In July 2003, the Financial Services Authority issued the revised code on Corporate Governance (the “Combined Code”). The Combined Code will apply to companies for reporting years beginning on or after 1 November 2003, and therefore in relation to the Company from the financial year ending 30 June 2005. Accordingly, this report explains the Company’s compliance with the provisions set out in Section 1 of the Combined Code on Corporate Governance issued by the Hampel Committee in June 1998 (the “Hampel Code”).

The Company is committed to high standards of corporate governance and, except as noted below, has complied throughout the year with the best practice provisions of the Hampel Code.

The Board
The Board currently comprises fourteen Directors, made up of two Executive Directors and twelve Non-Executive Directors, eight of whom are determined to be independent under the provisions of the Hampel Code and seven under the provisions of the Combined Code. The Non-Executive Directors of the Company bring a wide range of experience and expertise to the Company’s affairs, and they carry significant weight in the Board’s decisions. Short biographies of each of the Directors are set out on pages 26 to 27, which also clearly identify those Directors who are, in the view of the Board, independent within the meaning of the Combined Code.

The roles of the Chairman, Rupert Murdoch, and CEO, James Murdoch, are separate and have been since the Company obtained its listing in 1994. Lord St John of Fawsley held the position of Senior Independent Non-Executive Director of the Company until 17 November 2003, when he was replaced in this position by Lord Rothschild.

The Board is scheduled to meet at least six times a year to review appropriate strategic, operational and financial matters as required. A schedule of matters reserved for the full Board’s approval is in place, which includes, inter alia, the approval of annual and interim results, dividend policy, significant transactions, agreements or arrangements between the Group and related parties, including members of The News Corporation Limited group (“News Corporation group”).

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

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

Board Committees
Remuneration Committee
The Remuneration Committee, on behalf of the Board, is responsible for recommending to the Board the key terms of employment of Senior Executives of the Group whose base salary exceeds £250,000 per annum, other than key production personnel or on-air talent and reviewing the design and structure of the Group’s package of employee incentives. The Remuneration Committee has clearly defined terms of reference, meets at least twice a year, and takes advice from the CEO and independent consultants as appropriate in carrying out its work. The Remuneration Committee currently comprises three Independent Non Executive Directors.

The Board noted that, for the majority of the year, the composition of the Remuneration Committee did not comply with the Hampel Code, which states that all members of the Remuneration Committee must be Independent Non-Executive Directors. The Board considered that David DeVoe and Rupert Murdoch, along with the other members of the Remuneration Committee, provided a valuable contribution to the Remuneration Committee. On 15 June 2004, Rupert Murdoch and David DeVoe resigned as members of the Remuneration Committee and Nicholas Ferguson was appointed as a member. The members of the Remuneration Committee are Jacques Nasser (Chairman), David Evans and Nicholas Ferguson, all of whom are Independent Non-Executive Directors, in compliance with the Combined Code.

The Report on Directors’ Remuneration can be found on pages 32 to 40. In accordance with the Directors’ Remuneration Report Regulations 2002, the Report on Directors’ Remuneration will be put forward for an advisory shareholder vote at the AGM.

Audit Committee
The Audit Committee, which consists exclusively of Non-Executive Directors, has clearly defined terms of reference as laid out by the Board. Philip Bowman, who had been Chairman of the Audit Committee since March 1995, resigned as a Director and consequently as a member of the Audit Committee on 14 November 2003. Following Philip Bowman’s resignation, the composition of the Audit Committee did not comply with the provisions of the Hampel Code, which states that there must be a majority of Independent Non-Executive Directors on the Audit Committee. On Philip Bowman’s resignation, the Board started a process to recruit a further Independent Non-Executive Director with sufficient financial experience to replace Philip Bowman. The Company has announced that Andy Higginson will join the Board on 1 September 2004, and will also become a member of the Audit Committee, as of that date. On 15 June 2004, David DeVoe and Arthur Siskind resigned from the Audit Committee. The composition of the Audit Committee is currently Allan Leighton (Chairman) and Gail Rebuck. This does not comply with the Hampel Code, which requires there to be a minimum of three Directors on the Audit Committee, the majority of whom have to be independent, but the Company will be in compliance with the Combined Code from 1 September 2004. The Audit Committee meets at least five times a year. Its duties include making recommendations to the Board in relation to the appointment, reappointment and removal of the external auditors, and discussing with the external auditors the nature, scope and fees for the external auditors’ work. The Audit Committee reviews, and recommends to the Board the approval of or any amendment to, the quarterly, half year and annual financial statements of the Group, and also reviews the Company's Annual Report on Form 20-F prior to its filing, and the Group's significant accounting principles, systems of internal control, treasury policies and reviews the audit plans and findings of the Group's internal audit function. The Audit Committee also monitors the Group's whistleblowing policy and is responsible for approving non-audit services provided by Deloitte & Touche LLP. The Audit Committee has the power to seek external advice as and when required.

