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 2005

18 March 2005

British Sky Broadcasting Group plc

Grant Way, Isleworth, Middlesex TW7 5QD England
(Address of principal executive offices)

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

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

HALF YEAR ENDED 31 DECEMBER 2004

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

This Interim Report on Form 6-K contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to the Group’s financial condition, results of operations and business, and management’s strategy, plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and projections with respect to the potential for growth of free-to-air and pay television, advertising growth, DTH subscriber growth and Multiroom and Sky+ penetration, DTH revenue, profitability and margin growth, cash flow generation, subscriber acquisition costs and marketing expenditure, capital expenditure programmes and proposals for returning capital to shareholders.

These statements (and all other forward-looking statements contained in this Interim Report on Form 6-K) are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Group’s control, are difficult to predict and could cause actual results to differ materially from those expressed or implied or forecast in the forward-looking statements. These factors include, but are not limited to, the fact that the Group operates in a highly competitive environment, the effects of government regulation upon the Group’s activities, our reliance on technology, which is subject to risk, change and development, our ability to continue to obtain exclusive rights to movies, sports events and other programming content, risks inherent in the implementation of large-scale capital expenditure projects, the Group’s ability to continue to communicate and market its services effectively, and the risks associated with the Group’s operation of digital television transmission in the United Kingdom (“UK”) and Ireland.

Information on some risks and uncertainties are described in Item 1 “Selected Financial Data — Risk Factors”. All forward-looking statements in this document are based on information known to the Group on the date hereof. Except as required by law, the Group undertakes no obligation publicly to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 1. SELECTED FINANCIAL DATA

Set forth below is selected financial data for the Group for each of the years in the five year period ended 30 June 2004 and as at 30 June 2004, 2003, 2002, 2001, and 2000. Also set forth below is selected financial data for the Group for the half year periods ended 31 December 2004 and 2003.

The information contained in the following tables should be read in conjunction with Item 2 “Operating and Financial Review and Prospects” and the Group’s historical consolidated financial statements and related notes, as well as other information included elsewhere in this document.

The selected profit and loss account data set forth below for the half year periods ended 31 December 2004 and 2003, and the balance sheet data at 31 December 2004 are derived from interim consolidated financial statements included in this Interim Report on Form 6-K, which have been prepared in accordance with UK GAAP and differ in certain significant respects from US GAAP. A reconciliation of certain amounts from UK GAAP, as well as a description of the principal differences between UK GAAP and US GAAP applicable to the Group, is presented in Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles”. The selected profit and loss account data set forth below for each of the years in the five year period ended 30 June 2004 and the balance sheet data as at 30 June 2004, 2003, 2002, 2001, and 2000, are derived from the audited consolidated financial statements appearing in our historical annual reports as filed on Form 20-F with the Securities and Exchange Commission.

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All results relate to continuing operations.

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5

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Factors which materially affect the comparability of the selected financial data

Accounting changes

During fiscal 2004, US EITF 00-21 “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”) was adopted.

During fiscal 2003, US accounting standard SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”) was adopted.

During fiscal 2001, US accounting standard SFAS No. 133 “Accounting for Derivative Instruments and Hedge Accounting” (“SFAS No. 133”) was adopted.

For further details of the above accounting changes, please refer to the relevant Annual Reports on Form 20-F.

Business combinations

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

Exchange rates

A significant portion of our liabilities and expenses associated with the cost of programming acquired from US film licensors is denominated in US dollars. For a discussion of the impact of exchange rate movements on our financial condition and results of operations, see Item 3 “Quantitative and Qualitative Disclosures About Market Risk”.

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

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

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On 11 March 2005 the noon buying rate was US$1.9261 per £1.00.

RISK FACTORS

This section describes the significant risk factors affecting our business. These should be read in conjunction with our long-term operating targets, which are set out in Item 2 “Operating and Financial Review and Prospects — Overview and Recent Developments”. These risks could materially adversely affect any or all of our business, financial condition, prospects, liquidity or results of operations. Additional risks and uncertainties of which we are not aware or which we currently believe are immaterial may also adversely affect our business, financial condition, prospects, liquidity or results of operations.

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

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

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

The European Commission has opened a sector inquiry regarding the conditions of provision of audio-visual content from sports events to internet and other “new media” companies such as 3G mobile operators.

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The European Commission has stated that the purpose of its investigation is to gain as clear and wide a view as possible of the availability of audio-visual sports rights in the European Union, so as to ascertain whether access by “new media” operators to such content is not unduly restricted. The Group is co-operating with this investigation. At this stage, the Group is unable to determine whether the investigation or its outcome will have a material effect on the Group.

We cannot assure you that we will succeed in obtaining all requisite approvals and licences in the future for our operations without the imposition of restrictions which may have an adverse consequence to us, nor that compliance issues will not be raised in respect of operations conducted prior to the date of filing of this Interim Report on Form 6-K.

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

We face competition from a broad range of companies engaged in communications and entertainment services, including cable television providers, digital and analogue terrestrial television providers, telecommunications providers, home entertainment products companies, companies developing new technologies and other suppliers of news, information, sports and entertainment, as well as other providers of interactive services. Our competitors include organisations which are publicly funded, in whole or in part, and which fulfil a public service broadcasting mandate. Were such mandate to be changed, this could lead to an increase in the strength of competition from these organisations. Although we have continued to develop our services through technological innovation and in licensing, acquiring and producing a broad range of content, we cannot predict with certainty the changes that may occur in the future which may affect the competitiveness of our businesses. In particular, the means of delivering various of our (and/or competing) services may be subject to rapid technological change.

Viewers with a Sky+ set-top box may choose not to view advertising included on Sky Channels and Sky Distributed Channels. We therefore cannot assure you that our advertising revenues or programming costs will not be negatively impacted by this behaviour. We also cannot assure you that advertising revenues for Sky Channels currently offered on other platforms will not be negatively impacted in the future by the offering of similar devices by other operators.

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

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

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

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

Throughout the last five fiscal years, we have invested more than £195 million in our customer relationship management centres and systems. This expenditure has been focused principally on replacing the existing customer management and billing systems with new applications and also on improving the existing physical infrastructure of the centres. The implementation of the new systems involves a number of complex activities, including the migration of all existing customer data onto the new applications. As a result, and in common with other projects of this scale, there is a risk that the implementation may not be completed as currently envisaged, either within the proposed timescale or budget, or that the anticipated business benefits may not be fully achieved. In addition, the high level of change inherent in the implementation of new systems absorbs considerable management time and may disrupt normal business operations. The implementation of the new applications has been deferred a number of times since the inception of the project and we currently anticipate the implementation to commence during calendar year 2005.

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

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

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

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

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or should we need to or wish to upgrade significantly the existing population of set-top boxes and/or ancillary equipment, this could have a material adverse effect on our business.

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

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

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

In August 2004, we announced a capital expenditure programme of approximately £450 million, which is to be incurred over four years in support of our growth strategy. This expenditure will be in addition to core capital expenditure, which is expected to remain at around £100 million annually. The capital expenditure programme includes building a new Advanced Technology Centre (see Item 4 “Information on the Company — Technology and Infrastructure — Playout and Uplink Facilities” of the Group’s Annual Report on Form 20-F for the full year ended 30 June 2004 for further details), further investment in our customer relationship management centres and systems, increasing contact centre capacity, building new training facilities, refurbishing existing property and building, and/or acquiring, new property and facilities. As is common with capital expenditure projects of this scale, there is a risk that they may not be completed as envisaged, either within the proposed timescale or budget, or that the anticipated business benefits of the projects may not be fully achieved.

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

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

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We generate wholesale revenues from a limited number of customers.

Our wholesale customers, to whom we offer the Sky Channels and from whom we derive our cable revenues, comprise principally ntl Group Ltd (“ntl”) and Telewest Communications plc (“Telewest”). Economic or market factors, or a change in strategy by ntl or Telewest as it relates to the distribution of our channels, may adversely influence the wholesale revenue we receive from ntl or Telewest, which may negatively affect our business.

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

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

ITEM 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 half year ended 31 December 2004 (“the period”) contained within Item 4 “Interim Financial Statements (UK GAAP)”. The financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Principles (“UK GAAP”), which differs in certain significant respects from United States Generally Accepted Accounting Principles (“US GAAP”). Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” provides a description of the significant differences between UK GAAP and US GAAP as they relate to our business, and provides a reconciliation from UK GAAP to US GAAP. Details of our critical accounting policies are provided in the “Critical Accounting Policies” section below.

