1st Quarter Results

BRITISH SKY BROADCASTING GROUP PLC

Unaudited results for the three months ended 30 September 2014

STRONG OPERATIONAL AND FINANCIAL PERFORMANCE CONTINUES

Good financial performance

· 6% increase in revenue1 to £1.9 billion

· 11% increase in adjusted operating profit to £316 million

· 8% increase in adjusted earnings per share to 14.1 pence

Strong demand from customers

· 760,000 new paid-for subscription products

· More than 6 million TV customers now connected

Excellent progress on new revenues

· Sky Store revenue more than doubled year on year

· Trebling of NOW TV Sports transactions year on year

· AdSmart revenues up 48% on prior quarter

Creating a world-class multinational pay TV business

· On track to complete acquisition of 100% of Sky Italia and majority of Sky Deutschland

· Shareholder and relevant regulatory approval received

Jeremy Darroch, Chief Executive, commented:

"We have made a strong start to the year. After a year of investment, we are seeing the returns coming through with good top-line growth of 6% translating into an 11% increase in profits.

"This strong financial performance was fuelled by continued operating momentum. We are seeing broad customer demand for our products whilst opening up new revenue opportunities. In all, we added 760,000 new paid-for products, 8% more than the previous quarter.

"The investments that we have made in new connected TV services are delivering growing benefits to our business. We extended our lead as the UK's largest connected TV platform, surpassing 6 million connected homes. Sky Store more than doubled its revenues and our mobile TV service Sky Go Extra achieved a record quarter of growth. The benefits are clear as connected customers watch more TV, spend more with us and are more loyal.

"Three months into the year, we are delivering against a clear strategy for growth in our existing business. At the same time, we are making good progress with our proposed acquisition of Sky Italia and a majority stake in Sky Deutschland."

1 Revenue presented here is from recurring activities. It excludes Other Revenue from the sale of set-top boxes to Sky Italia which will be eliminated on consolidation once the proposed transaction completes (2015: £5 million; 2014: £20 million) and Retail subscription revenue earned from the discontinued retailing of the ESPN channel in the prior year (2014: £6 million). Unless indicated, all commentary relates to adjusted results. Statutory results can be found in Appendix 1.

Results highlights

Customer Metrics (unaudited)

An additional KPI summary table containing further detailed disclosure may be found in Schedule 1.

1Wholesale customers taking at least one paid-for Sky channel. The customer numbers are as reported to us at August 2014.

2Quarterly annualised. Excluding revenues earned from retailing the ESPN channel.

3Quarterly annualised.

SUMMARY OF OPERATIONAL AND FINANCIAL PERFORMANCE

We have made a strong start to the year, building on the momentum of the previous quarter with good customer demand across our broad product set, healthy revenue growth from our new connected services and an excellent quarter on-screen. Financially, following last year's investment in the connected home, we are benefitting from higher revenues and good operating leverage, resulting in an 11% increase in profit and record first quarter earnings per share.

Customer growth

We added 760,000 new paid-for subscription products in the quarter, 8% more than the previous quarter, whilst adding 51,000 new retail customers to close the quarter at 11.5 million.

We saw good growth in TV where the addition of 46,000 new TV customers and record growth in Sky Go Extra helped us to add a total of 462,000 new TV products in the quarter. Meanwhile, we extended our lead as the UK's number one connected TV platform, surpassing six million connected homes. Similarly, we continued to achieve good levels of growth in our home communications business adding almost 300,000 products during the quarter. In total, 37% of our customers now take all three of TV, telephony and broadband from Sky.

ARPU grew by a further £17 to reach £576 whilst churn remained stable year on year at 11.0%.

Content

Sky Sports had a very strong quarter with the successful launch of Sky Sports 5, our dedicated European football channel, and with viewing to Sky Sports News HQ up 10% year on year. Usage of our newly-enhanced digital offering hit record levels in August, with more than 34 million users to our sports websites or apps and a fivefold increase in On Demand downloads for sport.

The standout event of the period was the 2014 Ryder Cup, exclusive to Sky Sports and with us providing over 330 hours of programming including 36 hours of live coverage from Gleneagles. Our dedicated Sky Sports Ryder Cup channel broke previous viewing records, being watched by 4.1 million individuals. During the final day's play, Sky Sports Ryder Cup was the single most watched channel in all TV homes. Digital consumption was up 63% on the previous Ryder Cup with over 5 million viewers accessing our web content and mobile apps.

Gleneagles 2014 was the tenth Ryder Cup to be broadcast live on Sky Sports, which has already secured the exclusive rights to the next two contests.

