Results for the twelve months ended 30 June 2011

BRITISH SKY BROADCASTING GROUP PLC

Results for the twelve months ended 30 June 2011

AN EXCELLENT YEAR FOR CUSTOMERS AND SHAREHOLDERS

Strong customer and product growth in a challenging environment

·; Total product growth of 784,000 in the quarter to 25.4 million, up 17% year on year

·; 10.3 million customers with net growth of 40,000 TV customers (DTH) and 31,000 standalone home communications customers in the quarter; 426,000 in the year

·; Sky+HD customers reach 3.8 million, up 30% year on year

·; Strong growth in all home communications product lines with 2.4 million net additions in the year

·; Good growth in other business operations with double digit revenue growth in wholesale and advertising

Excellent financial performance

·; 16% growth in total revenue to £6.597 billion

·; 19% growth in adjusted EBITDA to £1.405 billion

·; 23% growth in adjusted operating profit to £1.073 billion

·; 30% increase in adjusted basic earnings per share to 41.6 pence

·; 51% growth in adjusted free cash flow to £869 million

Substantial shareholder returns

·; 20% increase in full year dividend to 23.28 pence per share

·; Final dividend of 14.54 pence; total cash payment of £253 million

·; £750 million capital return to shareholders via a share buy-back

·; News Corporation agree to participate pro rata

Results highlights

Customer Metrics (unaudited)

Business Performance (1) (unaudited)

Analysis of Results (1)

1All comparatives are restated to reflect continuing operations, excluding the Easynet operations divested on 1 September 2010. A reconciliation of adjusted operating profit and adjusted EBITDA from continuing operations to reported measures and cash generated from continuing operations to adjusted free cash flow from continuing operations is set out in Appendix 3.

2Adjusted basic EPS is calculated from adjusted profit from continuing operations for the year. A reconciliation of reported profit from continuing operations to adjusted profit from continuing operations is set out in note 8 to the consolidated financial information.

James Murdoch, Chairman, commented:

"This has been a year of outstanding operational and financial results for Sky. It is to the credit of Sky's first-class management team that the company has continued to deliver throughout the offer period that ended earlier this month. On behalf of the whole Board, I am grateful to Nick Ferguson for his contribution as Deputy Chairman during the last year and I am pleased that he has agreed to continue in that role. We are pleased to announce both a 20% increase in the ordinary dividend and our intention to return £750 million to shareholders through a share buy-back programme."

Jeremy Darroch, Chief Executive, commented:

"Sky has had an excellent year of delivery for both customers and shareholders. We have stayed focused on executing our plan and customers have responded by rewarding us with more of their business. Today's announcement of a capital returns programme is a reflection of our strong performance and financial position, which flow directly from delivering for customers in the marketplace. With that in mind, we will stay focused on getting better on screen, innovating faster and delivering great value.

"In the fourth quarter, the business has delivered another strong operational and financial performance despite the challenging economic backdrop. Across the year as a whole, our growth has been broadly based, with double-digit increases in retail and business-to-business revenue and almost four million product sales across television and home communications. Combined with our focus on operational efficiency, this performance has led to excellent financial results, including 23% growth in operating profit, record earnings of 41.6p per share and 51% growth in free cash flow.

"While Sky is not immune to tougher economic conditions, we have continued to see good demand across our product portfolio as customers respond to the great quality and value that we offer. The performance in home communications was particularly strong as we continue to grow all product lines. Over the year, we increased the number of customers taking all three of TV, broadband and telephony by 37% and extended our potential reach by selling home communications products independently from television for the first time. We now have over 100,000 customers taking standalone broadband and telephony products and we see plenty of scope for continued growth.

"A key factor in our performance is the bringing together of content and innovation to create an experience that customers are willing to pay for. In an outstanding year on-screen, we have launched Sky Atlantic HD and Sky Living HD, while extending our leadership in high definition and 3D. Alongside great content, we are offering customers a better viewing experience with our full video on demand service, Sky Anytime+. Also, following the launch of Sky Go this month, all customers can now watch live TV on the move as part of their subscription.

"With a consistent strategy and a clear set of priorities, we are well positioned for the opportunities ahead as we enter the new financial year. While we expect the environment to remain challenging, we will continue to pursue a balanced approach to growth and returns, based on sensible investment in areas of long-term advantage and a strong focus on operational efficiency."