OVERVIEW AND RECENT DEVELOPMENTS

Sky delivered a strong financial performance during the period, with a 19% increase in basic earnings per share after goodwill and exceptional items in comparison to the half year ended 31 December 2003 (“the prior period”). Total revenues increased by 10% in comparison to the prior period to £1,945 million. During the period, operating profit before goodwill increased by 25% in comparison to the prior period to £354 million resulting in an operating margin before goodwill of 18%, up from 16% for the prior period. Operating profit after goodwill increased by 32% in comparison to the prior period to £297 million. Goodwill and exceptional items are discussed separately below. During the period, we returned £128 million to shareholders through a share buy-back programme and declared an interim dividend payment of 4.0 pence per share.

At 31 December 2004, the total number of DTH subscribers in the UK and Ireland was 7,609,000, representing a net increase of 254,000 subscribers in the period. We remain on track to achieve our target of 8,000,000 DTH subscribers by 31 December 2005. DTH churn for the period

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(annualised) was 9.6%. We define DTH churn as the number of DTH subscribers over a given period that terminate their subscription in its entirety, net of former subscribers who reinstate their subscription in that period.

During the period, we have continued to offer Sky+. Sky+ is a set-top box that we have developed, which (in addition to the functions of the standard set-top box) contains two satellite tuners and an integrated personal television recorder allowing an average of 20 hours of programming to be recorded directly onto a hard-disk recording facility contained within the set-top box. The total number of Sky+ households increased by 245,000 in the period to 642,000, which represents 8.4% penetration of total DTH subscribers. Whilst continuing to penetrate the existing subscriber base, Sky+ also attracts customers who had previously not chosen Sky. 28% of new Sky+ households in the period were first time subscribers.

The growth in Sky+ penetration has also led to further growth in the number of households taking two or more subscriptions (known as “Multiroom”). We offer our subscribers the opportunity to purchase up to three extra set-top boxes for use at the same residence as their original set-top box, which enables them to watch different satellite programmes in different rooms at the same time using just one satellite dish. The total number of Multiroom households increased by 180,000 in the period, to 473,000, which represents 6.2% penetration of total DTH subscribers. The total number of Multiroom subscriptions reached 500,000 at 31 December 2004, which is in excess of the total number of Multiroom households, as some households take more than two subscriptions. Our long-term target is to achieve 30% Multiroom and 25% Sky+ penetration of DTH subscribers in 2010.

On 1 October 2004, we launched a long-term marketing drive to encourage customers to re-appraise the Sky brand and the range of content available from pay television. An advertising campaign was launched across numerous media including television, press and cinema and featured a wide array of content from channels retailed by Sky.

New pricing and package initiatives have also been introduced in the period to broaden the range of entry points to pay television. Installation charges have been waived on all popular Sky packages, eliminating the higher upfront costs for subscribers not choosing the top tier “Sky World” package. Other initiatives included the launch of a new Sky+ set-top box with increased storage capacity, more focused marketing of our basic package containing the largest number of basic channels (known as the “Family Pack”), a new entry level Sky “starter pack” and a free satellite offering.

We launched the free satellite offering on 21 October 2004. Customers can purchase a package of digital satellite reception equipment, including a digital satellite viewing card and standard installation, for £150, enabling access to over 200 free-to-view television and radio channels (including regional variants) and interactive services, without a monthly subscription fee. The free-to-view channels on satellite include Sky News, the BBC’s portfolio of digital television and radio services, and digital versions of BBC1 (including regional variants), BBC2, ITV1 (including regional variants), Channel 4 (and S4C, not Channel 4, in Wales only) and “five” (collectively the “traditionally

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analogue terrestrial channels”). Access to the encrypted signals of ITV1, Channel 4 and “five” is available as a result of the provision of a digital satellite viewing card. There is no obligation for purchasers of this free satellite proposition to subscribe to a pay television service; however, the proposition offers an easy upgrade path to a DTH subscription with us for those customers who choose subsequently to add a pay television service to their viewing options.

We have continued to invest in programming to increase customer loyalty and satisfaction, and to drive subscriber growth. On 12 October 2004, we announced that we had been awarded exclusive live rights by the Rugby Football Union to English international (excluding the RBS 6 Nations tournament) and domestic rugby union matches until the end of the 2009/10 season. The new agreement covers the five seasons from the start of the 2005/06 season and replaces the current television agreement. Under this new agreement, Sky Sports will broadcast live all of England’s Autumn Internationals and over 30 Zurich Premiership matches each season. Additionally, the England and Wales Cricket Board has awarded exclusive live rights to all international and domestic cricket in England and Wales from 2006 to 2009 to Sky. Under this new agreement, we will broadcast live all of England’s home Test and One-Day International matches.

Multichannel television viewing (i.e. viewing of all channels excluding the traditionally analogue terrestrial channels) in Sky digital (our digital DTH service) households continues to grow year-on-year, accounting for over 50% of total television viewing for the first time, according to the viewing figures from the BARB at 31 December 2004. The combined television viewing share in Sky digital households of 51% compares favourably to digital terrestrial television households where the large majority of viewing continues to be of the five traditionally analogue terrestrial channels.

Corporate

In August 2004, we issued and served a claim (in the High Court of England and Wales) for a material amount on Electronic Data Systems (an information and technology solutions provider) alleging breach of contract, deceit and negligent misrepresentation, in respect of the systems integration, software development and business implementation services provided as part of our investment in Customer Relationship Management (“CRM”) software and infrastructure. The amount, if any, that will be recovered by us will not be finally determined until resolution of this claim.

On 3 November 2004, we signed a new £1,000 million Revolving Credit Facility (“RCF”). The new facility matures in July 2010 and will be used for general corporate purposes and to refinance our previous, undrawn, facility, which was due to mature in March 2008. The new facility provides us with an extension to the maturity profile of our previous financing arrangements which it replaced, and delivers continued financial flexibility at more favourable rates.

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OPERATING RESULTS

Revenues

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

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

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

Our advertising revenues are 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.

Our Sky Bet revenues are amounts receivable in respect of bets placed on events which occur in the period, and net customer losses in the period in respect of the on-line casino operations.

Our Sky Active revenues include income from on-line advertising, e-mail services, e-commerce, telephony income from the use of interactive services (e.g. voting fees), text services and set-top box subsidy recovery revenues earned through conditional access and access control charged to broadcasters and interactive application providers on the Sky digital platform.

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

Operating expenses

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

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

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Under our pay television agreements with the US major movie studios, we generally pay a US dollar-denominated licence fee per movie calculated on a per movie subscriber basis, subject to minimum guarantees, which were exceeded some time ago. During the period, we managed our US dollar/pound sterling exchange risk primarily by the purchase of forward foreign exchange agreements for up to 18 months ahead (see Item 3 “Quantitative and Qualitative Disclosures about Market Risk — Currency Exchange Rates”). Offering multiplexed versions of our movie channels on the DTH platform and on digital cable incurs no additional variable rights fees.

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

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

Marketing costs include commissions payable to retailers and other agents for the sale of subscriptions; promotional and related advertising costs; and the costs of our own direct marketing to our DTH subscribers. In addition, marketing costs include the cost of providing free or subsidised digital satellite reception equipment to new customers and the installation cost in excess of the relevant amount actually received from the customer.

Subscriber management costs include CRM costs, supply chain costs and associated depreciation. CRM costs are those associated with managing the existing subscriber base, including subscriber handling and DTH subscriber bad debt costs. Supply chain costs relate to systems and infrastructure and the installation costs of satellite reception equipment and installation costs of new products purchased by subscribers such as Sky+ and Multiroom set-top boxes, including smart card costs. CRM costs and supply chain costs are largely dependent on DTH subscriber levels. Subscriber management costs exclude both the cost of free or subsidised digital satellite reception 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, and the cost of awards granted under our employee share option schemes. Amortisation of goodwill arising on the acquisitions of BiB and SIG is included within administrative costs. The goodwill arising on these acquisitions is being amortised over seven years from the respective dates of acquisition, on a straight-line basis.

