. These losses can be offset only against taxable profits generated in the entities concerned. Although the Directors ultimately expect sufficient profits to arise, there is currently insufficient evidence to support recognition of a deferred tax asset relating to these losses. The losses are available to be carried forward indefinitely under current law.

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Basic earnings (loss) per share represents the profit (loss) on ordinary activities after taxation attributable to the equity shareholders, divided by the weighted average number of Ordinary Shares in issue during the period, less the weighted average number of shares held in the Group’s Employee Share Ownership Plan (“ESOP”) trust during the period.

Diluted earnings (loss) per share represents the profit (loss) on ordinary activities after taxation attributable to the equity shareholders, divided by the weighted average number of Ordinary Shares in issue during the period, less the weighted average number of shares held in the Group’s ESOP trust during the period plus the weighted average number of dilutive shares resulting from share options and other potential shares outstanding during the period (see below).

The weighted average number of shares in the period was:

The movement in the period was as follows:

Goodwill of £272 million, £542 million and £5 million, arising on the acquisitions of Sports Internet Group (“SIG”), British Interactive Broadcasting (“BiB”) and WAPTV Limited respectively, is being amortised over periods of seven years on a straight-line basis.

In accordance with FRS 11, impairment reviews were performed on the carrying values of BiB and SIG goodwill balances at the end of the first full financial year after acquisition, at 30 June 2002. These reviews showed that no impairment was identified in either case. Consistent with the Group strategy, the business plans on which these reviews were based reflected significant projected increases in betting and other interactive revenues over the subsequent five years and the carrying value of the goodwill is therefore heavily dependent on the forecast performance of, and projections for, these businesses.

Other investments

2003

On 7 October 2003, the Group announced that it had sold its entire holding in Manchester United plc for £62 million, recognising a profit on disposal of £2 million following the release of a £33 million provision previously held against the investment, effective as at 30 September 2003.

The Group has increased its provision against its remaining minority equity investments in football clubs by a further £9 million.

2002

At 31 December 2002, the Group made a further provision against its minority equity investments in football clubs leading to a non-cash exceptional charge of £21 million.

At 31 December 2002, the Group reduced its deferred revenue balance relating to minority investments in new media companies by £5 million, and reduced both its investment and provision against the investment in these companies accordingly.

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At 31 December 2002, the Group made a provision against its investment in Open TV shares, leading to a non-cash exceptional charge of £3 million. This reduced the carrying value of the Group’s investment in Open TV to nil.

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b) Analysis of changes in net debt

European Commission Investigation — Football Association Premier League Limited

The European Commission has undertaken investigations into a number of agreements, decisions or practices leading to the acquisition of broadcast rights to football events within the EEA, including the sale of exclusive broadcast rights to Premier League football by the Football Association Premier League Limited (“FAPL”). On 21 June 2002, British Sky Broadcasting Limited (“BSkyB Limited”) and the FAPL notified BSkyB Limited’s current agreements for the broadcast of FAPL football matches to the European Commission seeking either a clearance or an exemption from Article 81 of the European Treaty. The FAPL has also notified the rules of the FAPL to the European Commission. On 20 December 2002, the European Commission issued a Statement of Objections to the FAPL outlining certain concerns in respect of the FAPL’s joint selling of broadcast rights to Premier League football. Since June 2003, the Group has received several requests for information from the European Commission concerning the bidding process undertaken by the FAPL in relation to the sale of Premier League football rights in respect of the three year period 2004-2007. In August and October 2003, the FAPL announced that the Group has been awarded (subject to contract) all four packages of exclusive live UK rights to FAPL football and two “near live” packages of UK rights to FAPL football (both on a delayed basis), four of the five packages of live rights in Ireland and two “near live” packages of rights in Ireland from the beginning of the 2004/05 season to the end of the 2006/07 season. On 16 December 2003 the European Commission announced that an agreement in principle had been reached with the FAPL regarding the joint selling of the media rights to Premier League matches and that an agreement in principle had been reached with BSkyB Limited regarding its recent acquisition of TV rights to those matches. Under the agreement in principle with BSkyB Limited, BSkyB Limited has agreed to offer to sublicense a set of up to eight Premier League matches each season to another broadcaster. The European Commission has consulted third parties on the terms of the agreement in principle with BSkyB Limited prior to the European Commission closing its investigations. BSkyB Limited is currently in discussions with the European Commission in relation to the outcome of such consultation.

European Commission Investigation — Movie Contracts

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

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ITEM 2: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

INTRODUCTION

The following discussion and analysis is based on, and should be read in conjunction with, the consolidated financial statements, including the related notes, for the six months ended 31 December 2003 (“the period”) contained within Item 1. The financial statements have been prepared in accordance with UK GAAP, which differs in significant respects from US GAAP. Item 4 provides a description of the significant differences between UK GAAP and US GAAP as they relate to our business, and provides a reconciliation from UK GAAP to US GAAP.

OVERVIEW AND RECENT DEVELOPMENTS

During the period, we have continued to consolidate our position as a leading pay TV service, operating principally in the UK and Ireland. This period has seen growth in revenues, operating profit, profit after tax, and earnings per share. This has largely been a result of continued growth in the DTH subscriber base combined with continued control of the rate of increase in programming and other operational costs. The cash flows associated with growth in revenues and profitability have enabled us to reduce net debt by £346 million in the period to £759 million. We have also announced the resumption of ordinary dividend payments, which will commence with an interim dividend payment of £53 million (2.75 pence per share) on 23 April 2004 in respect of the period ended 31 December 2003.

At 31 December 2003, the total number of DTH digital satellite subscribers in the UK and Ireland was 7,208,000, representing a net increase of 363,000 in the period. We remain on track to achieve our short-term target of 8,000,000 DTH digital satellite subscribers by the end of calendar year 2005. At the end of the period, 55% of all Sky DTH digital satellite subscribers subscribed to the Sky World package, our top tier package.

The total number of households (including DTH, cable and free-to-air households) in the UK and Ireland receiving one or more Sky Channels increased to over 13,145,000. This represents over 50% of UK and Ireland television homes, driven by further growth in the number of DTH subscribers and an increase in the number of households receiving free-to-air digital terrestrial television services.

DTH churn for the period to date (annualised) was 9.4%, the same level as in the six months ended 31 December 2002 (“prior period”).

The number of Sky+ subscribers has more than doubled since the launch of the Sky+ marketing campaign in October 2003, reaching 250,000 by 31 December 2003. 75% of new subscribers in the current period to Sky+ subscribed to the Sky World package. At 31 December 2003, there were 237,000 subscribers to the Extra Digibox, an increase of 103% on the prior period.

During the period, we have continued to develop our news and entertainment programming. We announced in December 2003 that Sky One had acquired exclusive UK broadcasting rights to the third season of drama series ‘24’, and in January 2004, the US drama series ‘Nip/Tuck’ premiered on Sky One. Both Sky One and Sky One Mix continue to deliver strong audiences among 16-34 year-olds.

In August and October 2003, the FAPL announced that the Group has been awarded (subject to contract) all four packages of exclusive live UK rights to FAPL football and two “near live” packages of UK rights to FAPL football (both on a delayed basis), four of the five packages of live rights in Ireland and two “near live” packages of rights in Ireland from the beginning of the 2004/05 season to the end of the 2006/07 season. On 16 December 2003 the European Commission announced that an agreement in principle had been reached with the FAPL regarding the joint selling of the media rights to Premier League matches and that an agreement in principle had been reached with BSkyB Limited regarding its recent acquisition of TV rights to those matches. Under the agreement in principle with BSkyB Limited, BSkyB Limited has agreed to offer to sublicense a set of up to eight Premier League matches each season to another broadcaster. The European Commission has consulted third parties on the terms of the agreement in principle with BSkyB Limited prior to the European Commission closing its investigations. BSkyB Limited is currently in discussions with the European Commission in relation to the outcome of such consultation.