OPERATIONAL REVIEW

The business continues to perform well in what remains a challenging consumer environment. We delivered good growth across our portfolio of products, achieving total product growth of 784,000 for the quarter to 30 June 2011 ("the quarter") and reaching a total product base of 25.4 million, an increase of 17% year on year.

At the same time, we continue to make progress in areas of long-term advantage, developing our on-screen offering and innovating to add value for customers. Our channel portfolio has been enhanced with the launch of Sky Atlantic HD and Sky Living HD and the quality of our content was recognised with six BAFTA nominations. Since full launch in April, our video on demand service, Sky Anytime+, has made a strong start with over 800,000 enabled users and the launch of Sky Go this month gives all of our TV customers the opportunity to watch Sky content on multiple devices at no extra cost.

Operational Performance

We have continued to deliver value for customers and, at a time when household budgets are under pressure, our success in home communications shows that customers are responding. In addition, we have recently announced a price freeze for existing customers across our television and home communications packages until at least September 2012. The actions taken on costs and our progress made in improving operational efficiency right across the business have given us the flexibility to do this for customers at the right time in the economic cycle.

Our approach to costs has allowed us to deploy more capital in areas where our customers see most benefit. For example, by making our online support environment more intuitive and accessible, we've driven a step change in online traffic, reducing telephone contacts and freeing time for contact centre advisors to deal with more complex customer issues. That focus has resulted in fewer customer calls despite a growing customer and product base while reducing cost and improving customer satisfaction. Savings from call reduction are being redeployed to grow our on-shore capability, enabling us to manage more customer service queries in new contact centres such as those recently opened in Stockport, Sheffield and the soon-to-open Newcastle hub.

Our single-minded customer focus is generating strong operational results. TV additions for the quarter were 40,000, bringing the total TV base to 10.187 million. Within this loyalty remained stable with churn of 10.4% in the quarter and ARPU increased 6% to £539, benefiting from a higher penetration of additional products. ARPU was £5 lower than the previous quarter largely due to the unwinding of a VAT benefit as a result of a reduction in the frequency of our customer magazine.

While product growth was broadly based, home communications performed particularly well as more customers saved money by switching their services to Sky. Net product additions across broadband, telephony and line rental increased to 595,000 in the quarter, 27% higher than the prior year. Within that, our standalone home communications products have made good progress as we look to further leverage our fixed cost network and grow our addressable customer base. Given the scale and fixed cost nature of communications products, the contribution margin we make on the standalone service is, in some cases, higher than that on similar revenues derived from TV packages. We currently have 107,000 standalone home communications customers and, in total, we added over 420,000 new households in the year. In future, it is this measure - total customers - that we will focus on in our reporting.

Our strong performance in home communications means the number of customers choosing each of television, broadband and talk has grown by 37% on last year to 2.8 million customers, representing 27% penetration of the base.

We have continued to extend our broadband network coverage, unbundling 385 additional exchanges in the year, increasing our footprint to around 80% of households in the UK. At the same time, we are improving the economics of our home communications business by migrating more customers to our own network. We now have 1.7 million fully unbundled customers, 51% of our broadband base.

We closed the quarter with more than 3.8 million high definition (HD) customers, an increase of 30% on last year. In the context of exceptionally strong growth in the prior year following the reduction in the price of the HD box and the FIFA World Cup, net quarterly additions were lower than the prior year at 136,000. As penetration of HD-ready sets increases and our HD content offering continues to grow, we see a significant opportunity to continue adding HD customers.

Content

All of our channels have performed well in the quarter, and with our increased investment in UK drama and comedy now reaching the screen, we have a strong second half of 2011 ahead.

Our new channel Sky Atlantic HD has performed strongly since launch in February with the standout show in the quarter being 'Game of Thrones' which reached 4.4 million viewers in its first season. Sky 1 delivered another good quarter with a strong performance from our UK commissioned drama, 'The Runaway'. We will build on this success with our forthcoming new slate of UK comedy this month with 'Trollied' starring Jane Horrocks and continuing with 'Stella' from Ruth Jones later in the year. Alongside these shows, we will also be showing some of the best US content including the third season of the newly-acquired 'Glee' in the autumn, and the new sci-fi action series 'Terra Nova' from Steven Spielberg. Sky Living continues to perform well, with one in five Sky customers now rating the channel amongst their favourites. The former Sky 1 series, 'Bones' has made a successful transition to the channel and other popular series such as 'Grey's Anatomy' and 'Criminal Minds' have also attracted significantly higher audiences compared to last year.