News UK Nominees Limited, a subsidiary of News Corporation, is a major shareholder in the Group, holding over 35.3% of the issued share capital. The Audit Committee receives, on a quarterly basis, a schedule of all transactions between companies within the News Corporation group and the Group and any other related party transactions, showing cumulatively all transactions which have been entered into during the year, and which exceed £100,000 in value.

Furthermore, Audit Committee approval is required for the entering into by the Group of a commitment or arrangement (or any series of related commitments or arrangements) with News Corporation or any of its subsidiaries, or any other related party which involves or could reasonably involve the payment or receipt by the Group of amounts equal to or in excess of £10 million, but not exceeding £25 million in aggregate value with News Corporation. Any transaction in excess of £25 million in aggregate value must be submitted to the Audit Committee and, if approved by the Audit Committee, it must also be submitted to the Board for approval.

Corporate Governance & Nominations Committee
On 15 June 2004, the Nominations Committee was merged with the Corporate Governance Committee to become the Corporate Governance & Nominations Committee. The Committee is chaired by Lord Wilson of Dinton and its members are Lord Rothschild and Arthur Siskind. Lord St John of Fawsley stepped down from the Committee on 15 June 2004 and John Thornton resigned from the then Nominations Committee following his resignation as a Director of the Company on 11 May 2004.

During the year, the following processes were followed by the Corporate Governance & Nominations Committee in its nomination of Directors to the Board.

On 23 September 2003, the Company announced that Tony Ball, CEO of the Group, would not be renewing his service agreement on its expiry on 31 May 2004. The Nominations Committee, chaired by Lord St John of Fawsley, was tasked by the Board to find a suitable replacement for Tony Ball. Gail Rebuck and Allan Leighton were asked to assist the Nominations Committee in this process. An Executive Search Consultant, Spencer Stuart, was retained by the Nominations Committee to aid in the search process. An extensive list of candidates was put together by Spencer Stuart, which was then reduced to a shortlist, all of whom were interviewed by all members of the Board involved in the process. This resulted in the Nominations Committee unanimously recommending to the Board the appointment of James Murdoch as CEO.

During this period, the Nominations Committee met with various shareholders and shareholder bodies to advise them on the selection process. As a result of the comments received from those shareholders, the Nominations Committee considered it appropriate to nominate a further senior figure to the Board and recommended the appointment of Lord Rothschild, who was nominated to the Board and appointed as Deputy Chairman and Senior Independent Director on 17 November 2003.

During the year, the Nominations Committee also commenced searches to find replacements for Philip Bowman and John Thornton who resigned during the course of the year. Spencer Stuart were again asked to assist in the process and a number of candidates were identified. The Nominations Committee was assisted in this search by Allan Leighton, Gail Rebuck, Lord Wilson of Dinton, Lord Rothschild and Arthur Siskind. The Nominations Committee was mindful of appointing a Director with relevant financial experience who could also be appointed as a member of the Audit Committee and a further Independent Non-Executive Director. As a result, the Nominations Committee identified and unanimously recommended to the Board the appointment of Andy Higginson and Nicholas Ferguson as additional Independent Non-Executive Directors.

Appointment and resignation of Directors
Lord Rothschild was appointed to the Board as Deputy Chairman on 17 November 2003. Nicholas Ferguson was appointed to the Board on 15 June 2004. The Company has announced that Jeremy Darroch will join the Board on 16 August 2004, as CFO. The Company has announced that Andy Higginson will join the Board on 1 September 2004.

Tony Ball resigned from the Board on 4 November 2003. Philip Bowman resigned from the Board on 14 November 2003. John Thornton resigned from the Board on 11 May 2004. The Company has announced that Martin Stewart will resign from the Board on 4 August 2004.

Corporate Governance Review
On 14 November 2003, the Company announced that it had formed an ad-hoc Committee of the Board (the “Corporate Governance Committee”) to review all of the relevant codes and statutory obligations and to identify any appropriate changes to make to the processes of the Board and the composition of its Committees. The Corporate Governance Committee members comprised Lord Wilson of Dinton as Chairman, Lord Rothschild and Arthur Siskind.