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

HALF YEAR ENDED 31 DECEMBER 2004 COMPARED TO HALF YEAR ENDED 31 DECEMBER 2003

Revenues

The Group’s revenues can be analysed as follows:

DTH subscriber revenues

The increase of 11% in DTH subscriber revenues in the period was driven by 6% growth in the average number of DTH subscribers, and a 5% increase in average DTH subscription revenue per subscriber, to £364 at 31 December 2004 from £349 at 31 December 2003.

The total number of UK and Ireland DTH subscribers increased by 254,000 in the period, due to the long-term marketing drive and the new pricing and package initiatives, as discussed above. This net increase also reflects the low level of churn, as DTH churn for the period (annualised) was 9.6% (half year ended 31 December 2003: 9.4%).

The increase in average DTH subscription revenue per subscriber reflected the January and September 2004 price rises and increased Multiroom revenues. In the period, we charged up to £41.00 per month (half year ended 31 December 2003: up to £38.00) for Sky Premium and Basic Channel packages.

Cable subscriber revenues

The prior period cable subscriber revenues (also referred to as wholesale revenues) included a receipt of audit monies received from ntl. Excluding this receipt, wholesale revenue increased by £10 million on the prior period, despite the level of subscribers remaining broadly flat. This is due to the wholesale price changes in January and September 2004 and the carriage by cable companies of Sky Sports Xtra and our PremPlus service.

At 31 December 2004, there were 3,876,000 (at 31 December 2003: 3,862,000) UK and

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Ireland cable subscribers to our programming.

Advertising revenues

The increase in advertising revenue of 8% reflects growth in total UK advertising revenue of approximately 5% and growth in Sky’s viewing share.

Our share of total UK television advertising revenues has increased in recent years as viewing levels to our channels have increased (mainly due to the growth in subscribers to our channels) and as we have added other third party channels to our sales portfolio. Our share of total UK advertising revenues for the period was 12% (half year ended 31 December 2003: 11%).

Sky Bet revenues

Sky Bet revenues increased by 30% compared to the prior period due to strong growth in betting and gaming through interactive TV, primarily due to the launch of Sky Vegas Live, an interactive entertainment and gambling channel, in March 2004.

Sky Active revenues

The decrease in Sky Active revenues of 18% was due to lower revenues from the SkyBuy retail service and from the expiry of a number of contracts and services, partly offset by growth in areas such as interactive advertising, games and third party betting and gaming.

Other revenues

Other revenues increased by 4% compared to the prior period, primarily due to the growth in set-top box revenues associated with the increase in Sky+ and Multiroom sales.

Operating expenses, net

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

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Programming

Programming costs are stated net of amounts receivable from the disposal to third parties of incidental programming rights not acquired for use by the Group of £5 million (half year ended 31 December 2003: £8 million).

Sky Sports channels’ programming costs increased by 10% to £373 million in the period from £340 million in the prior period. All contracts are now amortised on a straight-line basis across the season, resulting in a greater charge in the first half of the fiscal year (see “Critical Accounting Policies — Amortisation of programme stock” below). Adjusting for the effect of this change, sports costs would have reduced by £24 million on the comparable period. This underlying reduction is primarily due to savings achieved in the renewal of the FAPL and other Football Association contracts, slightly offset by costs incurred in relation to the Ryder Cup, a bi-annual event, and the International Cricket Council’s Champions Trophy, both of which occurred in September 2004.

Sky Movies channels’ programming costs decreased by 14% to £174 million in the period from £202 million in the prior period, reflecting continued weakness in the US dollar against pounds sterling and therefore a favourable movement in the average rate at which the Group was able to purchase dollars compared to the prior period, contract renegotiations and a reduction in interactive content costs. This decrease was partly offset by the impact of the growth in subscriber numbers.

Third party channel costs, which include our costs in relation to the distribution agreements for the Sky Distributed Channels and Premium Sky Distributed Channels, increased by 3% to £182 million in the period from £176 million in the prior period. This increase is primarily due to the growth in subscriber numbers and the inclusion of new channels, including FX, STAR and TCM, partly offset by reductions in the aggregate cost per subscriber due to agreements being revised in the period.

Entertainment and news programming costs increased by 22% to £79 million in the period from £65 million in the prior period, primarily due to increased investment in acquired and commissioned programming for Sky One.

Transmission and related functions

The increase in transmission and related functions costs of 13% is due to increased broadcast-related infrastructure costs together with higher studio and editing costs.

Marketing

The increase in marketing costs of 20% was partly driven by an increase in above-the-line marketing spend, which increased by £18 million to £43 million, due to the launch of the “What do you want to watch?” advertising campaign and marketing of the new Sky One schedule. The remaining increase reflected increased direct marketing and installation offers across all product categories, partly offset by a volume-related reduction in the cost of our free digital satellite reception equipment offer to new customers.

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Subscriber management

Subscriber management costs remained flat on the prior period.

Administration

Administration costs, including goodwill amortisation, increased by 4% compared to the prior period. This is a result of increased technology development costs, a higher headcount and increased depreciation due to additional capital expenditure. Goodwill amortisation is explained below in the “Goodwill” section.

Betting

Betting costs increased by 23% compared to the prior period directly as a result of the growth in Sky Bet revenues as described above. Betting gross margin (including duty and levy) increased to 10% in the period from 6% in the prior period.

Operating profit and operating margin

Operating profit after goodwill amortisation, increased by 32% to £297 million in the period from £225 million in the prior period. This increase was driven by the increase in revenues, as detailed above, partly offset by the increase in operating expenses, primarily due to the increase in programming, marketing and betting costs as detailed above.

Operating margin (calculated as total revenues less all operating expenses before goodwill amortisation as a percentage of total revenues) for the period was 18%, up from 16% in the prior period, largely as a result of total revenues increasing at a faster rate than programming costs and stability in subscriber management costs.

Goodwill

Goodwill amortisation of £57 million in the period (half year ended 31 December 2003: £58 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 SIG and BiB respectively, over seven years from the date of acquisition on a straight-line basis.

Non-operating exceptional items

Half year ended 31 December 2004

Loss on disposal of investments in joint ventures

On 1 November 2004, the Group sold its 49.5% investment in Granada Sky Broadcasting (“GSB”) for £14 million in cash, realising a loss on disposal of £23 million. This included the write back of £32 million of goodwill which had previously been written off to reserves, as permitted prior to the implementation of FRS 10 “Goodwill and Intangible Assets” (“FRS 10”).

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Half year ended 31 December 2003

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.

Amounts written off fixed asset investments, net

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

Joint ventures and associates

Our share of the net operating results from joint ventures and associates increased from a £5 million net loss in the prior period to an £8 million net profit in the period. This reflects a write down of £11 million by Attheraces Holdings Limited in respect of capitalised infrastructure costs and media rights prepayments in the prior period.

Net interest payable

Interest payable and similar charges, net of interest receivable and similar income, decreased by 24% to £32 million in the period from £42 million in the prior period. This decrease was primarily a result of a reduction in net debt, which decreased from £759 million at 31 December 2003 to £369 million at 31 December 2004.

Taxation

The total net tax charge for the period of £96 million includes a current tax charge of £74 million and a deferred tax charge of £29 million. These charges were offset by a net adjustment in respect of prior years’ tax payable of a £7 million credit. Excluding the effect of goodwill, joint ventures and exceptional items, this results in an underlying effective tax rate on ordinary activities of 31%.

The corporation tax liability for the period was £71 million, and, in accordance with the quarterly instalment regime, £36 million was paid in January 2005.

The total net tax charge of £74 million for the prior period included a current 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 resulted in an underlying effective tax rate on ordinary activities of 30%.

Profit after taxation

Profit after taxation for the period was £154 million compared with £130 million in the prior period, mainly as a result of the increase in

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operating profit offset by a non-operating exceptional charge in the period compared to a prior period non-operating exceptional credit, as described above.

Equity dividends

In February 2005, the Directors resolved to pay to shareholders an interim dividend of £77 million (4.0 pence per share) in respect of the period ended 31 December 2004 (half year ended 31 December 2003: £53 million, 2.75 pence per share).

Earnings per share

Basic earnings per share increased by 19% to 8.0p in the period from 6.7p in the prior period, due to the movement in profit after taxation described above. Similarly, diluted earnings per share increased by 18% to 7.9p in the period from 6.7p in the prior period.