In December 2003, Sky Sports started a three-year contract to broadcast one of Rugby Union’s European competitions, the Heineken Cup, for which we have exclusive rights to televise the associated matches live. Sky Sports has continued to broadcast exclusively England’s international cricket tours. We also attracted strong audiences for our coverage of UEFA Champions’ League Football, which began in the period, with an average of approximately 1.8 million in-home

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viewers recorded.

As a result of two rating upgrades in the quarter, the Group’s debt has moved to investment grade. On 8 December 2003 Standard & Poor’s increased the Group’s credit rating to BBB- and on 9 December 2003 Moody’s Investor Service increased the Group’s credit rating to Baa3 with the outlook on both ratings ‘stable’.

On 3 November 2003, James Murdoch was appointed as Chief Executive Officer of the Company, replacing Tony Ball, effective 4 November 2003. Tony Ball also resigned as a director of the Company with effect from 4 November 2003.

Lord Rothschild was appointed a Director, Non-Executive Deputy Chairman and Senior Independent Director of the Company with effect from 17 November 2003.

It was announced on 4 February 2004 that Martin Stewart, Chief Financial Officer (“CFO”), would be leaving the Company. He will continue in his post until 4 August 2004, unless a new CFO is appointed before that date.

The Board has established a new ad hoc Committee of the Board to consider corporate governance rules, guidelines and codes. The committee is chaired by Lord Wilson of Dinton, the other members being Lord Rothschild and Arthur Siskind. Furthermore, the Board intends to appoint a new independent non-executive Director and is in the process of compiling a shortlist and considering candidates for that position.

Following a decision of the Board during the period, Gail Rebuck has been appointed to the role of overseeing the Group’s Corporate Responsibility activities.

OPERATING RESULTS

Revenues

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

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

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

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

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

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

Operating expenses

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

Programming represents our largest single component of costs. Programming

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

Under our Pay TV agreements with the US major movie studios, we generally pay a US dollar denominated license fee per movie calculated on a per movie subscriber basis, subject to a minimum guarantee, which was exceeded some time ago. We currently manage this US dollar/pound sterling exchange risk primarily by the purchase of forward foreign exchange agreements for up to 18 months ahead (see “Liquidity and Capital Resources”). Offering multiplexed versions of our movie channels on the digital DTH platform and on digital cable incurs no additional rights fees.

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

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

Marketing costs include commissions payable to retailers and other agents for the sale of subscriptions; promotional and related advertising costs; and the costs of our own direct marketing to our DTH customers. In addition, marketing costs include the cost of providing free or subsidised digital satellite equipment to new customers and the installation cost in excess of the relevant amount actually received from the customer. A significant part of marketing expenditure is subject to the discretion of management. All costs of subscriber satellite reception equipment are expensed directly to the profit and loss account on installation of the equipment. Other subscriber acquisition costs are also expensed as they are incurred. It remains our current intention to continue the practice of providing free digital satellite equipment without a requirement to subscribe to one of our services, and subsidising installation to new subscribers. Marketing costs, as a percentage of revenues, continue to fall, allowing us to absorb such costs more readily from operating cash flow. We therefore anticipate that there will be no significant adverse effect on the liquidity of the Group arising from the continuation of this practice.

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

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

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

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SIX MONTHS ENDED 31 DECEMBER 2003 COMPARED TO SIX MONTHS ENDED 31 DECEMBER 2002

Total revenue for the period was £1,766 million, an increase of 17% over the prior period. Total operating costs before goodwill and exceptional items increased by 9% to £1,483 million, generating an operating profit margin before goodwill and exceptional items of 16%, up from 10% in the prior period. Total operating costs after goodwill and exceptional items increased by 8% to £1,541 million. Goodwill and exceptional items are discussed separately below.

Total UK and Ireland subscribers (DTH and cable) to Sky’s channels increased by 557,000 from 10,513,000 at 31 December 2002 to 11,070,000 at 31 December 2003. DTH subscribers increased from 6,562,000 at 31 December 2002 to 7,208,000 at 31 December 2003.

Revenues

The Group’s revenues can be analysed as follows:

DTH subscriber revenues

DTH subscription revenue is our largest single source of revenues and increased to £1,285 million in the period compared to £1,112 million in the prior period. The improvement of 16% in the period was largely driven by an 11% increase in the average number of DTH subscribers, in addition to a 4% increase in average DTH subscription revenue per subscriber, from £336 at 31 December 2002 to £349 at 31 December 2003.

The total number of UK and Ireland DTH subscribers increased by 363,000 in the period. DTH churn for the period (annualised) was 9.4%, the same level as in the prior period.

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

Cable subscriber revenues

Cable subscription revenues, increased by 5% to £103 million in the period as compared to £98 million in the prior period. This increase was mainly due to a one-off receipt of revenue in the first quarter, resulting from an audit of ntl’s reporting systems. Excluding this one-off receipt, wholesale revenue was broadly in line with the prior period.

At 31 December 2003, there were 3,862,000 (2002: 3,951,000) UK and Ireland cable subscribers to our programming.

In the period, we charged UK cable operators between £10.35 and £19.10 (2002: £9.97 and £18.35) per subscriber for Sky Premium Channels, dependent upon the number of Sky Premium Channels to which the cable customer subscribed. In addition, the percentage of cable subscribers who subscribed to Sky Premium Channels is far lower than that for DTH subscribers. As a result, on average, cable subscribers (including Irish cable operators’ subscribers) accounted for 36% of total subscribers (2002: 39%), although cable subscription revenues accounted for only 8% (2002: 8%) of total subscription revenues.

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Telewest and ntl, which represent in excess of 99% of the UK broadcast cable industry (measured by reference to total cable subscribers), accounted for 99% of our cable subscriber revenues in the period (2002: 99%).

Advertising revenues

Advertising revenues increased by 11% to £147 million in the current period from £133 million in the prior period. This increase reflects growth in total UK advertising revenue of approximately 1%, growth in Sky’s share of commercial impacts of approximately 9%, growth in agency commissions earned on the sale of advertising on behalf of those channels that have appointed Sky Sales to represent their airtime sales during the period, and growth of airtime sales in Ireland.

Our share of television advertising revenues has increased in recent years as viewing levels to our channels have increased (in part due to the growth in subscribers to our channels) and as we have added other third party channels to our sales portfolio. Our share for the period was 11% (2002: 10%). The other main determinant of advertising revenue levels is overall television advertising revenue growth.

Interactive revenues

Total interactive revenues, including both Sky Active and gross betting revenues, increased to £147 million in the current period from £91 million in the prior period.

Sky Active revenues continued to grow in the period and increased by 17% on the prior period from £48 million to £56 million. This increase was principally driven by retail services, third party betting and gaming partnerships, increased usage of Gamestar games and revenues from the online portal. Third party betting and gaming partnership revenues and online portal revenues have increased as a result of the increase in the number of gaming partners on the platform and the launch of a subscription broadband service coupled with increasing advertising income from our sports and entertainment websites. These increases were slightly offset by reductions in fixed revenues as new deals move towards a variable fee income structure.

Gross betting revenue increased by 112% on the prior period from £43 million to £91 million, driven mainly by growth in the total number of bets placed across all platforms, which more than doubled on the prior period, and by a first time contribution from SkyBetVegas.com, our online casino, and Sky Bet Vegas, a fixed-odds interactive gaming channel, both of which launched in March 2004.

Other revenues

Other revenues increased by 9% from £77 million in the prior period to £84 million in the current period, primarily due to the sale of a greater volume of Sky+ boxes and increased Sky+ installation revenues.

Operating expenses, net

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

Programming

Programming costs, which represent the largest single element of our cost structure, constituted 51% of operating expenses in the period (2002: 53%). These costs increased by 5% to £783 million in the period from £744 million in

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the prior period. Programming costs are stated net of amounts receivable from the disposal to third parties of programming rights not acquired for use by the Group of £8 million (2002: £7 million).