Sky Sports achieved record audiences for last season's Premier League, with an average audience of 1.4 million viewers per game, 11% higher than last year. Sky Sports also received record audiences for the US Open Golf and we saw an excellent response to our coverage of The Masters. Customers will enjoy even more great content from Sky Sports as we are announcing today a new seven year deal for rights to broadcast Formula 1. From March 2012, Sky will be the only place to see all the races, with at least half those being exclusively live on Sky. We will also show live qualifying and practice sessions and extensive pre and post-race coverage, all in HD. Sky subscribers with Sky Sports will also be able to watch live coverage online and on mobiles and tablets.

We continue to make good progress in 3D, with our Sky 3D channel winning a BAFTA award for Sir David Attenborough's 'Flying Monsters', the first 3D programme ever to win a BAFTA award. Sky 3D also achieved another first when it screened Matthew Bourne's production of 'Swan Lake' in conjunction with Sky Arts, the first full-length ballet to be shown in 3D. To support and facilitate further innovation and development of 3D content we are today announcing the formation of a new production company with Atlantic Productions, the producers of 'Flying Monsters', to develop original 3D programming for UK and international audiences.

Looking ahead, we will continue to invest in our content proposition, giving more people reasons to choose Sky. In line with this strategy, we have announced plans to increase our investment in UK originated content and production by more than 50% to £600 million in 2014. This will include weekly, original British comedy in 2011, a threefold increase in hours of original British drama and a tripling of our arts programming budget.

Last month we achieved a significant milestone with the opening of our new broadcast facility, Sky Studios. Sky Sports News has begun broadcasting from the state-of-the-art facility which houses space for eight studios as well as editing and post-production facilities.

Innovation

We continue to innovate to add value for customers.

Sky Go launched in July for all customers and means they can access Sky content on multiple devices at no extra cost. This will provide more flexibility and convenience for customers to watch live TV on the move via PCs, laptops, Macs, iPhones and iPads. Customers can register up to two devices for Sky Go and have access to a range of channels, including all five Sky Sports channels, in line with their TV subscription.

Our video on demand service, Sky Anytime+, has generated a strong response since full launch in April, with more than 800,000 customers enjoying the convenience and flexibility it offers. Anytime+ gives customers access to TV box sets and over 600 movies, on demand, at no extra cost. The service is supported by our state-of-the-art, high-capacity broadband network and its connectivity to the HD box. Customers with our unlimited broadband package also benefit from a truly unlimited service, with no fair use policies, data caps or traffic management.

We are progressing well with our technical integration of The Cloud, ahead of launching our customer proposition later this year. We have added to our existing high-quality Wi-Fi venues with the signing of over 1,200 new sites including Virgin Active and Pizza Express.

The Bigger Picture

As part of our commitment to making a positive contribution to the community, we delivered a number of initiatives this quarter through our Bigger Picture programme.

In support of the arts, in April we launched a major new programme to back new arts projects and emerging artists. The programme, Sky Arts Ignition, represents an investment of over £1 million and will work with six arts organisations, creating new works, as well as providing five bursaries for young artists each year.

Our partnership with British Cycling is now in its third year and on track towards our ambition of getting one million more people cycling regularly by 2013. June saw the launch of a bigger and better summer of cycling with 21 free Sky Ride events taking place across the country for families and individuals of all ages and abilities.

In support of our partnership with WWF on the Sky Rainforest Rescue campaign, we broadcast a week of environmental programming including the specially commissioned series, 'Rooftop Rainforest', on Sky 1 HD. Fundraising is on target with £1 million raised to date, which Sky is matching pound for pound.

FINANCIAL SUMMARY

As we consistently execute our strategy, we have delivered strong double-digit growth in each of adjusted revenue, operating profit, earnings and cash flow.

For the twelve months ended 30 June 2011 ("the year") revenue increased by 16% reflecting continued success in our multi-product strategy and strong growth in other business lines. Adjusted operating profit was 23% higher, exceeding one billion for the first time. Our continued focus on operational efficiency contributed to adjusted operating margin expanding to 16.3% and record adjusted basic earnings per share of 41.6 pence. Adjusted free cash flow increased by 51% as we once again efficiently converted profit to cash.

