SKY - Chief Executive's Statement

In August 2004, British Sky Broadcasting Group plc ("the Company") and its subsidiaries ("the Group", "Sky") outlined a new long-term strategy to drive subscriber growth. During the year, we have focused on progressing a number of key initiatives that will deliver this plan in a highly competitive and dynamic environment.

The early signs are encouraging. During the year, we increased the total number of DTH subscribers in the UK and Ireland by 6% to 7,787,000 and more than doubled the number of subscribers to Sky⁺ and Multiroom. As at 30 June 2005, 11% of DTH households subscribed to Sky⁺ and 8% of DTH households took two or more subscriptions.

Significant growth potential
We believe the pay television ("pay-TV") sector in the UK and Ireland has significant growth potential, at only 44% penetration. In the long term, penetration levels can increase to around 80%, consistent with the development of the pay-TV market in the US. That's a further 10 million homes yet to take pay-TV services.

The hard work and commitment of the executive management team and all of Sky's employees over the last twelve months have ensured that we have made a good start towards executing Sky's long-term strategy. Both operationally and financially the Group is in a good position to continue to make progress towards its goals.

Total revenues for the year increased by 11% year-on-year to £4,048 million. Total operating costs before goodwill and exceptional items increased by 6% to £3,243 million, generating operating profit before goodwill and exceptional items of £805 million. The operating profit margin before goodwill and exceptional items increased to 20% from 16% for the comparable period. During the year, we improved our investment grade credit rating and have distributed £551 million to shareholders, through our ordinary dividend and a share buy-back programme. Profit after tax for the period grew to £425 million, generating earnings per share before goodwill and exceptional items of 29.0 pence, an increase of 58% on the comparable period.

These figures highlight the operational gearing of our business and the profitability of adding new subscribers and increasing the yield per existing subscriber. Given the attractiveness of new subscribers and the scale of the potential growth opportunity, we have concentrated on raising the rate of subscriber growth by addressing remaining barriers to consumer adoption through the launch of several initiatives. These have included the reintroduction of the Sky brand, more effective and targeted marketing, greater emphasis on increasing the range of entry points to pay-TV and continued investment in high-quality programming.

Setting the pace
Innovation is at the core of our future success, as demonstrated by new products and services launched last year, and to be launched over the coming year.

A few highlights:
In August 2005 we introduced the 'Sky Gnome', an innovative portable and wireless device that will enable customers to listen to the audio output from their favourite digital TV and radio channels throughout the home.

In September 2005, we will simplify our pricing and packaging structure to offer customers increased choice and flexibility. The current basic entertainment packages proposition will be replaced by offering new and existing customers a choice of six distinct "genre-mixes", from which they may select various combinations of basic-tier channels to create their own package. Customers will still be able to add premium sports and movies to these packages. Whilst increasing the number of available packages fivefold, the number of price points will reduce from 96 to 15.

Before the end of the 2005 calendar year, customers who subscribe to a top-tier package and have a broadband internet connection will be able to download movies 'on-demand' and enjoy Sky Sports programming through their PC free of charge. Initially planned to launch with over 200 movies, which will increase over time, customers will be able to browse movies, trailers, behind the scenes footage and reviews at any time through a readily accessible, easy to use application. From day one, over 5 million Sky Sports subscribers will have access to highlights from all their favourite sports, including Barclays Premier League and UEFA Champions League football, rugby, golf and cricket. As an added benefit, our top tier customers will also be able to receive the latest video updates from Sky News and Sky Sports News via their mobile phones.

Last October, we added Sky⁺160 to our product portfolio. Sky⁺ enables customers to pause live TV, programme a series link for their favourite series, and effectively build a personalised TV channel to watch what they want, when they want. The new Sky⁺160 offers customers around four times as much storage as the standard Sky⁺ box and has two USB connections.

At the same time, we launched a new freesat service offering consumers around 200 television and radio channels and interactive services for a one-off fee. The service provides an attractively priced option, particularly for approximately 50% of UK households who either cannot receive Freeview or who require an aerial upgrade to do so.

Following on from the success of Sky⁺, we plan to launch Europe's most comprehensive "HDTV" service in the first half of calendar year 2006. Good progress was made during the year building the required broadcast infrastructure and facilities and developing the HDTV box, which has the connectivity and flexibility to offer advanced services in the future. This service will initially include a number of high definition ("HD") channels, including sports, movies and documentaries and will offer customers an enhanced TV experience.

Must-see programming
According to viewing figures from the Broadcasters Audience Research Board ("BARB"), Sky Sports' share of viewing in UK television homes increased in the last quarter of the year by 12%, with England playing Australia in cricket's NatWest Challenge and the British and Irish Lions tour of New Zealand both achieving record audience figures. During the year, Sky concluded a number of major sports agreements including:

In addition to these, Sky Sports added coverage of equestrian events, international netball, badminton and yachting to further increase the range of programming on its dedicated channels, which now includes coverage of over 150 different sporting disciplines.

During the year, Sky made progress in the renegotiation of three major movie studio contracts, focusing on better quality, better rights and improved value. Sky Movies screens over 450 different films every week across its 11 multiplex screens, offering unrivalled choice and convenient viewing.

Named as 'News Channel of the Year' by the Royal Television Society for the fourth year running, Sky News remains the UK's leading news channel both in terms of ratings and critical acclaim. Later this year, Sky News will unveil a new on-air look and schedule when it begins broadcasting from its recently completed state-of-the-art studio complex at Sky's main campus in Osterley.

Sky One relaunched in September 2004 with a new on-air look and strong line-up of acquired and commissioned programming. The channel's commitment to offering modern, quality programming is reflected by a 3.9% increase in the share of viewing by ABC1 adults in network homes in the first half of calendar year 2005. The upcoming Autumn schedule features a strong line-up with 'Nip/Tuck' returning in a two series agreement exclusive in the UK, the second co-produced series of 'The 4400' and new US drama series 'Weeds' and 'Threshold'.

Targets
We are confident that continued execution of our strategy will deliver on our long-term growth plan. In the medium term we have established targets of achieving 10 million subscribers in 2010, with 25% taking Sky⁺ and 30% taking our Multiroom product, as well as delivering substantial and sustained profit and cash flow. We are confident that, through the initiatives set out above, we will achieve our growth targets whilst delivering substantial and sustained profit and cash flow throughout.