Sky Sports channels’ programming costs increased by 9% to £340 million in the current period from £313 million in the prior period. This increase was primarily due to the additions of both UEFA Champions’ League Football from the 2003/04 season to the 2005/06 season and Rugby Union’s Heineken Cup from the 2003/04 season to the 2005/06 season.

Sky Movies channels’ programming costs increased to £202 million in the current period from £201 million in the prior period, mainly due to an increase in the number of movie channel subscribers and contractual rate increases in movie costs. This was offset by a favourable movement in the average rate at which the Group was able to purchase dollars against the average rolling hedge rate achieved in the prior period.

Our costs in relation to the distribution agreements for the Sky Distributed Channels increased by 2% to £176 million in the period from £173 million in the prior period. This increase is primarily due to the growth in subscriber numbers. This increase was partly offset by savings generated by a further reduction in the aggregate cost per subscriber due to the commencement during the period of revised agreements with MTV, Paramount Comedy, Nickelodeon and Music Choice Europe.

Entertainment programming costs increased by 18% to £47 million in the current period from £40 million in the prior period and news programming costs increased by 13% to £18 million in the current period from £16 million in the prior period, principally due to ongoing investment in Sky’s own programming.

Transmission and related functions

Transmission and related functions costs (net of amounts receivable for the provision of spare transponder capacity to third party broadcasters of £13 million in the current period (2002: £12 million)) increased to £77 million in the current period from £74 million in the prior period. This is due to increased digital terrestrial television transmission costs and higher studio costs.

Marketing

Marketing costs decreased by £1 million to £215 million in the current period from £216 million in the prior period mainly due to a reduction in the number of installations and lower unit prices for the set-top box. The continued free digital satellite equipment offer to new customers resulted in subscriber acquisition costs in the current period of £108 million (2002: £120 million) related to the cost of the digital satellite equipment provided. The marketing campaign for Sky+, which was launched in October 2003, contributed £3 million in above-the-line expenditure and £7 million in other marketing costs.

Subscriber management

Subscriber management costs increased by 19% to £191 million in the current period from £161 million in the prior period. CRM costs, which exclude depreciation, increased by £3 million reflecting the costs associated with the rapidly growing subscriber base offset by continued efficiencies achieved in the call centres. These savings have led to a further reduction in the CRM cost per subscriber which has fallen by 6% on the prior period. Supply chain costs increased by 18% to £86 million in the current period from £73 million in the prior period, as a result of the significant increase in the number of Sky+ and Extra Digiboxes sold. Depreciation in respect of CRM assets developed and capitalised over the past three years increased by £14 million in the period, which also contributed to the increase in subscriber management costs.

Administration

Administration costs, including goodwill amortisation and exceptional items, increased by 2% to £189 million in the current period from £186 million in the prior period. This is primarily a result of increased technology and facilities costs and costs resulting from increased compliance obligations. This was partly offset by the decrease in goodwill amortisation from £64 million to £58 million.

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Goodwill amortisation and impairment within operating profit decreased by £6 million to £58 million in the current period from £64 million in the prior period. This decrease is explained below in the Goodwill section.

Betting

Betting costs increased to £86 million from £40 million in the prior period directly as a result of the growth in betting revenues, driven mainly by growth in the total number of bets placed across all platforms, which more than doubled on the prior period, and by a first time contribution from SkyBetVegas.com and Sky Bet Vegas.

Operating profit, gross margin and operating margin

Gross margin (calculated as total revenues less programming costs) for the current period was 56%, an increase from 51% in the prior period. This was the result of a 17% increase in total revenues, principally due to the 16% increase in DTH subscriber revenues. In contrast, programming costs increased by only 5% due to the savings in movies programming costs driven by the weakness of the US dollar in recent periods, and by savings generated by the renewal, on improved terms, of contracts for certain Sky Distributed Channels.

Operating profit after goodwill amortisation and exceptional items increased by £135 million to £225 million in the current period from £90 million in the prior period. This increase was driven by the increase in revenues, which was primarily due to the increase in DTH subscription and interactive revenues, and partly offset by the increase in operating expenses, primarily due to the increase in programming costs, subscriber management costs and betting costs.

Operating margin (calculated as total revenues less all operating expenses before goodwill amortisation and exceptional items) for the current period was 16%, up from 10% in the prior period, largely as a result of gross margin expansion, and stability in marketing costs.

Goodwill

Goodwill amortisation of £58 million in the current period (2002: £64 million), which is included in administration costs, above operating profit, mainly comprises the amortisation of goodwill for the £272 million and £542 million of goodwill arising, on the acquisitions of Sports Internet Group and BiB respectively, over seven years from the date of acquisition on a straight-line basis. The reduction in amortisation of £6 million was mainly due to the provision of £5 million against goodwill which originally arose on the acquisition of Opta Index Limited (“Opta”), which is a subsidiary of Sports Internet Group that provides statistics on sporting events, in December 2002. This provision was made as a result of our announcement in December 2002 that we would close Opta and the carrying value of this goodwill was reduced to nil. In September 2003, we reached an agreement to sell certain assets and lease other assets of Opta for nominal consideration.

Non-operating exceptional items (except taxation)

2003

Profit on disposal of fixed asset investments

The sale of our 9.9% shareholding in Manchester United plc on 7 October 2003 gave rise to an exceptional profit on disposal of £2 million in the period.

Amounts written off fixed asset investments

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

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2002

Amounts written off fixed asset investments

At 31 December 2002, we made a further provision against our minority equity investments in football clubs, leading to a non-cash exceptional charge of £21 million. This provision was made due to the continued decline over the previous months in the market value of these investments, leading us to believe that a permanent diminution in value had occurred.

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

At 31 December 2002, we made a provision against our investment in Open TV, leading to a non-cash exceptional charge of £3 million due to a permanent diminution in value of this investment. This brought the carrying value of our investment in Open TV to nil. Between 12 February 2003 and 24 March 2003 we disposed of our entire investment in Open TV shares.

Joint ventures

Our share of the operating results from joint ventures decreased from a £2 million net profit in the prior period to a £5 million net loss in the current period. This was mainly due to the loss incurred by Attheraces following the impairment identified during the review of the carrying value of its balance sheet at 31 December 2003. This was partly offset by profits generated by other joint ventures including Nickelodeon and National Geographic Channel. We continue to invest in programming joint ventures through our wholly-owned subsidiary, Sky Ventures Limited.

On 1 March 2004, we disposed of our 20% shareholding in QVC (UK) for cash consideration of approximately £49 million. The sale has resulted in a profit on disposal of approximately £49 million which will be recorded as an exceptional non-operating item in the second half of fiscal 2004.

Net interest payable

Interest payable and similar charges, net of interest receivable and similar income, decreased by 30% to £42 million in the current period from £60 million in the prior period. This was primarily a result of a reduction in average gross debt from £1,580 million for the prior period to £1,137 million for the period. Additionally, interest receivable increased primarily due to higher levels of cash on deposit. Our average cash balance for the current period was £158 million compared to £118 million for the prior period.

Taxation

The total net tax charge recorded for the period was £74 million, principally comprising a current period tax charge of £69 million and a deferred tax charge of £8 million. These charges were offset by a net adjustment in respect of prior years’ tax payable of a £3 million credit. Excluding the effect of goodwill, joint ventures and exceptional items, this results in an underlying effective tax rate on ordinary activities of 30%.

After removing the effect of deferred tax, the Group’s share of joint ventures’ tax (which includes consortium relief) and prior period adjustments, the mainstream corporation tax liability for the period was £66 million. This has been reduced by £44 million, which is the maximum utilisation of advance corporation tax (“ACT”) allowable, to £22 million. The remaining £10 million of ACT on the Group’s balance sheet is expected to be fully utilised against the Group’s tax liability for the second half of this financial year.