Unless otherwise stated, all figures and growth rates exclude exceptional items and are from continuing operations (including Living TV in the current year and excluding Easynet). The results for the year include the acquisition of Living TV, which completed on 12 July 2010, and contributed £107 million in revenue and £82 million of costs.

Revenue

Group revenue increased to £6,597 million (2010: £5,709 million), up 16% year on year and benefitting from the broadly based growth delivered this year.

Retail subscription revenue increased by 15%, to £5,455 million (2010: £4,761 million), reflecting the success in our multi-product strategy and a larger customer base.

Wholesale subscription revenue increased by £85 million to £323 million (2010: £238 million) following our acquisition of Living TV and a higher number of wholesale customers paying for our premium channels.

Our advertising business has performed particularly strongly, increasing our estimated share of the TV advertising sector by four percentage points to 20%. Revenue for the year was 35% higher at £458 million (2010: £340 million), as we benefited from the consolidation of the sale of airtime on Living TV. Advertising revenue now includes revenue related to our online properties and Sky Magazine; of which £19 million (2010: £21 million) was reclassified from other revenue.

Installation, hardware and service revenue was £112 million (2010: £174 million), reflecting our decision to lower the retail price of our Sky+HD box last year.

Other revenue of £249 million (2010: £196 million) was 27% higher year on year. This increase includes revenue from the sale of set-top boxes to Sky Italia in the fourth quarter, the cost associated with the boxes are included in subscriber management and supply chain costs.

Direct Costs

Direct costs were higher compared to the prior year as we increased our on-screen investment and more customers choose our home communication services.

Programming costs were 15% higher at £2,188 million (2010: £1,902 million) reflecting our strategy to bring TV customers more high quality content. Entertainment costs increased as we launched Sky Atlantic HD in February and continued to invest in British drama and comedy on Sky 1 HD and Sky Living HD. We had a full year of sport with additional content including the fifth pack of live Premier League matches, the US Masters, the Ashes in Australia and the Ryder Cup. Third party channel costs were broadly level with additional cost relating to more third party HD channels on the platform offset by carriage fee savings upon consolidation of the Living TV channels.

Direct network costs increased to £584 million (2010: £440 million) as a result of our customers taking 9.1 million home communication products from us, 37% more than a year ago. Higher volumes have been partially offset by a higher proportion of fully unbundled customers leading to lower monthly payments.

Other Operating Costs

Marketing costs (excluding exceptional items) increased by £105 million to £1,220 million (2010: £1,115 million). The cost to acquire a new television subscriber ("SAC") was £376 as every single customer joining received our Sky+HD set-top box, and the launch of the Anytime+ service resulted in longer install visits.

Subscriber management and supply chain costs (excluding exceptional items) were £21 million lower at £596 million (2010: £617 million) as we benefited from our operational efficiency programmes to reduce costs in our supply chain and contact centres. This was partially offset by the cost of set-top boxes sold to Sky Italia in the fourth quarter, the revenue for which can be found in other revenue.

Transmission, technology and fixed network costs increased by £88 million to £395 million (2010: £307 million). The increase relates to higher network costs as we gain scale in our fixed line business and includes costs for network services previously accounted for within the Group by Easynet.

Administration costs (excluding exceptional items) were £541 million (2010: £456 million), reflecting a higher non-cash IFRS 2 'Share-based payment' charge and associated National Insurance costs, and the acquisition of Living TV. The IFRS 2 charge and related National Insurance costs were £86 million, up £41 million on the prior year as a result of the phasing of our share-incentive plans and a higher share price throughout the year.

Earnings

Adjusted profit before tax from continuing operations of £987 million (2010: £769 million) includes the Group's share of results of joint ventures and associates of £34 million (2010: £29 million), which is led by a strong portfolio of channel brands such as National Geographic, History and Nickelodeon. A net interest charge of £120 million (2010: £132 million) is also included.

Adjusted taxation from continuing operations for the period was £262 million (2010: £209 million). The full year adjusted effective tax rate on continuing operations was 27% (2010: 27%), with the reduced rate of corporation tax announced in the budget statement on 23 March 2011 having only a modest positive impact in the current year.

Adjusted profit for the period from continuing operations was £725 million (2010: £560 million), generating adjusted basic earnings per share of 41.6 pence (2010: 32.1 pence).