31 DECEMBER 2004 BALANCE SHEET COMPARED TO 30 JUNE 2004 BALANCE SHEET

Intangible assets decreased by £57 million, from £417 million at 30 June 2004 to £360 million at 31 December 2004, due to the amortisation of goodwill. Intangible assets mainly comprise the goodwill that arose on the acquisitions of BiB and SIG.

The tangible fixed assets balance increased by £75 million, from £376 million at 30 June 2004 to £451 million at 31 December 2004, due to £123 million of net additions in the period, primarily relating to investment in property at our Osterley site, CRM systems and the Advanced Technology Centre. This was partly offset by depreciation of £48 million.

Fixed asset investments decreased by £8 million, from £35 million at 30 June 2004 to £27 million at 31 December 2004, mainly due to the disposal of GSB, which had a carrying value prior to disposal of £4 million, and to net repayments of funding from joint ventures.

Net current assets decreased by £17 million from £366 million at 30 June 2004 to £349 million at 31 December 2004. This decrease was predominantly due to the increase in programming creditors of £239 million and other creditors of £72 million and a decrease in deferred tax assets of £30 million, offset by an increase in programming stock of £252 million, cash and liquid resources of £60 million and other assets of £12 million. The increase in programming creditors and programming stock during the period was due to the timing of invoicing and payments for the FAPL agreement.

Total equity shareholders’ funds decreased from £90 million at 30 June 2004 to £83 million at 31 December 2004. This was a result of a profit after tax in the period of £154 million less an interim dividend of £77 million, the purchase and subsequent cancellation of shares purchased for consideration of £128 million as part of our share buy-back programme, a write back of goodwill of £32 million following the disposal of our investment in GSB, the utilisation of £7 million of shares from the ESOP trust to satisfy the exercise of Long Term Incentive Plan (“LTIP”), Equity Bonus Plan (“EBP”), Key Contributor Plan (“KCP”) and Executive share options and an associated net credit to reserves of £5 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

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these options was lower than the amount we were required to accrue.

FOREIGN EXCHANGE

For details of the impact of foreign currency fluctuations on our results of operations, see Item 3 “Quantitative and Qualitative Disclosures About Market Risk — Currency exchange rates”.

CONTINGENT LIABILITIES

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

LIQUIDITY AND CAPITAL RESOURCES

Our long-term funding, which comes primarily from US dollar and sterling-denominated public bond debt, was raised in 1996 and 1999. We launched Sky digital, our digital DTH service, in October 1998 and we terminated our analogue service in September 2001. As a result, the peak of our funding requirements was at the period ended 31 December 2001, when our net debt reached £1,833 million. As at 31 December 2004, net debt has decreased to £369 million. The public bond debt is repayable in 2006 and 2009 and we currently believe that our financial position at those dates will enable us to meet our repayment requirements. For details of our treasury policy and use of financial instruments see Item 3 “Quantitative and Qualitative Disclosures About Market Risk”.

Our principal source of liquidity is our operating cash flow, combined with access to the £1,000 million (30 June 2004: £600 million) RCF. Our operating cash inflow for the period was £407 million (half year ended 31 December 2003: £401 million) (for further details, see “Cash flows” below). We expect to continue to generate significant operating cash inflow in the calendar year 2005 (for further details, see “Trends and other information” and “Tabular disclosure of contractual obligations” below), subject to the factors detailed below. As at 31 December 2004, our RCF was not drawn (30 June 2004: nil).

Our liquidity and working capital may be affected by a material decrease in cash flow from operations due to factors, among others, such as infringement of intellectual property rights, increased competition, failure to obtain regulatory approvals, long-term obligations, loss of wholesale revenues and failure of technology. See Item 1 “Selected Financial Data — Risk Factors” for a more detailed discussion of our risk factors.

At 31 December 2004, the Group had in issue the following publicly-traded guaranteed notes:

US$650 million of 8.200% Guaranteed Notes, repayable in July 2009. At the time of issuing these notes, the US dollar proceeds were swapped into pounds sterling (£413 million) at an average fixed rate of 7.653% payable semi-annually. In December 2002, March 2003 and July 2003, the Group entered into further swap arrangements relating to £63.5 million

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of this debt, the effect of which was to fix the interest rate on £63.5 million at 5.990% until January 2004, after which time it reverted to a floating six months London Inter-Bank Offer Rate (“LIBOR”) plus a margin of 2.460%, except that should LIBOR be less than 2.750% for the period January to July 2004, 2.890% for the period July 2004 to January 2005, or 2.990% thereafter, the effective rate shall be deemed to be 7.653%. In order to increase its exposure to floating rates, in August 2003, the Group entered into another interest rate hedging arrangement in respect of a further £63.5 million of the above-mentioned debt, the effect of which was that, from July 2003 until July 2009, the Group will pay floating six months LIBOR plus a margin of 2.8175% on this £63.5 million, except that should LIBOR be less than 2.750% for the period January to July 2004, or less than 2.990% thereafter, the Group shall revert back to 7.653%. At 31 December 2004, none of the floor levels had been breached, therefore the Group continues to pay the relevant floating rates.

£100 million of 7.750% Guaranteed Notes, repayable in July 2009. The fixed coupon is payable annually. In March 2004, the Group entered into an interest rate swap arrangement in respect of £50 million of this debt, whereby the previously fixed rate of 7.750% was swapped to a floating rate of LIBOR plus a margin of 2.050% from July 2004 to July 2005. On 9 July 2005, and every 9 July thereafter, the counterparty has the right, but not the obligation, to cancel this swap, returning the Group to its previous fixed rate of 7.750%.

US$600 million of 6.875% Guaranteed Notes, repayable in February 2009. At the time of issuing these notes, the US dollar proceeds were swapped into pounds sterling (£367 million) at an average fixed rate of 8.200%, payable semi-annually. In July 2003, the Group entered into a further interest rate hedging arrangement in respect of £61.2 million of this swapped debt. The effect of this new hedging arrangement was that, from July 2003 until February 2009, the Group will pay floating six months LIBOR plus a margin of 3.490% on £61.2 million of its swapped debt. However, at each six monthly reset date, the counterparty to this transaction has the right to cancel the transaction with immediate effect. In October 2003, the Group entered into a further interest rate hedging arrangement in respect of an additional £61.2 million of this swapped debt, the effect of which was to reduce the rate payable to 7.950% for the period August 2003 to February 2004. Thereafter, until August 2006, the rate payable is 7.950% plus any margin by which the floating six monthly LIBOR reset rate exceeds the sum of the previous reset rate plus 0.500%. Thereafter, the rate reverts to a fixed 8.180%.

US$300 million of 7.300% Guaranteed Notes, repayable in October 2006. At the time of issuing these notes, the Group entered into swap transactions to convert the dollar proceeds to pounds sterling (£189 million), half of which carries a fixed rate of interest of 8.384% until maturity, payable semi-annually. The remainder was fixed at 7.940% until 15 April 2002, thereafter floating at 0.620% over six months LIBOR, again payable semi-annually. In respect of this remaining floating exposure, on 16 January 2002, the Group entered into a further interest rate hedging arrangement to fix the rate at 6.130% from 15 April 2002, payable semi-annually for the remainder of the life of the notes.

In November 2004, the Group entered into a £1,000 million RCF. This facility was used to cancel an existing £600 million RCF and can be used

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for general corporate purposes. The £1,000 million facility has a maturity date of July 2010, and interest accrues at a margin of between 0.45% and 0.55% above LIBOR, dependent on the Group’s leverage ratio of net debt to earnings before interest, taxes, depreciation and amortisation (“EBITDA”) (as defined in the loan agreement). The RCF contains certain financial covenants which are tested at the end of each six-monthly accounting period. The key financial covenants are the ratio of EBITDA to net debt (as defined in the loan agreement) and EBITDA to net interest payable (as defined in the loan agreement). The Group must currently maintain these ratios as follows:

At 31 December 2004, the ratio of net debt to EBITDA (as defined in the loan agreement) was 0.7:1. In the period, the ratio of EBITDA to net interest payable (as defined in the loan agreement) was 11.6:1.