In Entertainment, we continue to bring new and exclusive programmes to our customers. On Sky Atlantic we launched hit HBO drama The Leftovers to critical acclaim and record download figures. On Sky 1, the BAFTA award-winning A League of Their Own returned with its highest audience for three years and we brought new talent to the screen with factual entertainment series 50 Ways to Kill Your Mammy, which has been watched by over 3 million viewers to date. Mount Pleasant delivered its highest rating episode ever on Sky Living as it returned for its fourth series.

We secured the rights to major new US dramas The Flash and Stalker, whilst we continued our commitment to original drama production with the announcement of two major new series for 2015. The Enfield Haunting will star Timothy Spall and Matthew MacFadyen and The Last Panthers, a co-production with CANAL+ in association with Sky Deutschland, will star Samantha Morton, Tahar Rahim and John Hurt. During the quarter, we also announced that the rights to Sky Atlantic's highly anticipated drama Fortitude, starring Stanley Tucci, Sofie Gråbøl, Christopher Ecclestone and Michael Gambon, have already been pre-sold to broadcasters in 10 countries in advance of its premiere in early 2015.

Connected TV services

As well as extending our lead as the UK's largest connected TV platform, we have continued to see growing usage to all of our connected services. The number of On Demand downloads more than trebled to 257 million in the quarter with the breadth and depth of series available through the TV Box Sets service proving particularly popular. We now offer access to more than 300 box sets at any time and, during the quarter, five series including Prison Break, True Blood and The West Wing each achieved more than 2 million views in one month for the first time.

We are also seeing a rapidly growing customer appetite to watch content across multiple devices, in and out of the home. Sky Go further cemented its credentials as the leading mobile TV service with a 17% increase in registered households and the addition of five new channels including E! and Home, bringing the total number of live streamed channels to 68.

NOW TV had another strong quarter. During the period, the service launched on Chromecast, Xbox ONE and PS4 bringing the total number of devices on which it is available to more than 50. We added a new weekly Sports pass alongside the existing options and this helped to drive a trebling in the number of Sports transactions year-on-year.

As our connected box platform scales successfully, we are opening up attractive new revenue streams. Sky Store, our movie rental and purchase service, increased revenues by 125% driven by the success of titles including Noah, Non-Stop andCaptain America: The Winter Soldier. Buy & Keep has got off to a strong start, regularly achieving the number one or number two position among digital retailers for sales of new release titles such as The Lego Movie and Bad Neighbours.

Sky AdSmart continues to grow with more than 325 brands having run 720 individual campaigns by the end of September. We believe that it is growing the overall TV advertising market with 77% of advertisers to date either entirely new to TV or advertising for the first time with Sky Media. We are rolling out additional feature sets later this year allowing clients to use their own customer data and run even more locally focused campaigns.

DETAILED FINANCIAL PERFORMANCE

We have made a strong start to the financial year. Our broad based growth strategy has driven good adjusted revenue growth of 6% whilst another excellent performance on cost has allowed us to invest more on screen whilst simultaneously expanding adjusted operating margin by 70 basis points. We were pleased with an 11% growth in operating profit as we built on the momentum established in Q4, with basic earnings per share up 8%.

Statutory profit for the period substantially exceeds that on an adjusted basis due to a number of adjusting items, the most significant of which relate to the proposed acquisition of Sky Italia and the majority of Sky Deutschland. The largest of these is the £429 million gain on the sale of a 6.4% stake in ITV whilst exceptional costs include advisory and transaction fees and finance costs relating to the acquisitions.

Upon completion of the proposed transaction, revenue from the sale of set-top boxes to Sky Italia will be eliminated on consolidation and we have accordingly presented our adjusted revenue on this basis. We have also eliminated the impact of ESPN revenue from prior year as we no longer retail the channel. Unless otherwise stated, all figures and growth rates below exclude these and other adjusting items.

Revenue

Group revenue increased by 6% to £1,926 million (2014: £1,817 million) with good growth across our retail and commercial businesses.

Retail subscription revenue grew by 4% to £1,592 million (2014: £1,525 million) reflecting strong product and customer growth, the benefit of one month's price rise in September and a growing contribution from transactional revenue with Sky Store revenue up 125%. Wholesale revenue was up 9% to £105 million (2014: £96 million) benefitting from recent carriage renewals. Advertising revenues grew 6% to £108 million (2014: £102 million) due to increasing market share and a first time contribution from AdSmart.