Reported profit for the period from continuing operations was £758 million (2010: £896 million), generating reported basic earnings per share from continuing operations of 43.5 pence (2010: 51.4 pence). Reported profit for the period including discontinued operations was £810 million (2010: £878 million) resulting in reported basic earnings per share of 46.5 pence (2010: 50.4 pence).

Cash Flow and Financial Position

Adjusted free cash flow increased by 51% to £869 million (2010: £577 million) reflecting 19% growth in adjusted EBITDA, flat capital expenditure, lower tax and interest payments than the prior year, and a strong working capital position. See Appendix 3 for details of adjusting items.

Capital expenditure was £423 million (2010: £429 million), in line with our guidance of around 6.5% of revenue. Major items of expenditure in the period included the technical fit-out of our new broadcast facility and continued exchange rollout programme to increase the footprint of our fixed line communications network.

Strong cash generation during the year has contributed to the reduction in net debt of £326 million to £750 million (2010: £1,076 million). For a reconciliation of net debt see Appendix 3.

The combination of falling net debt and higher EBITDA over the past 12 months has reduced the Group's net debt to adjusted EBITDA ratio. Rating agencies often make adjustments to EBITDA and net debt when assessing credit ratings and Standard & Poors (S&P), for example, calculated an adjusted ratio of 1.4x as at 30 June 2010. The main adjustments that S&P make to our reported numbers are to add share based compensation back to EBITDA and to treat operating lease and transponder capacity commitments (approximately £650 million in total) as debt-like items. We estimate as at 30 June 2011 the S&P adjusted ratio of net debt to EBITDA would be 1.0x.

It remains the overall financial policy of the Board to maintain an efficient capital structure and a strong BBB+ credit rating, allowing sufficient financial flexibility to create additional value for shareholders via on-going organic investment, disciplined and selective acquisitions, maintaining the Company's ordinary dividend and returns to shareholders.

The Group's liquidity and headroom are comfortable with no bond redemptions falling due until October 2015 when £428 million falls due. As at the end of the year, cash and cash equivalents and short-term deposits were £1,351 million. However, this is ahead of substantial outflows (estimated at c.£330 million) associated with rights payments in July and August 2011.

Exceptional Items

Reported operating profit from continuing operations of £1,073 million includes £26 million of restructuring costs from Living TV and costs of £15 million relating to the News Corporation proposal, both within administration costs. Within marketing costs there is an exceptional gain of £41 million relating to the recovery of duty arising on set-top boxes imported prior to this fiscal year.

In the prior year, reported operating profit from continuing operations of £1,113 million included litigation settlement income of £269 million relating to our claim against EDS, along with £5 million from the cancellation of accounts payable on settlement of the claim and legal costs of £1 million. £32 million relating to a restructuring exercise was also included.

Reported profit after tax includes a £42 million exceptional gain (2010: £180 million gain), of which £18 million are mark-to-market gains relating to derivative financial instruments not qualifying for hedge accounting and gains and losses arising from designated fair value hedge accounting relationships (2010: £13 million gain), £9 million relating to the profit on sale of our stake in Shine and a £15 million tax credit following the settlement of a pre-acquisition tax issue relating to the Easynet networks business retained by Sky.

Exceptional items in the prior year also included investment income relating to our litigation settlement with EDS of £49 million, £115 million relating to the sale of ITV shares and the receipt of £3 million on closure of a joint venture.

The related tax effects on the above items results in a £9 million charge (2010: £85 million charge).

Distributions to Shareholders

The Directors propose an increase of 20% in the full year dividend to 23.3 pence, continuing our track record of dividend growth. On this basis, the total cash amount of dividends paid in respect of this fiscal year will be £405 million; of which the final dividend accounts for £253 million.

The ex-dividend date will be 16 November 2011 and, subject to shareholder approval at the Annual General Meeting to be held on 29 November 2011, the final dividend of 14.54 pence will be paid on 9 December 2011 to shareholders appearing on the register at the close of business on 18 November 2011.

Today, the Company has announced that it intends to seek the necessary approvals to return £750 million of capital to shareholders via a share buy-back programme. Shareholder approvals will be sought at the Company's AGM on 29 November 2011. The Company has entered into an agreement with News Corporation under which, following any market purchases of shares by the Company, News Corporation will sell to the Company sufficient shares to maintain its percentage shareholding at the same level as applied prior to those market purchases. The price payable to News Corporation will be the price payable by the Company in respect of the relevant market purchases. The agreement is conditional on the appropriate shareholder approvals being granted. The effect of the agreement is to provide that there will be no change in News Corporation's economic or voting interests in the Company as a result of the share buy-back programme.