Both the bank facilities and the publicly-traded guaranteed notes have been issued by the Company and guaranteed by both British Sky Broadcasting Limited and Sky Subscribers Services Limited. Additionally, the £1,000 million RCF has been guaranteed by BSkyB Investments Limited from 4 March 2005.

Cash flows

During the period, there was an operating cash inflow of £407 million, compared with an operating cash inflow of £401 million in the prior period. The operating cash inflow was driven by an improvement in operating results of £72 million, offset primarily by a lower reduction in working capital, which decreased by £7 million in the period compared to a decrease of £62 million in the prior period.

During the period, net interest payments were £32 million, compared to £48 million in the prior period. This reduction in payments was due to the reduction in net debt in the period. We expect that these payments will stabilise in the short-term, in line with the level of our net debt.

During the period, tax payments were £28 million, compared to £24 million in the prior period. This increase in payments is due to the increased profitability of the Group in the prior period, as our payments made during the period relate to the prior period tax charge. We expect that tax payments will continue to increase as the Group becomes increasingly profitable and as a result of the utilisation in the prior period of the balance of advanced corporation tax, which reduced current and prior period tax payments.

During the period, payments for capital expenditure were £123 million, compared with £65 million in the prior period, following progress on a number of capital expenditure and infrastructure projects. The Group spent £51 million on a combination of infrastructure projects including the acquisition of four freehold properties previously leased at our Osterley Campus and construction work on several other projects, including the new Sky News Centre. Investment in the CRM programme amounted to £25 million. A total of £19 million was incurred on the

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final stages of construction and fit-out of the Advanced Technology Centre building. The remaining £28 million of capital expenditure was spent on IT infrastructure, broadcast equipment and new product development, including High Definition TV, which is expected to launch in 2006. We intend to invest approximately £450 million on capital expenditure over the four fiscal years to 30 June 2008, in order to support the long-term growth of the Group. This is in addition to ongoing core maintenance capital expenditure which is expected to remain at about £100 million per annum over the same period.

During the period, there were no receipts from the sales of fixed asset investments, compared to £68 million in the prior period from the sale of our shareholdings in Manchester United plc and Chelsea Village plc.

During the period, there were receipts from the sale of investments in joint ventures of £14 million, which comprised proceeds from the sale of our shareholding in GSB.

During the period, we made equity dividend payments of £63 million, compared to nil in the prior period. We expect that future year payments will increase in line with the Board’s dividend policy described in the “Trends and other information” section below.

During the period, we also made payments of £128 million as part of the share buy-back programme, which will continue in the short-term in line with the authority to repurchase 97 million shares approved by the shareholders at the Company’s Annual General Meeting, of which 23 million shares were repurchased during the period.

The above cash flows, in addition to other net inflows of £13 million, resulted in a decrease in net debt of £60 million to £369 million.

Major non-cash transactions

Half year ended 31 December 2004

Goodwill

In accordance with FRS 10, the Group has included the write off of £32 million of unamortised goodwill in the calculation of the loss on disposal of GSB, the effect of which has been included in the profit for the period. The goodwill arose on the original purchase of GSB and had previously been written off to the profit and loss reserve as permitted prior to FRS 10. Accordingly, an adjustment has been made to write back the £32 million charge to the profit and loss reserve.

Half year ended 31 December 2003

Share premium reduction

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

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the deficit. The Company’s balance sheet and profit and loss account are not presented within this Interim Report on Form 6-K.

WAPTV

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

Tabular disclosure of contractual obligations

A summary of our contractual obligations and commercial commitments at 31 December 2004 is shown below:

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

Purchase obligations — Television programme rights

At 31 December 2004, we had minimum television programming commitments of £2,414 million (30 June 2004: £2,489 million), of which £678 million (30 June 2004: £766 million) related to commitments payable in US dollars for periods of up to eight years (30 June 2004: nine years), £63 million related to commitments payable in Swiss francs for periods of up to two years (30 June 2004: £87 million for periods of up to two years) and £4 million related to commitments payable in Euros for periods of up to two years (30 June 2004: £6 million for periods of up to two years).

An additional £417 million (US$798 million) of commitments (30 June 2004: £265 million (US$483 million)) would also be payable in US dollars, assuming that movie subscriber numbers remained unchanged from current levels. The pounds sterling television programme rights commitments include similar price escalation clauses that would result in additional commitments of £12 million (30 June 2004: £3 million) if subscriber numbers were to remain at 31 December 2004 levels.

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The total decrease in our minimum television programming commitments of £75 million compared to 30 June 2004, is the result of a decreased average period remaining on our commitments for sports channels’ and movie channels’ programming, partly offset by the extension of contracts with certain movie studios and the acquisition of the England Cricket Board and Rugby Union rights.

Purchase obligations — Set-top boxes and related equipment

At 31 December 2004, we had made commitments to manufacturers, in relation to the supply of set-top boxes, up to a maximum of £65 million (30 June 2004: £70 million).

Purchase obligations — Third party payments

At 31 December 2004, we had minimum third party payment commitments in respect of distribution agreements for the Sky Distributed Channels of approximately £35 million (30 June 2004: £41 million). An additional £701 million (30 June 2004: £844 million) of commitments would also be payable for periods up to four years (30 June 2004: five 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

At 31 December 2004, our operating lease obligations totalled £451 million (30 June 2004: £447 million), the majority of which related to property and transponder leases.

Capital lease obligations

At 31 December 2004, our obligations under capital leases were £7 million (30 June 2004: £7 million). This represents amounts drawn in connection with the CRM Centre in Dunfermline, Scotland. The CRM Centre lease bears interest of 8.5% and expires in September 2020.

TRENDS AND OTHER INFORMATION

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

The number of DTH homes increased by 254,000 in the period to 7,609,000, compared to growth of 363,000 in the prior period. We expect growth in subscriber numbers to continue as a result of the implementation of our current marketing strategy, consistent with achieving our target of 8,000,000 DTH subscribers by December 2005 and our longer term target of 10,000,000 DTH subscribers in 2010. Sky+ and Multiroom subscribers both increased substantially in the period by 62% and 61% respectively, representing a penetration of total DTH subscribers of 8% and 6% respectively. We expect the trend of Sky+ and Multiroom subscriber growth to continue, consistent with achieving our targets of 25% Sky+ and 30% Multiroom penetration of DTH subscribers in 2010. Following a gradual decline in fiscal years 2003 and 2004, the rate at which our

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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 in the future.

The operating margin for the period was 18%, up from 16% in the prior period. We currently expect our operating margin to grow in the long-term, as a result of our strategy to improve subscriber and revenue growth.

During the period, the number of cable homes receiving Sky Channels in the UK and Ireland decreased by 19,000 to 3,876,000 following a decrease of 9,000 in the prior period. We currently expect cable subscriber numbers to increase marginally in the foreseeable future in accordance with expectations as to the timing of analogue terrestrial switch off and further expansion in UK pay television. We currently have agreements with ntl and Telewest for the supply of certain Sky Basic Channels until 2006.

Advertising revenues increased in the current and prior period. The increase in the period reflects growth of 5% in UK television advertising revenue in the period and continued growth in our share of UK television advertising revenue. Our growth in the share of UK television advertising revenue increased in calendar 2004 and, with the majority of the calendar 2005 agency deals agreed, we expect this growth to continue in calendar 2005.

Sky Bet revenues increased in the current and prior period. This growth is expected to continue over the next few years with interactive betting via television being the main contributor to growth. The anticipated liberalisation of the UK gambling laws (see “Critical Accounting Policies — Goodwill” below) is implicit in our growth assumption.

Sky Active revenues decreased in the period following growth in the prior period. However, increases in revenues are expected in future years from core interactive services such as interactive advertising, games and telephony income from the use of enhanced television programmes (e.g. voting and competitions). Revenues from partnered content sites are also expected to grow with the main increase coming from the increase in prevalence of betting sites, which also reflects the anticipated liberalisation of the UK gambling laws (see “Critical Accounting Policies — Goodwill” below).

Programming costs continued to increase at a lower rate than revenues. 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. However, we do expect minor fluctuations depending upon the timing of individual programming agreements. We currently expect that total programming costs will continue to increase at a slower rate than our revenues.

Transmission and related functions costs increased during the period, after remaining stable in the prior period, resulting in an increase in costs per subscriber. Transmission and related function costs are expected to continue to increase in the future reflecting the cost of launching and operating our planned High Definition television service.