The Corporate Governance Committee’s approach was to undertake an analysis of the Combined Code, as well as the relevant Securities & Exchange Commission (“SEC”) and New York Stock Exchange (“NYSE”) rules applicable to the Company, and to identify where the Company’s own structure and practices varied from them. The Corporate Governance Committee sought to bring the Company’s structure and practices into line with all the rules with which the Company will be bound to comply, including the provisions of the Combined Code.

The Corporate Governance Committee recommended to the Board the adoption of all of the Combined Code’s provisions. In the case of code provision A.7.2, which requires that Directors who have been serving on the Board for more than nine years should retire and stand for re-election at each AGM, the Corporate Governance Committee recommended that this provision should apply only from expiry of the current term of office that each Director is serving as approved by shareholders in general meeting.

The Corporate Governance Committee also recommended that the composition of the Board’s Committees should comply with the relevant provisions of the Combined Code and recommended changes to the composition of the Audit and Remuneration Committees as discussed earlier in this report. Furthermore, they recommended that the Corporate Governance Committee should be merged with the Nominations Committee to form the Corporate Governance & Nominations Committee. These changes ensure that going forward, the composition of the Remuneration and Corporate Governance & Nominations Committees will comply with the provisions of the Combined Code, and the composition of the Audit Committee will be in compliance from 1 September 2004, following the appointment of Andy Higginson.

The Corporate Governance Committee recommended that David DeVoe and Arthur Siskind should have a standing invitation to attend meetings of the Audit Committee and that Rupert Murdoch and David DeVoe should have a standing invitation to attend meetings of the Remuneration Committee. In both of these instances, their attendance at these meetings shall be as observers only and in a non-voting capacity.

Under the Combined Code, the criteria to determine whether or not a Director is independent have changed from those under the Hampel Code. In light of the new criteria, the Board has determined that Lord St John of Fawsley, whilst independent under the Hampel Code, will not be independent under the Combined Code.

Communication with Shareholders
The Company is keen to maintain a dialogue with institutional shareholders in order to ensure that the objectives of both the Company and the shareholders are understood. A programme of meetings with institutional shareholders, fund managers and analysts takes place each year. The Company also makes presentations to analysts and fund managers following the half year and full year results of the Company.

The Board views the AGM as an opportunity to communicate with private investors and sets aside time at these meetings for shareholders to ask questions of the Board. All members of the Board are encouraged to attend the meeting. John Thornton, then Chairman of the Remuneration Committee, was unable to attend the 2003 AGM due to unforeseen business commitments. Mr Thornton resigned as a Director of the Company on 11 May 2004. All other members of the Remuneration Committee attended the AGM, and were available to answer shareholder questions. At the AGM, the Chairman provides a brief resumé of the Company’s activities for the previous year to the shareholders. The Company, in accordance with the Hampel Code, announces the number of proxy votes cast on resolutions at the AGM.

Directors’ responsibilities
The responsibilities of the Directors are set out on page 41.

Internal control
The Directors have overall responsibility for establishing and maintaining the Group’s systems of internal control and risk management and for reviewing their effectiveness. These systems are designed to manage, and where possible eliminate, the risk of failure to achieve business objectives and to provide reasonable but not absolute assurance against material misstatement or loss. An ongoing process for identifying, evaluating and managing the significant risks faced by the Group has been established, in accordance with the guidance of the Turnbull Committee on internal control issued in September 1999. This process has been in place for the whole of the year ended 30 June 2004 and up to the date on which the financial statements were approved.

The Audit Committee, on behalf of the Board, considers the effectiveness of the operation of the Group’s systems of internal control and risk management during the year and this review has been carried out for the year ended 30 June 2004 and up to the date on which the financial statements were approved. This review relates to the Company and its subsidiaries and does not extend to joint ventures. The Audit Committee meets on at least a quarterly basis with the Group’s internal audit team and the external auditors.

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

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

During the year, KPMG reviewed the effectiveness of the Group’s Audit and Risk Management Department.

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

– those services which the auditors are prohibited from providing;
– those services which are acceptable for the auditors to provide and the provision of which has been pre-approved by the Audit Committee; and
– those services for which the specific approval of the Audit Committee is required before the auditors are permitted to provide the service.

The policy defines the types of services falling under each category and sets out the criteria which need to be met and the internal approval mechanisms required to be completed prior to any engagement. An analysis of all services provided by the external auditors is reviewed by the Audit Committee on a quarterly basis.

For the year ended 30 June 2004, the Audit Committee has discussed the matter of audit independence with Deloitte & Touche LLP, the Group’s external auditors, and has received and reviewed confirmation in writing that, in Deloitte & Touche LLP’s professional judgement, Deloitte & Touche LLP is independent within the meaning of regulatory and professional requirements and the objectivity of the audit engagement partner and audit staff is not impaired.