Other revenue was 24% higher at £94 million (2014: £76 million) due to good growth in Sky Bet which saw revenue up more than 60% to £56 million driven by activity around the World Cup, and Sky Vision, which included the first time consolidation of Love Productions.

Costs

We delivered another excellent performance on costs, making clear efficiencies and savings within operating costs enabling us to make additional investment in programming, up 9%, whilst simultaneously expanding our operating margin by 70 basis points. Marketing and transmission costs were each down year on year in absolute terms.

Programming costs were £677 million (2014: £622 million) reflecting continued investment in our entertainment channels, the cost of the 2014 Ryder Cup and the first full quarter impact of the new ITV Encore pay channel.

Significant efficiencies, a greater proportion of unbundled lines and the benefit of scale enabled us to serve a customer base that is 9% larger than a year ago with only a modest 5% increase in direct network costs.

Administration costs were up 13% to £144 million (2014: £127 million) due to the strong revenue growth in Sky Bet and the IFRS2 accounting phasing for our share incentive plans. Depreciation decreased by £6 million to £101 million (2014: £107 million).

Earnings

Adjusted profit before tax was £297 million (2014: £263 million) which included the Group's share of joint ventures and associates' profits of £14 million (2014: £8 million). Tax of £64 million (2014: £58 million), at an effective rate of 21.5%, meant that adjusted profit after tax for the period was £233 million (2014: £205 million). After taking into account the higher share count as a result of the July 2014 placing, adjusted basic earnings per share were up 8% to 14.1 pence (2014: 13.0 pence).

The number of shares at the end of the period, excluding those held by the Employee Share Option Plan ('ESOP') for the settlement of employee share awards, was 1,702 million. The weighted average number of shares in the quarter was 1,650 million and our expectation for the full year weighted average number of shares is 1,690 million.

Adjusting items

Statutory operating profit of £293 million (2014: £270 million) includes a net exceptional cost of £23 million (2014: £15 million) which reflects the amortisation of O2 acquired intangible assets and advisory fees in relation to the proposed transaction. The advisory fees include financial advisory costs, corporate legal advice, due diligence reporting, assurance services and tax advice.

Statutory profit after tax of £608 million (2014: £193 million) includes a £375 million net gain. This is primarily due to a £429 million gain on the sale of the 6.4% stake in ITV, partially offset by costs relating to credit facilities, as well as the tax effect on all adjusting items. Full details are set out in Appendix 2.

Cash flow and financial position

As at 30 September 2014, we had a net cash position of £298 million (30 September 2013: net debt of £1.6 billion) comprising gross debt of £5.8 billion (30 September 2013: £2.6 billion) with £6.1 billion (30 September 2013: £1.0 billion) of cash, cash equivalents and short-term deposits. This reflected the £3.25 billion bond issuance, the equity placing and the proceeds from the sale of our 6.4% stake in ITV in July. On a pro-forma basis, assuming we had acquired Sky Italia and 57.4% of Sky Deutschland for a cash outflow of £5.1 billion and accounting for £340 million for the 2014 final dividend, net debt would be £5.3 billion (including consolidation of Sky Deutschland's debt).

Corporate

On 25 July 2014, the Company announced that it had entered into agreements with 21st Century Fox ("21CF") to acquire 21CF's 100% stake in Sky Italia srl and its 57.4% stake (on a fully diluted basis) in Sky Deutschland AG. Subsequently, the Company launched a public offer for the balance of the shares in Sky Deutschland not owned by 21CF. The agreements with 21CF and the public offer were subject to various conditions including, inter alia, approval by the Company's independent shareholders and various regulatory approvals.

The Company has received unconditional approval of the transaction from the European Commission, as well as approval from all relevant competition and media authorities. The Company's independent shareholders have also granted their approval, with 96% of votes cast in favour.

The public offer for Sky Deutschland is now unconditional in all respects, following the expiry of the initial acceptance period on 15 October 2014. In accordance with German takeover requirements, the offer will remain open for further acceptances during an additional period which is expected to commence on 21 October 2014 and end on 3 November 2014.

The Company expects to close the transaction in mid November 2014.

Enquiries:

A conference call for UK and European analysts and investors will be held at 8.30 a.m. (BST) today. Participants must register by contacting Felicity Marshall on +44 20 7251 3801 or at [email protected].

There will be a separate conference call for US analysts and investors at 10.00 a.m. (EDT) today. Details of this call have been sent to US institutions and can be obtained from Dana Diver at Taylor Rafferty on +1 212 889 4350. Alternatively you may register online at: http://invite.taylor-rafferty.com/_bskyb/2013Q2CC/Default.htm.