The Board considers that an on-market share repurchase programme is a flexible, equitable and tax-efficient means by which to make distributions to shareholders which are incremental to the ordinary dividend.

Corporate

News Corporation Proposal

On 13 July 2011 News Corporation announced that it no longer intends to make an offer for the entire issued and to be issued share capital of BSkyB not already owned by News Corporation. A break fee of £38.5 million has now been received and will exceed all of the Group's direct costs associated with the News Corporation proposal.

Board

Following the withdrawal of the News Corporation proposal, the Board will return to normal processes. James Murdoch remains Chairman. Nicholas Ferguson will continue as Deputy Chairman and Senior Independent Director. All Directors will stand annually for re-election at the AGM in line with best practice. As previously communicated to shareholders, some Directors had their terms extended due solely to the News Corporation proposal to ensure sufficient continuity and stability during the period. The Board is putting in place an orderly programme for replacing members of the Board of Directors as they retire. It is the intention that Allan Leighton and David Evans retire at this year's AGM.

Atlantic Productions

British Sky Broadcasting Limited and Atlantic Holdings Limited (AHL) today announced the creation of a new production company, Colossus Productions Limited (Colossus), to develop original 3D programming for both UK and international audiences.

Sky has entered a commissioning agreement with Colossus and will hold a 20% stake in Colossus. AHL is the holding company of Atlantic Productions Limited, the creative force behind Sky 3D's BAFTA award-winning Flying Monsters 3D and one of the world's leading factual production companies whose award winning television and theatrical films have been seen around the world.

Gross assets of Colossus subject to this transaction were nil.

Enquiries:

Analysts/Investors:

E-mail: investor-relations@bskyb.com

Press:

E-mail: corporate.communications@bskyb.com

There will be a presentation to analysts and investors at 09.00 a.m. (BST) today. Participants must register by contacting Yasmin Charabati or Alastair Elwen on +44 20 7251 3801 or at bskyb@finsbury.com. In addition, a live webcast of this presentation to UK/European analysts and investors will be available via http://www.sky.com/investorsand subsequently available for replay.

There will be a separate conference call for US analysts and investors at 10.00 a.m. (EST). To register for this please contact Dana Diver at Taylor Rafferty on +1 212 889 4350. Alternatively you may register online at http://invite.taylor-rafferty.com/_bskyb/cc. A live webcast of this presentation will be available today on Sky's corporate website, which can be found at www.sky.com/corporate.

An interview with Jeremy Darroch, CEO, and Andrew Griffith, CFO, in audio/video and transcript is available at www.sky.com/corporateand www.cantos.com.

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 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-TV, fixed line telephony, broadband and bandwidth requirements, advertising growth, DTH subscriber growth, Multiroom, Sky+, Sky+HD and other services penetration, churn, DTH and other revenue, ARPU, profitability and margin growth, cash flow generation, programming costs, subscriber management and supply chain costs, administration and other costs, marketing expenditure, capital expenditure programmes, liquidity 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 2010 (as updated in Sky's results for the six months ended 31 December 2010). Copies of the Annual Report and 31 December 2010 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.

Appendix 1 - Glossary

Appendix 2 - Consolidated Financial Information

Consolidated Income Statement for the year ended 30 June 2011

Consolidated Statement of Comprehensive Income for the year ended 30 June 2011

 Consolidated Balance Sheet as at 30 June 2011

Consolidated Cash Flow Statement for the year ended 30 June 2011

Consolidated Statement of Changes in Equity for the year ended 30 June 2011

Notes to the consolidated financial information

The financial information set out in this preliminary announcement does not constitute statutory financial statements for the years ended 30 June 2011 or 2010, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2011, on which the Group's auditors have given an unqualified report which does not contain statements under s. 498(2) or (3) of the Companies Act 2006, will be filed with the Registrar of Companies prior to the Group's next annual general meeting. Statutory financial statements for 2010 have been filed with the Registrar of Companies. The Group's auditors have reported on those accounts; their reports were unqualified and did not contain statements under s. 498(2) or (3) of the Companies Act 2006.