The total net tax charge for the prior period was £1 million, principally comprising a current period tax charge of £29 million and a deferred tax credit of £36 million, primarily as a result of the Group moving into profitability (based on an effective rate of 31%). This net tax credit was offset by an adjustment to deferred tax of a £7 million charge in respect of prior years’ tax payable.

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Profit after taxation

Profit after taxation for the period was £130 million compared with £12 million in the prior period, mainly as a result of an increase in operating profit of £135 million, a non-operating exceptional credit of £26 million relating to fixed asset investments (2002: charges of £19 million) and a decrease in net interest payable of £18 million. This was partly offset by the tax charge in the current period which increased to £74 million (2002: £1 million).

Equity dividends

In February 2004, the Directors resolved to pay to shareholders an interim dividend of £53 million (2.75 pence per share) in respect of the period ended 31 December 2003 (2002: nil).

Earnings per share

Basic and diluted earnings per share increased by 6.1p to 6.7p in the period from earnings per share of 0.6p in the prior period, due to the movement in profit after taxation described above.

31 DECEMBER 2003 BALANCE SHEET COMPARED TO 30 JUNE 2003 BALANCE SHEET

Intangible assets decreased by £58 million, from £536 million at 30 June 2003 to £478 million at 31 December 2003, due to the amortisation of goodwill. Intangible assets mainly comprise the goodwill that arose on the acquisitions of BiB and Sports Internet Group.

The tangible fixed assets balance remained constant at £346 million, as £58 million of net additions in the period, including £27 million relating to investment in Customer Relationship Management systems, was offset by depreciation of £58 million.

Fixed asset investments decreased by £37 million, mainly due to the disposal of our shareholding in Manchester United plc on 7 October 2003 (net book value £60 million after write-back of provision of £33 million), the disposal of our shareholding in Chelsea Village plc on 22 July 2003 (net book value £6 million), and a further provision of £9 million against our remaining football club investments. Investments in joint ventures increased by £4 million following net profits attributed and additional funding, offset partly by net losses attributed and net repayments from joint ventures.

Net current assets increased by £146 million due to an increase in acquired programme stock of £288 million, principally due to the timing of payments for sports rights, and an increase in cash holdings of £271 million. This was offset by an increase in programming creditors of £286 million mainly due to the phasing of rights payments to the FAPL and the interim dividend creditor of £53 million and other movements resulting in a further net decrease of £74 million.

Creditors falling due after more than one year decreased by £71 million primarily due to repayments made on the £600 million revolving credit facility (“RCF”) during the period.

Equity shareholders’ deficit

Total equity shareholders’ deficit decreased from a deficit of £152 million at 30 June 2003 to a deficit of £27 million at 31 December 2003. This was due to a profit after tax in the current period of £130 million less an interim dividend of £53 million. Shareholders’ deficit also decreased by £10 million relating to the exercise of share options, and a decrease of £26 million relating to the utilisation of shares from the ESOP trust to satisfy the exercise of KCP and LTIP options, and an associated credit to reserves of £12 million relating to the release of the accrual for these options, since the cost of the ESOP trust shares used to satisfy the exercise of these options was lower than the amount we were required to accrue.

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Reserves

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

FOREIGN EXCHANGE

For details of the impact of foreign currency fluctuations on our results of operations, see Item 3 — “Currency exchange rates”.

CONTINGENT LIABILITIES

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

SEASONALITY

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

LIQUIDITY AND CAPITAL RESOURCES

The Group’s principal sources of liquidity are operating cash flow, combined with access to an aggregate £800 million (30 June 2003: £800 million) in RCFs, reducing to £600 million from 29 June 2004. Long-term funding comes primarily from US dollar and sterling-denominated public bond debt. Further details of our funding and treasury policies, and the manner in which they are controlled, are provided in Item 3.

The Group has a £600 million RCF with a maturity date of March 2008. On this facility, interest accrues at a margin of between 0.600% and 1.125% above the London Inter-Bank Offer Rate (“LIBOR”), dependent on the Group’s leverage ratio of net debt to earnings before interest, taxes, depreciation and amortisation (“EBITDA”) (as defined in the loan agreement). Until June 2004, the margin is fixed at 1.125% and shall not fall below 0.700% per annum above LIBOR prior to March 2006.

The Group also has a £200 million RCF with a maturity date of June 2004. On this facility, interest accrues at between 0.500% and 1.750% (presently 0.9%) per annum above LIBOR dependent on the Group’s credit rating.

Each of the Group’s RCFs contains certain financial covenants which are tested at the end of each six-monthly accounting period.

For the £200 million RCF the key financial covenants are the ratio of annualised EBITDA to net interest payable; and the ratio of total consolidated senior debt to annualised EBITDA. Exact computation of these amounts is governed by the terms of the loan agreement. The ratio of total consolidated senior debt to annualised EBITDA is also tested on draw-down or rollover of drawn amounts. The Group was required to maintain these ratios up until January 2004 as follows:

From January 2004, the Group must maintain these ratios as follows:

The loan agreement provides for the exclusion from these financial ratio calculations of specified subscriber acquisition costs. The costs excluded are

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capped at an agreed maximum for each six monthly accounting period until the maturity of the loan agreement in June 2004. EBITDA is calculated as operating profit before depreciation and amortisation of goodwill and intangible assets.

At 31 December 2003, the ratio of annualised EBITDA to net interest payable was 9.8:1 and the ratio of total consolidated senior net debt to annualised EBITDA was 1.4:1.

For the £600 million facility, the key financial covenants are the ratio of EBITDA to net interest payable; and the ratio of net debt (as defined in the loan agreement) to EBITDA. Both ratios are tested at the end of each six monthly accounting period, not on draw-down or rollover dates as for the £200 million facility. Until June 2004, the ratios benefit from the same exclusion of specified subscriber acquisition costs as described above for the £200 million RCF. EBITDA in this instance is calculated in the same way as described above for the £200 million facility, but on a last twelve months basis rather than on an annualised basis. The Group must currently maintain these ratios as follows:

At 31 December 2003, the ratio of EBITDA to net interest payable was 8.1:1 and the ratio of net debt to EBITDA was 1.1:1.

For the £200 million RCF only, a change of control provision is included in the list of potential events of default, the effect of which is that the facility may become due and payable in the event that (except for News Corporation and Vivendi Universal SA (which acquired Pathé, a founding shareholder of the Company) or any member of their respective groups) any person or nominee of such person, together with any “connected person” or “persons acting in concert” (if any) (each as defined under applicable English law or regulation) becomes a holder of more than 30% in aggregate of the voting rights of the Company.

At 31 December 2003, the Group also had in issue the following publicly-traded guaranteed notes:

US$650 million of 8.2% Guaranteed Notes, repayable in July 2009. At the time of issuing these notes, the US dollar proceeds were swapped into pounds sterling (£413 million) at an average fixed rate of 7.653% payable semi-annually. In December 2002, March 2003 and July 2003, the Company amended the terms relating to £63.5 million of these swap arrangements, the effect of which was to fix the interest rate on £63.5 million at 5.990% until January 2004, after which time to revert to floating six months LIBOR plus a margin of 2.84%, except that should LIBOR be less than 2.75% for the period January to July 2004, 2.89% for the period July 2004 to January 2005, or 2.99% thereafter, the effective rate shall be deemed to be 7.653%. In order to increase its exposure to floating rates, in August 2003, the Company entered into another interest rate hedging arrangement in respect of a further £63.5 million of the above-mentioned debt, the effect of which was that, from July 2003 until July 2009, the Company will pay floating six months LIBOR plus a margin of 2.8175% on a further £63.5 million of its swapped debt, except that should LIBOR be less than 2.75% for the period January to July 2004, or less than 2.99% thereafter, the Company shall revert back to 7.653%.