The live conference calls of the UK and US calls will be available to analysts and investors via the BSkyB website at http://www.sky.com/corporate. Replays will be subsequently available.

Schedule 1 - KPI Summary

1 Calculations have been restated to exclude revenue earned from retailing the ESPN channel.

Use of measures not defined under IFRS

This press release contains certain information on the Group's financial position, results and cash flows that have been derived from measures calculated in accordance with IFRS. This information should not be read in isolation from the related IFRS measures.

Forward looking statements

This document contains certain forward looking statements with respect to the Group's financial condition, results of operations and business, and our strategy, plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and projections, such as forecasts, expectations and projections in relation to new products and services, the potential for growth of free-to-air and pay television, fixed line telephony, broadband and bandwidth requirements, advertising growth, DTH and OTT customer growth, Multiscreen, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+, Sky+HD and other services penetration, revenue, administration costs and other costs, advertising growth, churn, profit, cash flow, products and our broadband network footprint, content, wholesale, marketing and capital expenditure and proposals for returning capital to shareholders.

Although the Company believes that the expectations reflected in such forward looking statements are reasonable, these statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or implied or forecast in the forward looking statements. Information on the significant risks and uncertainties are described in the "Principal risks and uncertainties" section of Sky's Annual Report for the full year ended 30 June 2013 (as updated in Sky's results for the six months ended 31 December 2013). Copies of the Annual Report and 31 December 2013 results are available from the British Sky Broadcasting Group plc web page at www.sky.com/corporate.

All forward looking statements in this document are based on information known to the Group on the date hereof. 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.

Glossary of Terms

A glossary of terms is included within the Annual Report. Copies of the Annual Report are available from the British Sky Broadcasting Group plc web page at www.sky.com/corporate and in hard copy from the Company Secretary, British Sky Broadcasting Group plc, Grant Way, Isleworth, Middlesex TW7 5QD.

Appendix 1 - Consolidated Financial Information

Notes:

1 Revenue

2 Operating expense

3 Earnings per share

The weighted average number of shares for the period was:

Basic and diluted earnings per share are calculated by dividing profit for the period into the weighted average number of shares for the period. In order to provide a measure of underlying performance, management have chosen to present an adjusted profit for the period which excludes items that may distort comparability. Such items arise from events or transactions that fall within the ordinary activities of the Group but which management believes should be separately identified to help explain underlying performance.

3 Earnings per share (continued)

Exceptional costs incurred on the proposed purchase of Sky Italia and Sky Deutschland include advisory and transaction fees of £17 million and finance costs of £10 million. The advisory and transaction fees include, inter alia, financial advisory costs, corporate legal advice, due diligence reporting, assurance services and tax advice. Finance costs relate to the upfront underwriting and arrangement fees incurred in connection with £6.6 billion of firm underwritten debt facilities which the Company entered into in order to fund the cash consideration payable for Sky Italia and Sky Deutschland, the refinancing of existing debt and expenses incurred in relation to the acquisitions.

Amortisation of acquired intangible assets of £6 million in the period principally relates to customer contracts and related customer relationships arising on the Group's acquisition of the O2 consumer broadband and fixed-line telephony business.

On 17 July 2014, the Group sold a shareholding of approximately 6.4% in ITV plc, consisting of 259,820,065 ITV shares for an aggregate consideration of approximately £481 million. A profit of £429 million was realised on disposal, being the excess of the consideration above the previously written-down value of the shares for accounting purposes (£52 million).

Appendix 2 - Non-GAAP measures

Consolidated Income Statement - reconciliation of statutory and adjusted numbers

Notes: explanation of adjusting items for the period ended 30 September 2014

B. Advisory and transaction fees of £17 million incurred on the proposed purchase of Sky Italia and Sky Deutschland and amortisation of acquired intangible assets of £6 million principally arising on the acquisition of the O2 consumer broadband and fixed-line telephony business.

C. Finance costs of £10 million incurred in connection with £6.6 billion of firm underwritten debt facilities relating to the proposed purchase of Sky Italia and Sky Deutschland and costs of £29 million relating to the remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge ineffectiveness.

D. Profit on the sale of a shareholding of approximately 6.4% in ITV.

E. Tax effect of adjusting items.

Notes: explanation of adjusting items for the period ended 30 September 2013

A. Costs of £9 million relating to the integration of the O2 consumer broadband and fixed-line telephony business.

B. Amortisation of acquired intangible assets.

C. Remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge ineffectiveness.

E. Tax effect of adjusting items.