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Marketing costs as a percentage of revenues increased during the period, following a decrease in the prior period. We expect this increase to continue in the next few years in line with our new marketing initiatives. Marketing costs include above-the-line marketing expenditure, which increased in the period. We expect above-the-line marketing expenditure to increase by 40% to 50% in the current fiscal year when compared to the prior fiscal year, in support of our strategy of investing in future subscriber growth. Also included within marketing costs are the costs of providing free digital satellite reception equipment and the installation costs in excess of the relevant amount actually received from customers. It remains our current intention to continue the practice of providing free digital satellite reception equipment and subsidising installation to new subscribers.

Subscriber management costs stabilised in the period, following an increase in the prior period. We expect that subscriber management costs will increase 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. Additionally, we expect to invest in increasing the capacity of our contact centres and training facilities to keep customer services standards at the forefront of the industry, which will result in increased depreciation charges in the medium term.

Administration costs, before goodwill amortisation, increased in the current and prior period, and are expected to continue increasing in the foreseeable future due to the growth in our overall business. Part of this growth will be due to higher depreciation charges relating to investment at the main site in Osterley, including expenditure on the broadcasting infrastructure. Goodwill amortisation is expected to remain stable.

The trends described above reflect our current expectations based on UK GAAP. We do not currently expect that the impact of current International Financial Reporting Standards (“IFRS”), which we are required to adopt in the preparation of our consolidated financial statements from 1 July 2005 (see “Adoption of New Accounting Standards — Adoption of IFRS” below), will materially impact the magnitude and/or the direction of these trends, with the exception of administration costs, which are expected to be lower in future years upon adoption of IFRS. This is due to decreased administration costs following the change in the treatment of goodwill, which is not amortised under IFRS, partly offset by increased charges under IFRS for share-based payments when compared to UK GAAP (see “Adoption of New Accounting Standards — Adoption of IFRS — Share-based payments” below for further details). This expected net decrease in administration costs under IFRS is also expected to result in an increase in operating profit under IFRS in comparison with the equivalent operating profit under UK GAAP.

The Group continues to consider the appropriate financial strategy and capital structure for the next phase of the Group’s growth. This financial strategy will be consistent with the Group’s desire to maintain an investment grade credit rating and retain financial flexibility going forward.

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The Group currently has a progressive dividend policy and currently intends that the final ordinary dividend in fiscal 2005 will grow broadly in line with Group earnings. The Board proposed a resolution at the Annual General Meeting in November 2004 to renew the annual authority to buy back up to 5% of the issued ordinary share capital of the Company, which was approved by the Group’s shareholders. In the period, 23 million Ordinary Shares were purchased by the Company and subsequently cancelled. We expect to continue to utilise the share repurchase authority, subject to market conditions and have done so in the period. The Board will consider additional mechanisms to allow further distributions to shareholders in due course.

Dividends are paid between Group companies out of profits available for distribution subject to, inter alia, the provisions of our Articles of Association and the Companies Act 1985 (as amended). There are restrictions over the distribution of any profits which are not generated from external cash receipts as defined in Technical Release 7/03, issued by the Institute of Chartered Accountants in England and Wales. The interim dividend of the Company of £77 million announced in February 2005, relating to the period ended 31 December 2004, was resolved to be paid out of profits available for distribution generated from external cash receipts.

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

OFF-BALANCE SHEET ARRANGEMENTS

At 31 December 2004, the Company did not have any undisclosed off-balance sheet arrangements that require disclosure as defined by Securities and Exchange Commission Release No. 33-8182.

RESEARCH AND DEVELOPMENT

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

US GAAP RECONCILIATION

Net profit after tax under UK GAAP in the period was £154 million (half year ended 31 December 2003: £130 million). Under US GAAP net profit after tax was £231 million (half year ended 31 December 2003: £186 million). Net assets under UK GAAP at 31 December 2004 were £83 million (30 June 2004: £90 million). Under US GAAP, net assets were £841 million (30 June 2004: £812 million).

The principal differences between US GAAP and UK GAAP, as they relate to the Group, arise from the methods of accounting for goodwill, employee stock-based compensation, derivatives, fixed asset investments, deferred taxation and proposed equity dividends. For a further explanation of the differences between US GAAP and UK GAAP, see Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles”.

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CRITICAL ACCOUNTING POLICIES

The application of UK GAAP often requires our judgement when we formulate our accounting policies and when presenting a true and fair view of our financial position and results in our consolidated financial statements. Often, judgement is required in respect of items where the choice of specific policy to be followed can materially affect our reported results or net asset position, in particular through estimating the lives of recoverability of particular assets, or in the timing of when a transaction is recognised. A description of our significant accounting policies is disclosed in note 1 of the Consolidated Financial Statements in our 2004 Annual Report on Form 20-F 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 our judgement and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives, among other items. Purchased goodwill arising on acquisitions from 1 July 1998 is capitalised. Prior to 1 July 1998, goodwill arising on acquisitions was eliminated against reserves.

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

At 31 December 2004, the carrying value of goodwill amounted to £360 million (30 June 2004: £417 million) and represented 13% (30 June 2004: 18%) 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 £57 million (half year ended 31 December 2003: £58 million).

Goodwill impairment reviews are also an area requiring our judgement, requiring assessment as to whether the carrying value of goodwill can be supported by the net present value of future cash flows derived from assets using cash flow projections, and discounting using an appropriate rate. We completed two significant acquisitions in fiscal 2001. These were the acquisitions of the 67.5% of BiB not previously owned by us and 100% of SIG (a company that we acquired in July 2000, which owns a bookmaker which operates telephone and interactive betting services under the brand name “Sky Bet”). In accordance with Financial Reporting

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Standard No. 11, “Impairment of Fixed Assets and Goodwill”, impairment reviews were performed on the carrying values of BiB and SIG goodwill balances at the end of the first full financial year after acquisition, at 30 June 2002, which did not indicate impairment. Consistent with our strategy, the business plans on which these reviews were based reflect significant projected increases in betting and other interactive revenues over the subsequent five years and the carrying value of the goodwill is therefore heavily dependent on the forecast performance of, and projections for, these businesses. The forecasts and projections used for SIG’s impairment reviews are dependent, at least in part, on the anticipated liberalisation of the United Kingdom’s gambling laws in accordance with the stated policy of the current UK Government and in particular upon the legalisation of onshore remote gambling and clarification of the position in relation to offshore remote gambling. The Gambling Bill was introduced in the House of Commons on 18 October 2004 and has passed through the initial stages in the House of Commons and on to the House of Lords for further review. It is currently being scrutinised by a House of Lords Committee. There can be no guarantee that the Bill will be passed (whether in the current form, in the time period anticipated or otherwise) or that forecast performance of SIG will be delivered. The Group continues to monitor the performance of these businesses and is satisfied that no impairment of goodwill has occurred.

The treatment of goodwill under US GAAP differs significantly from that under UK GAAP. Under US GAAP, goodwill is not amortised over its useful life; instead, it is tested for impairment on an annual basis and whenever indicators of impairment arise. As is the case under UK GAAP, goodwill impairment reviews are an area requiring our judgement, requiring assessment as to whether the carrying value of goodwill can be supported by the net present value of future cash flows derived from assets using cash flow projections, and discounting using an appropriate rate (see Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” for further details). The goodwill arising on the original purchase of GSB, which was included in the calculation of the loss on disposal, had previously been eliminated against reserves under UK GAAP, but was held as an intangible asset under US GAAP.

Revenues and bad debt provisions

The main source of our revenue is revenue from subscribers. Revenues from the provision of DTH subscription services are charged to contract customers on a monthly basis. Revenues are invoiced and recorded as part of a periodic billing cycle, and are recognised as the services are provided. Pay-per-view revenue is recognised when the event, movie or football match is viewed. Cable revenue is recognised as the services are provided to the cable companies and is based on the number of subscribers taking the Sky Channels, as reported to us by the cable companies, and the applicable wholesale prices. The overriding principle followed is to recognise revenues in line with the provision of service, and accordingly, this leaves little scope for subjectivity. In the period, subscription revenues from DTH subscribers and cable companies comprised 79% of total turnover (half year ended 31 December 2003: 79%).