£100 million of 7.75% Guaranteed Notes, repayable in July 2009. The fixed coupon is payable annually. In March 2004, the Group entered into an interest rate swap arrangement in respect of £50 million of this debt, whereby the previously fixed rate of 7.75% was swapped to a floating rate of LIBOR plus a margin of 2.05% from July 2004 to July 2005. On 9 July 2005, and every 9 July thereafter, the counterparty has the right, but not the obligation, to cancel this swap, returning the Group to its previous fixed rate of 7.75%.

US$600 million of 6.875% Guaranteed Notes, repayable in February 2009. At the time of issuing these notes, the US dollar proceeds were swapped into pounds sterling (£367 million) at an average fixed rate of 8.20%, payable semi-annually. In July 2003, the Company entered into a further interest rate hedging arrangement in respect of £61.2 million of this swapped debt. The effect of this new hedging arrangement was that from July 2003 until February 2009, the Company will pay floating six months LIBOR plus a margin of 3.49% on £61.2 million of its swapped debt. However, at each six monthly reset date, the counterparty to this transaction has the right to cancel the transaction with immediate effect. In October 2003, the Company entered into a further interest rate hedging arrangement in respect of a further £61.2 million of this swapped debt, the effect of which was to reduce the rate payable to 7.95% for the period August 2003 to February 2004. Thereafter, until August 2006,

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the rate payable will be 7.95% plus any margin by which the floating six monthly LIBOR reset rate exceeds the sum of the previous reset rate plus 0.5%. Thereafter, the rate reverts to a fixed 8.18%.

US$300 million of 7.300% Guaranteed Notes repayable in October 2006. At the time of issuing these notes, the Group entered into swap transactions to convert the dollar proceeds to pounds sterling (£189 million), half of which carries a fixed rate of interest of 8.384% until maturity, payable semi-annually. The remainder was fixed at 7.940% until 15 April 2002, thereafter floating at 0.620% over six months LIBOR, again payable semi-annually. In respect of this remaining floating exposure, on 16 January 2002, the Group entered into a further interest rate hedging arrangement to fix the rate at 6.13% from 15 April 2002, payable semi-annually for the remainder of the life of the Notes.

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

As at 31 December 2003 no amounts were drawn down on the £600 million RCF (30 June 2003: £75 million) and no amounts were drawn down on the £200 million RCF (30 June 2003: nil).

We believe that our existing external financing, together with internally generated cash inflows, will continue to be sufficient sources of liquidity to fund, for the twelve months from 31 December 2003, our current operations, our approved capital expenditure requirements and any dividends proposed.

Our liquidity and working capital may be affected by a material decrease in cash flow from operations due to factors such as infringement of intellectual property and proprietary rights, increased competition, failure to obtain required regulatory approvals, loss of wholesale revenues and failure of technology. See Item 3 within our 2003 Annual Report filed on Form 20-F for further details.

Dividends are paid between Group companies out of profits available for distribution subject to, inter alia, the provisions of the statutes. There are restrictions over the distribution of any profits which are not generated from external cash receipts as defined in Technical Release 7/03, issued by the Institute of Chartered Accountants in England and Wales. The interim dividend of the Company of £53 million announced in February 2004, relating to the period ended 31 December 2003, was resolved to be paid out of profits available for distribution generated from external cash receipts.

Contractual obligations and commercial commitments

A summary of our contractual obligations and commercial commitments at 31 December 2003 is shown below:

Purchase obligations — Television programme rights

At 31 December 2003, we had minimum TV programming commitments of £2,515 million (30 June 2003: £1,618 million), of which £717 million (30 June 2003: £692 million) related to commitments payable in US dollars for periods up to

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twelve years (30 June 2003: ten years), £93 million related to commitments payable in Swiss francs for periods up to three years (30 June 2003: £136 million for periods up to three years) and £6 million related to commitments payable in Euros for periods up to three years (30 June 2003: nil). An additional £297 million of commitments (30 June 2003: £213 million) would also be payable in US dollars, assuming that movie subscriber numbers remained unchanged from current levels.

At 31 December 2003, the US dollar commitments have been translated at the period end spot rate of US $1.7842: £1 (30 June 2003: US $1.6497: £1), the Swiss franc commitments have been translated at the period end spot rate of CHF 2.2143: £1 (30 June 2003: CHF 2.2288: £1), and the Euro commitments have been translated at the period end spot rate of €1.4197: £1, except for US $478 million (30 June 2003: US $566 million) covered by forward rate contracts or other hedging instruments where the average forward or hedged rate of US $ 1.5575: £1 (30 June 2003: US$1.4925: £1) has been used, and CHF 6 million (30 June 2003: CHF 99 million) covered by forward rate contracts or other hedging instruments where the average forward or hedged rate of CHF 2.0591: £1 (30 June 2003: CHF 2.1068:£1) has been used.

Of the total increase in our minimum TV programming commitments of £897 million compared to 30 June 2003, £1,176 million is due to the agreement of new contracts with the FAPL in respect of UK broadcast, UK near-live, internet and Republic of Ireland rights for the 2004/05 season to the 2006/07 season. This was partly offset by a decreased average period remaining on our commitments for other sports channels’ and movie channels’ programming, including a £196 million decrease relating to the FA Premier League rights for the 2003/04 season.

Purchase obligations — Set-top boxes and related equipment

At 31 December 2003, we had made commitments to manufacturers, in relation to the supply of set-top boxes, up to a maximum of £37 million (30 June 2003: £106 million). The decrease compared to the prior year end is mainly due to the timing of the agreements, which are negotiated annually for a twelve month period, as well as a reduction in the price charged per box by manufacturers.

Purchase obligations — Third party payments

At 31 December 2003, we had minimum third party payment commitments in respect of distribution agreements for the Sky Distributed Channels of approximately £41 million (30 June 2003: £46 million). An additional £908 million (30 June 2003: £799 million) of commitments would also be payable for periods up to five years (30 June 2003: six years), assuming that DTH subscribers remained unchanged from current levels.

Long-term debt

Further information concerning long-term debt is given above in “Liquidity and Capital Resources”.

Operating lease obligations

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

Capital lease obligations

Obligations under capital leases represent amounts drawn in connection with the Customer Relationship Management Centre in Dunfermline, Scotland. The Customer Relationship Management Centre leases and the IT assets leases bear interest at a rate of 8.5% and expire in September 2020.

Cash flows

During the period, there was an operating cash inflow of £401 million, compared with an operating cash inflow of £255 million in the prior period. This represented the conversion of 142% of operating profit before goodwill amortisation and exceptional items to cash inflow, compared with 166% in the prior period, and an operating cash flow margin (based on operating cash

24

inflow) of 23% (2002: 17%).

The operating cash inflow was driven primarily by improved operating results and a positive working capital movement of £62 million. The movement in working capital during the period was principally the result of an increase in sports programming creditors mainly due to the phasing of rights payments to the FAPL, an increase in VAT payable (mainly due to increased subscriber numbers), and an increase in accruals (mainly due to increased promotional expenditure). This was partially offset by increased sports programme stock due to the timing of rights payments, an increase in trade debtors due to increased subscribers, and an increase in programming prepayments.

During the current period, our capital expenditure was £65 million, compared with £44 million in the prior period. A significant part of this expenditure related to investment in upgrades to customer-facing technology based in Scotland. We continue to invest in computer systems and building refurbishment as the Isleworth site near London continues to expand. In addition, we are also investing in our up-linking facilities at our Chilworth site.

Receipts from the disposal of fixed asset investments of £68 million comprised proceeds from the sale of our shareholding in Manchester United plc of £62 million and proceeds from the sale of our shareholding in Chelsea Village plc of £6 million.

After net interest payments of £48 million, corporation tax paid of £21 million, proceeds from issue of shares of £10 million and other net inflows of £1 million, net debt decreased by £346 million to £759 million.