Whilst the financial information included in this press release has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 30 June 2010 except in relation to the mandatory adoption of new accounting standards and revisions and amendments to existing accounting standards, none of which had any significant impact on the Group's results or financial position.

The Group maintains a 52 or 53 week year ending on the Sunday nearest to 30 June in each year. In fiscal year 2011, this date was 3 July 2011, this being a 53 week year (fiscal year 2010: 27 June 2010, 52 week year). For convenience purposes, the Group continues to date its consolidated financial statements as at 30 June.

1 Revenue

To provide a more relevant presentation, management has reclassified online properties and Sky Magazine advertising revenue of £19 million in the current period and £21 million in the comparative period from other revenue to advertising revenue.

2 Operating expense

(i) Included within administration costs for the year ended 30 June 2011 is £26 million of restructuring costs arising on the acquisition of Living TV, which comprise principally redundancy payments and the early termination of a pre-acquisition contract and £15 million of costs in relation to the News Corporation proposal.

(ii) Included within marketing costs for the year ended 30 June 2011 is a credit of £41 million in relation to import duty on set-top boxes paid out in prior years. This duty is recoverable due to the judgment given by the Court of Justice of the European Union ("ECJ") on 14 April 2011.

(iii) Included within operating expense for the year ended 30 June 2010 is £32 million of expense relating to a restructuring exercise of which £22 million was recorded within subscriber management and supply chain costs and related to the impairment of assets associated with Picnic (the potential launch of a subscription television service on DTT) and £10 million was recorded within administration costs and related to restructuring costs which comprise principally redundancy payments.

(iv) Included within subscriber management and supply chain costs for the year ended 30 June 2010 is a £5 million credit related to the cancellation of accounts payable on settlement of the claim against EDS.

(v) Included within administration costs for the year ended 30 June 2010 is £1 million of expense relating to legal costs incurred on the Group's claim against EDS.

3 Litigation settlement income and investment income on litigation settlement

In the prior year, on 26 January 2010, the Technology and Construction Court ("TCC") gave judgment in the litigation between Electronic Data Systems ("EDS") and the Group. The litigation related to EDS' former role as a supplier to the Group as part of the Group's customer relationship management project.

On 7 June 2010, EDS and the Group fully and finally settled the litigation between them and all related claims (including for damages, costs and interest) for a total amount of £318 million.

In the prior year, the Group recognised £49 million of these payments in investment income on litigation settlement. This allocation was based on the Group's estimate of the TCC's likely award of interest on its lost cash flows since the end of EDS' role as a supplier to the Group in March 2002.

The balance of £269 million was recognised in litigation settlement income, representing settlement for costs and damages.

4 Investment income and finance costs

(i) Not qualifying for hedge accounting.

Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by applying a capitalisation rate of 5.3% (2010: 5.3%) to expenditure on such assets. The amount capitalised in the current year amounted to less than £1 million (2010: less than £1 million).

5 Profit on disposal of available-for-sale investment

On 5 April 2011, the Group sold its available-for-sale investment in Shine Limited ("Shine") for a maximum consideration of £36 million, of which £31 million has been received to date. The remaining consideration is contingent on certain post transaction criteria and is currently held in escrow. At the date of disposal, the Group estimated the fair value of the contingent consideration to be £4 million and recorded a profit on disposal of £9 million, being the excess of the recognised consideration above the carrying value of the shares.

In the prior year, on 8 February 2010, the Group placed a shareholding of 10.4% in ITV in accordance with the final undertakings given by the Group to the Secretary of State for Business, Innovation and Skills relating to the Group's investment in ITV. The placing by the Group of 404,362,095 ITV shares at 48.5 pence per share resulted in aggregate consideration of £196 million. A profit of £115 million was realised on disposal being the excess of the consideration above the impaired value of the shares. The Group continues to hold just under 7.5% of the shares in ITV.

6 Taxation

Taxation recognised in the income statement

(i) This includes the tax effect of agreeing a number of historic issues with HMRC resulting in a credit to prior year tax liability and a debit to current year tax liability.

Taxation relates to a £264 million UK corporation tax charge (2010: £288 million) and a Luxembourg corporation tax charge of nil (2010: £7 million).

7 Discontinued operations

On 1 September 2010, the Group completed the sale of its business-to-business telecommunications operation, Easynet Global Services ("Easynet"), to Lloyds Development Capital ("LDC") for £100 million. Subsequent to this an agreed working capital adjustment reduced total net consideration to £94 million.