Management judgement is required in evaluating customer debts to determine if they will be collected. This evaluation requires estimates

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

The remaining 21% of turnover (half year ended 31 December 2003: 21%) is comprised of advertising, Sky Bet, Sky Active and other revenues. Recognition of these revenues takes place once the advertising is broadcast, or when the relevant goods or services have been delivered or provided. Sky Bet revenues represent amounts receivable in respect of bets placed on events which occur in the year and net customer losses in the year in respect of the on-line casino operations.

Under UK GAAP, betting costs from internet casino betting are offset against betting revenues within “turnover”, and costs from all other betting are shown within “operating expenses, net”. Our treatment under US GAAP of costs from betting, aside from internet casino betting, differs from that under UK GAAP (see Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” for further details).

Tangible fixed assets

Tangible fixed assets represented 17% of our total assets (30 June 2004: 16%). Tangible fixed assets are stated at cost, net of accumulated depreciation and any provision for impairment. Our depreciation policy in respect of tangible fixed assets is disclosed in note 1 of the Consolidated Financial Statements in our 2004 Annual Report on Form 20-F. We estimate the useful life of these assets based on their periods of expected use and this estimation is judgemental. We review the period of expected use on a regular basis. We begin amortisation of these assets when they become available for use. Tangible fixed asset impairment reviews are also an area requiring our judgement in determining whether the carrying value of our tangible fixed assets can be supported by the net present value of future cash flows derived from the tangible fixed asset using cash flow projections, and discounting using an appropriate rate. We perform impairment reviews if events or circumstances indicate that the carrying value of tangible fixed assets may not be recoverable. There have been no material impairments in the period.

Financial Reporting Standard No. 15, “Tangible Fixed Assets”, specifies criteria for the recognition of tangible fixed assets, including a detailed definition of costs that are capitalised in relation to self-constructed assets. As at 31 December 2004, the net book value of costs capitalised on the balance sheet in respect of our CRM project was £136 million (30 June 2004: £118 million), the majority of which relates to assets which continue to be under construction. Capitalised costs include technology hardware and software assets, site preparation and development costs, and associated consultancy expenditures. All of the CRM project costs capitalised during the period were associated with the CRM systems (half year ended 31 December 2003: approximately 90%). When the assets are brought into use, these costs are depreciated over between three and four years. The

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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 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” for further details).

Amortisation of programme stock

A significant proportion of programming costs relates to the amortisation of television programme rights. Programming costs constituted 49% of operating expenses in the period (half year ended 31 December 2003: 51%). 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 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. 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 was previously based on anticipated revenue. From this period, these contracts are now amortised on a straight-line basis across the season or competition as our estimate of the benefits received from these rights was determined to be more appropriately aligned with a straight-line amortisation profile. Provisions are made for any programme rights which are surplus to our requirements or will not be shown for any other reason. There is no difference in the Group’s treatment of amortisation of programme stock between 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 the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax 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

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

Included within the total deferred tax asset recognised at 31 December 2004 is £92 million (30 June 2004: £118 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 2004 there was sufficient evidence to support the recognition of this deferred tax asset on the basis that it was more likely than not that there would be suitable taxable profits against which this asset could be utilised.

Included within the total deferred tax asset recognised at 31 December 2004, are £15 million (30 June 2004: £21 million) of accelerated capital allowances (“ACAs”) and £14 million (30 June 2004: £12 million) of short-term timing differences (“STTDs”), which relate to accruals for share-based remuneration, capitalised interest and transponder prepayments. Following a review of the ACAs and the STTDs, the Directors consider that, at 31 December 2004, there was sufficient evidence to support the recognition of these deferred tax assets, on the basis that it was more likely than not that there would be suitable taxable profits against which these assets could be utilised and that the ACAs and STTDs are expected to fully reverse.

At 31 December 2004, there are deferred tax assets that have not been recognised, which include £450 million of potential capital losses related to the Group’s German holding of KirchPayTV, £25 million of capital losses in respect of football club and other investments, £12 million of UK losses in the Group, £64 million of trading losses in the Group’s German holding companies of KirchPayTV and £6 million arising principally on other timing differences. These deferred tax assets have not been recognised as it is currently not more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and the timing differences are not more likely than not to reverse. Non-recognition of these deferred tax assets is an area requiring our judgement, which reflects the Group’s current expectations of future events.

The treatment of deferred tax under US GAAP differs from that under UK GAAP (see Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” for further details).

Exceptional items

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

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

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

The treatment of exceptional items under US GAAP differs from that under UK GAAP (see Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” for further details).

ADOPTION OF NEW ACCOUNTING STANDARDS

During the period, we did not adopt any new UK GAAP accounting standards.

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

UITF abstract 38 — Accounting for ESOP trusts (“UITF 38”)

This abstract requires that the Company’s shares held by the Group’s ESOP, which were previously held within fixed asset investments, be presented as a deduction from shareholders’ funds. In addition, the charge to the profit and loss account in relation to awards under the LTIP, the KCP and the EBP, which was previously based on the cost of shares held by the ESOP, is now based on the difference between the market price on the date of grant and the exercise price. The adoption of UITF 38 was treated as a prior year adjustment in our Consolidated Financial Statements in our 2004 Annual Report on Form 20-F with comparative figures being restated accordingly. See note 1 of the Consolidated Financial Statements in our 2004 Annual Report on Form 20-F for further details.

Details of new US GAAP accounting standards issued during the period are given in Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles”.

Adoption of IFRS

Following a Regulation issued by the Council of the European Union, the Group, along with all European Union listed groups, is required to adopt IFRS in the preparation of its consolidated financial statements from 1 July 2005. The adoption of these standards will lead to certain changes in the Group’s accounting policies, results, presentation of its financial statements, and other disclosures within the Interim Report on Form 6-K and the Annual Report on Form 20-F, which are currently in accordance with UK GAAP.

Detail was provided on the Group’s transition project in our 2004 Annual Report on Form 20-F.

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Several uncertainties remain which affect the Group’s ability to assess the impact of IFRS, including the continued evolution of IFRS accounting practice and whether the International Accounting Standards Board (“IASB”) and other related bodies will issue new or revised standards which will either be mandatory for the Group’s 30 June 2006 financial statements, or which the Group could adopt early voluntarily. However, based on the Group’s initial assessment, the key changes to the Group’s accounting policies as a result of the adoption of IFRS are expected to be in the following areas described below.

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

The Group’s third quarter and preliminary results for the full year ending 30 June 2005 will continue to be reported under UK GAAP. The Group currently intends to release the Group’s full results for the full year ending 30 June 2005 restated under IFRS in September 2005. The Group’s first quarterly results under IFRS will be reported for the quarter ending 30 September 2005 in early November 2005.

Intangible assets

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

Financial instruments and hedge accounting

The Group uses cross-currency and interest rate swaps, options on interest rate swaps (“swaptions”), and forward purchases of US dollars and Swiss francs to hedge its foreign currency and interest rate exposures. Under UK GAAP, these financial instruments are not recognised on the balance sheet, however, under IFRS, the Group will be required to recognise its derivative financial instruments on the balance sheet at fair value, with changes in fair value being recognised in the profit and loss account. Where hedge accounting is achieved under IAS 39 “Financial Instruments — Recognition and Measurement” (“IAS 39”), the profit and loss impact of the changes in fair value may be postponed and matched to the profit and loss impact of the underlying hedged exposure. The adoption of the revised foreign exchange hedging policy described in Item 3 “Quantitative and Qualitative Disclosures about Market Risk” was unrelated to the adoption of IFRS. The Group does not see a requirement to change its current hedging policy as a result of the new requirements for achieving hedge accounting under IAS 39 and expects to be able to achieve hedge accounting for the majority of its financial instruments.

Share-based payments

Under current UK GAAP, the Group recognises a charge in the profit and loss account for its LTIP, EBP and KCP schemes based on the difference between the exercise price of the award and the price of a BSkyB share on the date of grant (the “intrinsic value”). Under IFRS 2 “Share-based

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Payment”, the Group will be required to recognise a charge in the profit and loss account for all share options and awards based on the fair value of the awards as calculated at the grant date using an option-pricing model. This will introduce an additional cost for the Group, as Executive Scheme options, which have an intrinsic value of nil, and Sharesave scheme options, which are specifically exempt from the scope of current UK GAAP accounting, will have a fair value attached to them, and hence an associated profit and loss account charge under IFRS.