At 31 December 2003, our net debt was £759 million compared to net debt of £1,386 million at 31 December 2002 and net debt of £1,105 million at 30 June 2003. Net debt is defined as all short-term, medium-term and long-term borrowing, less all cash and liquid resources. Liquid resources comprise short-term deposits of less than one year and investments that are readily realisable and held on a short-term basis. Short-term, medium-term and long-term borrowing amounted to £1,077 million at 31 December 2003 compared to £1,437 million at 31 December 2002 and £1,152 million at 30 June 2003. At 31 December 2003, cash and liquid resources were £318 million compared to £51 million at 31 December 2002 and £47 million at 30 June 2003.

Major non-cash transactions

On 10 December 2003, the High Court approved a reduction in the Company’s share premium account of £1,120 million, as approved by the Company’s shareholders at the Annual General Meeting held on 14 November 2003. The reduction had the effect of eliminating the Company’s deficit on its profit and loss account at 30 September 2003 of £1,106 million, and creating a non-distributable special reserve of £14 million, which represents the excess of the share premium reduction over the deficit.

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

OFF-BALANCE SHEET ARRANGEMENTS

At 31 December 2003, the Company did not have any undisclosed off-balance sheet arrangements that required disclosure as defined by Securities and Exchange Commission Release No. 33-8182.

TREND INFORMATION

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

We achieved our target of 7,000,000 DTH subscribers in September 2003, and we currently expect that the trend of digital DTH subscriber growth will continue consistent with achieving our target of 8,000,000 DTH subscribers by the end

25

of calendar year 2005. The current emphasis remains on acquiring and retaining high value subscribers, retention being of greater importance now that 82% of all DTH subscribers are no longer within their initial minimum 12 month contract period. Although the rate at which DTH subscribers take Sky Premium Channels (calculated as the ratio of the total number of Sky Premium Channels subscribed to (other than Sky Sports Xtra) compared to the total number of subscribers) is currently expected to decline marginally in the future, average DTH subscription revenue per subscriber has continued to grow in the period.

During the period ended 31 December 2003, the number of cable subscribers receiving Sky Channels in the UK and Ireland decreased by 9,000 to 3,862,000. We expect the rate at which cable subscribers take Sky Premium Channels will continue to decline in the future in the absence of any new Sky Premium Channel agreements with ntl and Telewest. We currently have agreements with ntl and Telewest for the supply of certain Sky Basic Channels until 2006.

We anticipate that for the remainder of calendar year 2004, UK television advertising revenue will show year on year growth. We expect that our share of total revenue will increase year on year as we benefit from a greater number of subscribers leading to growth in Sky’s commercial impacts, although this is likely to be partly offset by a fall in the share of viewing of Sky Channels as the total number of channels available to multi-channel viewers increases. This should enable us to attract a greater proportion of total UK television advertising expenditure and should have a positive impact on advertising revenues.

Interactive revenues are expected to grow in the next few years as the range of interactive services available on the digital satellite platform develops. The core growth areas are expected to be interactive betting via television (including the Sky Vegas Live channel, which was launched in March 2004), games, interactive programming and interactive advertising.

We will continue to seek to reduce the per subscriber cost of sports and movies programming and the per subscriber cost in relation to the Sky Distributed Channels, as and when the contracts for these are renewed. We expect that programming costs will increase at a slower rate than our subscriber revenues.

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

We expect that the increase in subscriber management costs will continue in fiscal 2004 due to a greater proportion of Sky+ installations, which carry higher hardware costs than the standard installations, partly offset by a reduction in the cost of standard set-top boxes. We expect that CRM costs per subscriber will be slightly lower in fiscal 2004 compared to fiscal 2003. In fiscal 2005, these costs are expected to increase due to the incremental costs of migrating to a new CRM system. Thereafter however, we expect that these costs per subscriber will begin to decline as the benefits of the new system are realised.

We expect transmission and related functions costs to increase in the current and future fiscal years due to investment in the uplink site at Chilworth and increased staff costs.

RESEARCH AND DEVELOPMENT

The Group did not incur significant research and development expenditure in the current or prior period.

US GAAP RECONCILIATION

Net profit after tax under UK GAAP in the period was £130 million (2002: £12 million). Under US GAAP net profit after tax was £186 million (2002: £72 million).

The principal differences between US GAAP and UK GAAP, as they relate to the Group, arise from the methods of accounting for goodwill, employee stock-based

26

compensation, derivatives, fixed asset investments, deferred taxation and proposed equity dividends.

For a further explanation of the differences between US GAAP and UK GAAP, see Item 4.

CRITICAL ACCOUNTING POLICIES

The application of UK GAAP often requires our judgment when we formulate our accounting policies and when presenting a true and fair view of our financial position and results in our consolidated financial statements. Often, judgment is required in respect of items where the choice of specific policy to be followed can materially affect our reported results or net asset position, in particular through estimating the lives of recoverability of particular assets, or in the timing of when a transaction is recognised. A summary of our significant accounting policies is discussed in our 2003 Annual Report filed on Form 20-F included in the accompanying notes to the consolidated financial statements, and our critical accounting policies are discussed below.

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

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

Goodwill

Where the cost of acquisition exceeds the fair value attributable to the net assets acquired, the difference is treated as purchased goodwill and capitalised on our balance sheet in the year of acquisition. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives, among other items. Purchased goodwill arising on acquisitions from 1 July 1998 is capitalised. Prior to 1 July 1998, goodwill arising on acquisitions was eliminated against reserves. As permitted by Financial Reporting Standard No. 10, “Goodwill and Intangible Assets” (“FRS 10”), this goodwill has not been restated on our balance sheet. As at 31 December 2003, the total value of goodwill written off directly to reserves was £524 million (30 June 2003: £524 million) principally relating to the merger of Sky Television and British Satellite Broadcasting in 1990.

Where capitalised goodwill is regarded as having a limited useful economic life, FRS 10 provides that the cost is amortised on a straight-line basis over that life, of up to 20 years. All goodwill currently held on our balance sheet is being amortised over seven years, with the exception of the goodwill arising on the acquisition of our 50% share in Artsworld Limited, which is being amortised over two years. Impairment reviews are carried out to ensure that goodwill is not carried at above the recoverable amounts. Any amortisation or impairment write-down is charged to our profit and loss account.

At 31 December 2003, the carrying value of goodwill amounted to £478 million (30 June 2003: £536 million) and represented 19% (30 June 2003: 26%) of our total assets. As a result, the choice of amortisation period is critical to our results. Applying the lives referred to in the previous paragraph has resulted in this period’s charge for amortisation amounting to £58 million (2002: £59 million).

Goodwill impairment reviews are also an area requiring our judgment, requiring assessment as to whether the carrying value of goodwill can be supported by the net present value of future cash flows derived from assets using cash flow projections, and discounting using an appropriate rate. We completed two significant acquisitions in fiscal 2001. These were the acquisitions of the 67.5% of BiB not previously owned by us and 100% of Sports Internet Group. In accordance with Financial Reporting Standard No. 11, “Impairment of Fixed Assets and Goodwill”, impairment reviews were performed on the carrying values of BiB and Sports Internet Group goodwill balances at the end of the first full financial year after acquisition, as at 30 June 2002. These reviews showed that no impairment was identified in either case. Consistent with our strategy, the business plans on which these reviews were based reflected significant projected increases in betting and other interactive revenues over

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the next five years and the carrying value of the goodwill is therefore heavily dependent on the forecast performance of, and projections for, these businesses. The forecasts and projections used for the Sports Internet Group’s impairment reviews are dependent, at least in part, on the anticipated liberalisation of the United Kingdom’s gambling laws in accordance with the stated policy of the current UK Government and in particular upon the legalisation of onshore remote gambling. Parts of a draft Gambling Bill providing for such liberalisation have been published and are currently subject to scrutiny by a joint parliamentary committee. We understand that the Government’s preferred timetable for the Bill would see it becoming law in mid-2005, however, there can be no guarantee that it will be passed in the current form, within that timetable or at all.