The Group retains the UK network assets that it acquired as part of the original acquisition of Easynet Group in 2005. As part of the sale, the Group and LDC entered into a long-term supply agreement to grant Easynet continued access to the Group's fibre network and Easynet continues to be a key supplier of data network and hosting services to the Group.

Easynet represented a separate major line of business for the Group. As a result its operations have been treated as discontinued for the year ended 30 June 2011 and the year ended 30 June 2010. A single amount is shown on the face of the consolidated income statement comprising the post-tax result of discontinued operations and the post-tax profit recognised on the disposal of the discontinued operation.

A pre-tax profit of £62 million arose on the disposal of Easynet being the net proceeds of disposal less the carrying amount of Easynet's net liabilities and attributable goodwill.

The results of discontinued operations, which have been included in the consolidated income statement, were as follows:

(i) Results for the year ended 30 June 2011 include the results of discontinued operations up to the date of disposal (1 September 2010).

(ii) Attributable tax expense comprises nil (2010: £1 million) in respect of operating activities and £8 million (2010: nil) arising as a result of the disposal.

During the year, cash flows attributable to Easynet comprised a net operating cash outflow of £7 million (2010: inflow of £7 million) and a net cash inflow in respect of investing activities of £76 million (2010: outflow of £15 million).

8 Earnings per share

The weighted average number of shares for the year was:

The calculation of diluted earnings per share excludes 2 million share options (2010: 11 million), which could potentially dilute earnings per share in the future, but which have been excluded from the calculation of diluted earnings per share as they are anti-dilutive in the year.

Basic and diluted earnings per share are calculated by dividing the profit or loss for the year into the weighted average number of shares for the year. In order to provide a measure of underlying performance, management have chosen to present an adjusted profit for the year 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.

(i) Tax credit arising on the settlement of the pre-acquisition tax liabilities of a subsidiary of the Group.

9 Dividends

The 2011 final dividend proposed is 14.54 pence per ordinary share being £253 million. The dividend was not declared at the balance sheet date and is therefore not recognised as a liability as at 30 June 2011.

10 Goodwill

11 Intangible Assets

12 Property, plant and equipment

13 Investments in joint ventures and associates

The movement in joint ventures and associates during the year was as follows:

(i) Included within the share of profits for the year ended 30 June 2010 is £3 million related to an amount received on the closure of one of the Group's joint ventures.

14 Available-for-sale investments

On 17 November 2006, the Group acquired 696 million shares in ITV, at a price of 135 pence per share, representing 17.9% of the issued capital of ITV, for a total consideration of £946 million including fees and taxes. The Group's investment in ITV is carried at fair value. The fair value is determined with reference to its equity share price at the balance sheet date. An impairment in the carrying value was first recorded at 31 December 2007, due to the significant and prolonged decline in the equity share price. In accordance with IFRS, the Group has continued to review that carrying value and has recognised a cumulative impairment loss of £807 million in fiscal 2008 and fiscal 2009. This impairment loss was determined with reference to ITV's closing equity share price of 20.0 pence at 27 March 2009, the last trading day of the Group's third fiscal quarter in fiscal 2009. In line with IFRS, all subsequent increases in the fair value of the ITV investment above this impaired value have been recorded in the available-for-sale reserve.

On 8 February 2010 the Group placed a shareholding of 10.4% in ITV in accordance with the final undertakings given by the Group to the Secretary of State for Business, Innovation and Skills relating to the Group's investment in ITV. The placing by the Group of 404,362,095 ITV shares at 48.5 pence per share resulted in aggregate consideration of £196 million. A profit of £115 million was realised on disposal being the excess of the consideration above the impaired value of the shares. The Group continues to hold just under 7.5% of the shares in ITV.

The disposal was exempt from tax under the provisions of the Substantial Shareholding Exemption (SSE) and as such the SSE provisions would prevent any capital loss arising for tax purposes.

 On 5 April 2011, the Group sold its available-for-sale investment in Shine. Further details of this transaction are disclosed in note 5.

15 Deferred tax

Recognised deferred tax (liabilities) assets

16 Inventories

17 Trade and other receivables

Included within current trade and other receivables is nil (2010: nil) which is due in more than one year.

18 Trade and other payables

19 Provisions

20 Borrowings

21 Share Capital