Goodwill

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

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction

Our treasury function is responsible for raising finance for the Group’s operations, together with associated liquidity management, and the management of foreign exchange, interest rate and counter-party risks. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed by both the Audit Committee and the Board, who receive regular updates of treasury activity. Derivative instruments are transacted for risk management purposes only. It is our policy that all hedging is to cover known risks and that no trading in financial instruments is undertaken. Regular and frequent reporting to management is required for all transactions and exposures, and the internal control environment is subject to periodic review, both by our internal audit team and by the Treasury Committee.

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

Following a review of our treasury policy in February 2005, the Audit Committee and the Board approved a revised foreign exchange hedging policy whereby the maturity profile of hedging instruments has been extended to match more appropriately the time horizon of the underlying contracts, and the range of permitted hedging instruments has been extended to enable us to use foreign exchange options and collars to protect exposures rather than to fix the transaction rate. The revised hedging policy continues to specify that derivative instruments should only be transacted for risk management purposes, cover only known risks and that no trading in financial instruments is to be undertaken.

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From 1 July 2003, we formulated our policies for hedging with regard to US GAAP requirements on hedge accounting, and therefore the majority of our existing derivative arrangements qualify for hedge accounting under US GAAP during both periods; see Item 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles” for further details.

Interest rate management

We have financial exposures to both UK and US interest rates, arising primarily from long-term bonds. We manage our exposures by borrowing at fixed rates of interest and by using interest rate swaps to adjust the balance between fixed and floating rate debt. All of our US dollar-denominated debt has been swapped to pounds sterling, using cross-currency swap arrangements, which, in addition to the translation of the principal amount of the debt to pounds sterling, also provide for the exchange, at regular intervals, of fixed-rate amounts of dollars for fixed-rate amounts of pounds sterling. All of our debt exposure is denominated in pounds sterling after cross-currency swaps are taken into account; at 31 December 2004, the split of our aggregate net borrowings into their core currencies was US dollar 91% and pound sterling 9% (30 June 2004: US dollar 90% and pound sterling 10%). We also enter into pound sterling interest rate swap and swaption arrangements, which provide for the exchange, at specified intervals, of the difference between fixed rates and variable rates, calculated by reference to an agreed notional pounds sterling amount.

At 31 December 2004, 76% of our borrowings were at fixed rates after taking account of interest rate swaps and swaption agreements (30 June 2004: 77%). The fair value of both interest rate and cross-currency swaps held, as of 31 December 2004, was approximately £165 million against the Group’s favour, compared to £105 million against the Group’s favour at 30 June 2004. This change is primarily due to adverse movements in foreign exchange rates.

At 31 December 2004, we had outstanding cross currency swap, interest rate swap and swaption agreements with notional principal amounts totalling £1,571 million, compared to £1,395 million at 30 June 2004. This movement reflects the new interest rate swap and swaption agreements designed to achieve a more appropriate balance between fixed and floating rate debt.

In November 2004, we entered into a £1,000 million RCF, which replaced the £600 million RCF agreed in March 2003. At 31 December 2004, no amounts were drawn down on the RCF (30 June 2004: nil). The new facility accrues interest at rates between 0.45% and 0.55% per annum above LIBOR, depending on our leverage ratio of net debt to EBITDA (as defined in the loan agreement). The current applicable margin is 0.45%, which is based on a net debt to EBITDA ratio of 1.00:1 or below. Should this ratio increase to 2.00:1, the margin would increase to 0.50%, and above 2.00:1, the margin increases to 0.55%. The ratio of net debt to EBITDA (as defined in the loan agreement) at 31 December 2004 was 0.7:1, indicating a margin of 0.45%.

To ensure continuity of funding, our policy is to ensure that available funding matures over a period of years. At 31 December 2004, 49% of our

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available funding was due to mature in more than five years (30 June 2004: 31%).

At 31 December 2004, a one percentage point movement in interest rates would result in a £4 million movement in our annual net interest expense (half year ended 31 December 2003: nil).

At 31 December 2004, our annual interest charge would be unaffected by any change to the Group’s credit rating in either direction (half year ended 31 December 2003: nil).

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 period, 13% of operating costs before goodwill amortisation (£200 million) were denominated in US dollars (half year ended 31  December 2003: 14% (£210 million)). These costs relate mainly to our long-term programming contracts with US suppliers. During the period, we managed our US dollar/pound sterling exchange risk exposure by the purchase of forward foreign exchange agreements for up to 18 months ahead. All US dollar-denominated forward foreign exchange agreements and similar financial instruments entered into by us are in respect of firm commitments only, and represent approximately 80% (30 June 2004: 80%) of US dollar denominated costs over the relevant 18 month period. At 31 December 2004, we had outstanding commitments to purchase, in aggregate, US$618 million (30 June 2004: US$705 million) at average rates of US$1.69 to £1.00 (30 June 2004: US$1.62 to £1.00). These contracts, which are individually for less than US$13 million (30 June 2004: US$13 million), are with a variety of counter-parties.

As at 31 December 2004, some £205 million (30 June 2004: £250 million) of these forward contracts are to hedge liabilities in respect of available programming and hence these liabilities are recorded on the balance sheet at the hedged rate under UK GAAP. The remaining forward contracts are to hedge future payments for programmes yet to become available and are therefore disclosed within commitments rather than being recorded within liabilities. The introduction of a new foreign exchange hedging policy from February 2005 onwards will introduce a mix of instruments in addition to foreign exchange forward agreements. It will also increase the amount of hedging of programming which has yet to become available.

Our primary Euro exposure arises as a result of revenues generated from our subscribers in Ireland, being approximately 3% of total revenue in the period (half year ended 31 December 2003: 3%). These Euro-denominated revenues are offset to a certain extent by Euro-denominated costs, relating mainly to certain transponder rentals, the net position being a Euro surplus.

No surplus Euros were exchanged for pounds sterling on currency spot markets during the period (half year ended 31 December 2003: Euro 12 million). At 31 December 2004, Euro 27 million (£19 million) has been retained to meet obligations under forward foreign exchange contracts for the purchase of Swiss francs (see below).

In fiscal 2003, we acquired the television rights to certain UEFA Champions League football matches from the 2003/04 season to the end of the 2005/06 season. Payments in respect of these rights are made

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pursuant to the contract in Swiss francs, which means that we are exposed to the Swiss franc/pound sterling exchange rate. At 31 December 2004, CHF 40 million (£18 million) of this exposure was hedged via the use of forward contracts to exchange Euros for Swiss francs.

It was our policy at 31 December 2004 that all anticipated foreign currency exposures should be substantially hedged in advance of the fiscal year in which the exposure occurs, using fixed price instruments only. The impact on the Group’s annual profit of a 10% movement in pound sterling against all currencies in which the Group has significant transactions is estimated to be a £3 million charge/credit (half year ended 31  December 2003: £2 million charge/credit) to the profit and loss account.

The accounting policies in respect of market risk sensitive instruments are disclosed in notes 1 and 21 of the Consolidated Financial Statements in our 2004 Annual Report on Form 20-F. 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 5 “Summary of Differences Between United Kingdom and United States Generally Accepted Accounting Principles”.

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ITEM 4: INTERIM FINANCIAL STATEMENTS (UK GAAP)

Consolidated Profit and Loss Account for the half year ended 31 December 2004

All results relate to continuing operations.

There were no recognised gains or losses in either period other than those included within the profit and loss account.

The accompanying notes are an integral part of this consolidated profit and loss account.

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Consolidated Balance Sheet at 31 December 2004

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 2004

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

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Notes to Financial Statements

The interim accounts for the half year ended 31 December 2004 have been prepared in accordance with accounting policies consistent with those applied in the accounts for the full year ended 30 June 2004, which were approved by the Directors on 3 August 2004. The interim accounts for the half year ended 31 December 2004 do not constitute statutory accounts and are unaudited.

The financial information for the full year ended 30 June 2004 is extracted from the financial statements for that year. The auditors’ report on those financial statements 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 assess the ongoing operating performance of the Group.

See accompanying summary of differences between United Kingdom and United States generally accepted accounting principles and supplemental guarantor information.

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