The treatment of goodwill under US GAAP differs significantly from that under UK GAAP (see Item 4 for further details).

Revenues and bad debt provisions

The main source of our revenue is revenue from subscribers. Revenues from the provision of DTH subscription services are charged to contract customers on a monthly basis. Revenues are invoiced and recorded as part of a periodic billing cycle, and are recognised as the services are provided. Pay per view revenue is recognised when the event, movie or football match is viewed. Cable revenue is recognised as the services are provided to cable companies and is based on the number of subscribers taking Sky Channels as reported to us by the cable companies and the applicable rate card. The overriding principle followed is to recognise revenues in line with the provision of service, and accordingly, this leaves little scope for subjectivity. In the period, subscription revenues from DTH subscribers and cable companies comprised 79% of total turnover (2002: 80%).

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

The remaining 21% of turnover (2002: 20%) is comprised of advertising, interactive and other revenues. Recognition of these revenues takes place once the advertising is broadcast, or when the relevant goods or services have been delivered. Betting revenues, which are included in interactive revenues, represent amounts receivable in respect of bets placed on events which occur in the year.

Under UK GAAP, betting costs from internet casino betting are offset against betting revenues within “turnover”, and costs from all other betting are shown within “operating expenses, net”. Our treatment under US GAAP of costs from betting, aside from internet casino betting, differs from that under UK GAAP (see Item 4 for further details).

In prior periods, there have been differences between UK GAAP and US GAAP with respect to revenue recognition for installation fees, set-top boxes and related equipment revenues received by us (net of any discount given) when a set-top box was installed and a subscriber was connected to the Sky digital service. Under UK GAAP, these revenues are recognised on the successful completion of the installation of the set-top box, together with any associated costs such as set-top box costs, smartcard costs and installer costs. The treatment of installation fees under US GAAP has changed in the current period due to the implementation of EITF 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), see Item 4 for further details.

Tangible fixed assets

Tangible fixed assets represent 14% of our total assets (30 June 2003: 17%). Tangible fixed assets are stated at cost, net of accumulated depreciation and any provision for impairment. Our depreciation policy in respect of tangible fixed assets is disclosed in Note 1 to the consolidated financial statements in our 2003 Annual Report on Form 20-F. We estimate the useful life of these

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assets based on their periods of expected use and this estimation is judgmental. We review the period of expected use on a regular basis. Tangible fixed asset impairment reviews are also an area requiring our judgment as to whether the carrying value of our tangible fixed assets can be supported by the net present value of future cash flows derived from the tangible fixed asset using cash flow projections, and discounting using an appropriate rate. We perform impairment reviews if events or circumstances indicate that the carrying value of tangible fixed assets may not be recoverable. There have been no material impairments in the current period.

FRS 15 “Tangible fixed assets” (FRS 15) specifies criteria for the recognition of tangible fixed assets, including a detailed definition of costs that are capitalised in relation to self-constructed assets. As at 31 December 2003, £129 million (30 June 2003: £121 million) of costs associated with our Customer Relationship Management project were capitalised on the balance sheet, some of which relate to assets which continue to be under construction. If these costs had not been capitalised, they would have been expensed immediately. Capitalised costs include technology hardware and software assets, site preparation and development costs, and associated consultancy expenditures. The majority of capitalised costs are associated with the Customer Relationship Management systems (approximately 90%). These costs are being depreciated over approximately three years for software and approximately four years for hardware. The only difference between UK GAAP and US GAAP relates to the capitalisation of interest costs on funds invested in the construction of major capital assets (see Item 4 for further details).

Amortisation of programme stock

A significant proportion of programming costs relates to the amortisation of television programme rights. Programming costs constituted 51% of operating expenses in the period (2002: 53%). Our investments in television programme rights are amortised over the planned number of showings according to the type of programme right, with the exception of movie rights and certain sports rights, which are discussed below. The amortisation methods used are based on programme genre, for example, general entertainment programmes, and have been based on the repeatability and value to us of showing the programme. This basis is regularly reviewed. The principle followed is to match the benefit received from the showing of the programme to the cost of the programme rights. Acquired movie rights are amortised on a straight-line basis over the period of the transmission rights, although where acquired movie rights provide for a second availability window, 10% of the cost is allocated to that window. Our own in-house movie productions are amortised in line with anticipated revenue over a maximum of five years. Where contracts for sports rights provide for multiple seasons or competitions, the amortisation of each contract is based on anticipated revenue. Provisions are made for any programme rights which are surplus to our requirements or will not be shown for any other reason. There is no difference in the Group’s treatment of amortisation of programme stock between UK GAAP and US GAAP.

Deferred tax

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

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

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Included within the total deferred tax assets recognised at 31 December 2003 is £139 million (30 June 2003: £146 million) relating to carried forward tax losses. Following a review of the forecast utilisation of tax losses within the Group, and as a consequence of the reorganisation of certain assets within the Group, the Directors consider that at 31 December 2003, there was sufficient evidence to support the recognition of these deferred tax assets on the basis that it was more likely than not that there would be suitable taxable profits against which these assets could be utilised.

Included within the total deferred tax recognised at 31 December 2003, is £27 million (30 June 2003: £28 million) of accelerated capital allowances (“ACAs”) and £12 million (30 June 2003: £16 million) of short-term timing differences (“STTDs”), which relate to accruals for share based remuneration, interest capitalised and provisions in respect of capitalised transponder prepayments. Following a review of the ACAs and the STTDs, the Directors consider that at 31 December 2003 there was sufficient evidence to support the recognition of these deferred tax assets on the basis that it was more likely than not that there would be suitable taxable profits against which these assets could be utilised and that the ACAs and STTDs are expected to fully reverse.

The treatment of deferred tax under US GAAP differs from that under UK GAAP (see Item 4 for further details).

Exceptional items

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

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

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

The treatment of exceptional items under US GAAP differs from that under UK GAAP (see Item 4 for further details).

ADOPTION OF NEW ACCOUNTING STANDARDS

During the period, the following UK GAAP accounting standard came into force and was adopted by us:

UITF abstract 38 – Accounting for ESOP trusts

This abstract addresses the presentation of ESOP shares in the balance sheet and the calculation of the expense for the issue of share options. On adoption of UITF abstract 38 in the period, prior period results were restated accordingly. See Note 10 within Item 1 for further details.

No new UK GAAP accounting standards were issued during fiscal 2003.

Details of new US GAAP accounting standards issued during the period are given in Item 4.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction

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

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

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

As of 1 July 2003, we have formulated our policies for hedging with regard to US GAAP requirements on hedge accounting, and therefore, the majority of our existing derivative arrangements did qualify for hedge accounting under US GAAP during the current period; see Item 4 for further details.

Interest rate management

We have financial exposures to both sterling and US dollar interest rates, arising primarily from our bank borrowings and long-term bonds. We manage our exposures by borrowing at fixed and variable rates of interest and by using interest rate swaps and cross currency swaps to manage exposure to interest rate fluctuations. Under our interest rate swaps, we agree with counter-parties to exchange, at specified intervals, the difference between fixed-rate and variable-rate amounts calculated by reference to an agreed notional amount of our sterling borrowings. Under our cross currency swaps, we agree with counter-parties to exchange, at specified intervals, fixed or variable amounts of sterling for fixed amounts of US dollars, thereby fixing the sterling cost of servicing our US dollar-denominated bonds. Our debt exposure is entirely denominated in sterling after cross currency swaps are taken into account. At 31 December 2003, the analysis of aggregate net borrowings in its core currencies was US dollar 91% and sterling 9% (31 December 2002: US dollar 68% and sterling 32%). The decrease in the sterling percentage of aggregate net borrowings is due to the decrease to nil in the amount drawn down on the Group’s RCFs as detailed below.

