The satellite broadcaster saw a revenue increase of 20 per cent to £2.78 billion for the year to 30 June on the back of increased subscriber numbers and a boost in interactive revenues.
However, its annual pre-tax loss was £1.2 billion after writing off its investment in the failed KirchPayTV to the tune of £971 million.
Sky's improved cashflow and revenues put it in a strong position to buy Channel 5. However, following Lord Puttnam's report it remains unclear if the Communications Bill will allow Rupert Murdoch to move for Channel 5. Bertlesmann, which owns 65 per cent of Channel 5, is considering a sell-off of UK and US assets following the ousting of its chief executive, Thomas Middlehoff.
Sky's subscriber numbers grew to 6.1 million, an increase of 648,000.
Average revenue per subscriber increased 11 per cent to £347. However, Sky was hit by a downturn in advertising revenue by 7 per cent to £251 million.
Sky also said that it had cut back on above-the-line advertising spend to compensate for increased costs in subsidising set-top boxes.
The increases in interactive revenues were driven by the success of events such as Big Brother 3, which generated more than five million votes through Sky Digital's interactive service.
Tony Ball, the chief executive of BSkyB, said: "With 6.1 million subscribers and 11 per cent growth in revenue per subscriber, we are on track to meet our targets of seven million subscribers and £400 revenue per subscriber.
This has generated strong operating profit growth and positive free cashflow."
Two black clouds remain on Sky's horizon. It said it expects the Office of Fair Trading to respond on the issue of pricing for its premium channels by "late summer". The European Commission is also investigating the validity of its exclusive deal with the Premier League.
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