At 31 December 2003, 77% of our borrowings were at fixed rates after taking account of interest rate swaps (31 December 2002: 96%). The reduction in the proportion of borrowings at fixed rates is the result of certain new interest rate swap agreements designed to achieve a more appropriate balance of fixed and floating rate debt. The fair value of both interest rate and cross currency swaps held as of 31 December 2003 was approximately £76 million against the Group’s favour compared to £38 million in the Group’s favour at 31 December 2002. This change is primarily due to adverse movements in foreign exchange rates.

At 31 December 2003, no amounts were drawn down on the Group’s RCFs (31 December 2002: £360 million). All of the drawings at 31 December 2002 were made under the July 1999 £750 million facility, discussed in more detail in our 2003 Annual Report filed on Form 20-F (Item 18) in the Consolidated Financial Statements in Note 20. Under this facility, interest accrued at rates between 0.5% and 1.4% per annum above LIBOR dependent upon credit rating. The July 1999 £750 million facility was voluntarily cancelled in March 2003. Under the terms of the March 2003 £600 million facility (replacing the July 1999 £750 million facility), the interest payable is not dependent upon the Group’s credit rating. Interest accrues at rates between 0.6% and 1.125% per annum above LIBOR, depending upon our Net Debt: EBITDA leverage ratio (as

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defined in the loan agreement). Until June 2004, the rate is fixed at 1.125% and shall not fall below 0.7% per annum above LIBOR prior to March 2006.

At 31 December 2003, based upon the total amount of debt outstanding under the Group’s RCF, our annual interest charge would be unaffected by any change to the Group’s credit rating in either direction. At 31 December 2002, based upon the total amount of debt outstanding under the Group’s RCF, our annual interest charge would have increased by approximately £1 million (40 basis points) if the Group’s credit rating with either Moody’s Investors Services or Standard and Poor’s Ratings Services had been downgraded by one credit rating category below a long-term debt rating of Ba1/BB+, which was the Group’s credit rating at 31 December 2002. If the Group’s credit rating had been upgraded by one credit rating category, the annual interest charge would have been reduced by approximately £1 million (30 basis points).

To ensure continuity of funding, our policy is to ensure that available funding matures over a period of years. At 31 December 2003, 47% of our available funding was due to mature in more than five years (31 December 2002: 42%).

At 31 December 2003, the Group had outstanding interest rate and cross currency swap agreements with notional principal amounts totalling £1,274 million compared to £1,459 million at 31 December 2002. This movement is primarily due to a parallel reduction in the Group’s borrowings.

Currency exchange rates

Our revenues are substantially denominated in pounds sterling, although a significant proportion of operating costs are denominated in US dollars. In the six months ended 31 December 2003, 14% of operating costs (£210 million) were denominated in US dollars (2002: 16% (£216 million)). These costs relate mainly to our long-term programming contracts with US movie licensors.

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

Our primary euro exposure arises as a result of revenues generated from our subscribers in Ireland, being approximately 3% of total revenue in the six months ended 31 December 2003 (2002: 3%). These euro-denominated revenues are offset to a certain extent by euro-denominated costs, relating mainly to certain transponder rentals and payments in relation to the pay TV rights acquired during the period to certain Spanish football (La Liga) matches from the 2003/04 season to the end of the 2005/06 season. During the period, surplus euros were exchanged for Swiss francs under forward foreign exchange contracts to meet the Swiss franc exposure described below. In the six months ended 31 December 2003, euro 12 million (2002: euro 39 million) has been exchanged into pounds sterling at spot rates.

During the year ended 30 June 2003, we acquired the pay TV rights to certain UEFA Champions League Football matches from the 2003/04 season to the end of the 2005/06 season. Payments in respect of these rights will be made pursuant to the contract in Swiss francs, which means that we are exposed to the Swiss franc/pounds sterling exchange rate. In line with our policy of limiting foreign exchange transactions to fixed price instruments, we have entered into forward foreign exchange agreements for up to 18 months ahead, whereby we exchange euros for Swiss francs as noted above.

All US dollar-denominated forward foreign exchange agreements and similar financial instruments entered into by us are in respect of firm commitments. It is our policy to hedge substantially all of dollar-denominated expenses for a period of up to 18 months forward. At 31 December 2003, we had entered into forward contracts for a total value of US$840 million (31 December 2002: US$910 million), with a maturity of up to 18 months, to cover commitments for the supply of programming. These contracts, which are individually for less than US$13 million (31 December 2002: US$13 million), are with a variety of counter-parties.

Some £224 million of these forward contracts are to hedge liabilities in respect of available programming and hence, these liabilities are recorded on the balance sheet at the hedged rate under UK GAAP (31 December 2002: £245 million). The remainder is to hedge future payments for programmes yet to become

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available and is therefore disclosed within commitments rather than being recorded within liabilities.

Since it is our policy that all anticipated foreign currency exposures are substantially hedged in advance of the fiscal year in which the exposure occurs, using fixed price instruments only, the impact on the Group’s annual profit of a 10% movement in sterling against all currencies in which the Group has significant transactions is not considered to be significant for the forthcoming period, which is consistent with the position at the prior period end.

The accounting policies in respect of market risk sensitive instruments under UK GAAP are disclosed within Item 18 of our 2003 Annual Report filed on Form 20-F in the Consolidated Financial Statements in Notes 1, 21 and 25. The accounting policies in respect of market risk sensitive instruments under UK GAAP vary in certain significant respects from US GAAP as disclosed in Item 4.

The disclosure on market risk included within Item 11 of our 2003 Annual Report filed on Form 20-F and within this document was changed to sensitivity analysis disclosures from the tabular presentation included within Item 11 of our 2002 Annual Report filed on Form 20-F and the prior period half-year results filed on Form 6-K. This was done as management believes this presentation provides greater clarity on market risk to users of these documents.

ITEM 4: SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Group’s accounts are prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP.

In the opinion of management, the interim accounts reflect all adjustments that are necessary to present fairly the financial position, results of operations and cash flows for the interim periods. The interim accounts should be read in conjunction with the audited annual accounts as of 30 June 2003. The results for the six months ended 31 December 2003, are not necessarily indicative of the results that may be expected for the year ending 30 June 2004.

The following is a summary of the significant adjustments to operating profit, net income, shareholders’ funds (deficit) and certain other balance sheet items required when reconciling such amounts recorded in the accounts to the corresponding amounts in accordance with US GAAP. A convenience translation of pounds sterling amounts to US dollar amounts for the period ended 31 December 2003, at a rate of £1:$1.7842, (the noon buying rate on 31 December 2003 provided by the Federal Reserve Bank of New York) is presented solely for the convenience of the reader. No representation is made that the pounds sterling amounts shown could have been, or could be, converted into US dollars at that or any other rate.

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* The results under UK GAAP for the six months ended 31 December 2002 have been restated following the adoption of UITF abstract 38 “Accounting for ESOP trusts”. See Note 10 within Item 1 for further details. The US GAAP reconciling item for employee stock-based compensation has been adjusted accordingly. Operating profit and net income under US GAAP were not affected by the adoption of this new accounting policy.

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* The balance sheet under UK GAAP as at 30 June 2003 has been restated following the adoption of UITF abstract 38 “Accounting for ESOP trusts”. See Note 10 within Item 1 for further details. The US GAAP reconciling item for employee stock-based compensation has been adjusted and the reconciling item for the ESOP trust has been removed accordingly. Shareholders’ funds, total assets and total liabilities under US GAAP were not affected by the adoption of this new accounting policy.

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Notes

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Sky Television Limited

BiB

Sports Internet Group Limited

Opta Index Limited

Joint ventures

Granada Sky Broadcasting

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