UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 20-F

 |_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                                       OR
 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
                     For the fiscal year ended: 30 June 2004
                     ---------------------------------------
                                       OR
 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                         Commission file number 0-30364
                         ------------------------------

                                  NDS Group plc
             (Exact name of Registrant as specified in its charter)

                                England and Wales
                 (Jurisdiction of incorporation or organization)

          One London Road, Staines, Middlesex TW18 4EX, United Kingdom
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act.

 Title of each class                   Name of each exchange on which registered

                                   None
                                   ----

 Securities registered or to be registered pursuant to Section 12(g) of the Act.

                     Series A ordinary shares of $0.01 each
                     --------------------------------------

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act.
                                      None
                                      ----


    Indicate the number of outstanding shares of each of the issuer's classes
 of capital or common stock as of the close of the period covered by the annual
                                    report.

                12,186,598 Series A ordinary shares of $0.01 each
                -------------------------------------------------
                42,001,000 Series B ordinary shares of $0.01 each
                -------------------------------------------------
                   42,000,002 deferred shares of (pound)1 each
                   -------------------------------------------


    Indicate by check mark whether the registrant: (1) has filed all reports
 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
    1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
                   filing requirements for the past 90 days.

                                 |X| Yes    |_| No

    Indicate by check mark which financial statement item the registrant has
                               elected to follow.

                                |_| Item 17 |X| Item 18


<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                       Page

<S>                                                                                                      <C>
                  Introduction.......................................................................... 1
                  Special Note Regarding Forward-Looking Statements..................................... 1

PART I
Item 1            Identity of Directors, Senior Management and Advisers................................. 2
Item 2            Offer Statistics and Expected Timetable............................................... 2
Item 3            Key Information....................................................................... 2
Item 4            Information on the Company............................................................ 7
Item 5            Operating and Financial Review and Prospects..........................................16
Item 6            Directors, Senior Management and Employees............................................29
Item 7            Major Shareholders and Related Party Transactions.....................................34
Item 8            Financial Information.................................................................35
Item 9            The Offer and Listing.................................................................36
Item 10           Additional Information................................................................37
Item 11           Quantitative and Qualitative Disclosures About Market Risk............................42
Item 12           Description of Securities Other Than Equity Securities................................42

PART II
Item 13           Defaults, Dividend Arrearages and Delinquencies.......................................42
Item 14           Material Modifications to the Rights of Security Holders and Use of Proceeds..........42
Item 15           Controls and Procedures...............................................................42
Item 16           [RESERVED]                                                                            43
Item 16A          Audit Committee Financial Expert......................................................43
Item 16B          Code of Ethics........................................................................43
Item 16C          Principal Accountant Fees and Services................................................43
Item 16D          Exemptions from the Listing Standards for Audit Committees............................43
Item 16E          Purchases of Equity Securities by the Issuer and Affiliated Purchasers................43

PART III
Item 17           Financial Statements..................................................................44
Item 18           Financial Statements..................................................................44
Item 19           Exhibits..............................................................................45

                  Signatures............................................................................46

</TABLE>

<PAGE>

INTRODUCTION
As used in this Annual Report on Form 20-F, references to the "Company" are
to NDS Group plc. References to "NDS", "the Group", "NDS Group", "we" and "our"
are to NDS Group plc and its subsidiaries.

Unless otherwise indicated, the financial information contained in this
Annual Report on Form 20-F has been prepared on the basis of accounting
principles generally accepted in the United Kingdom ("UK GAAP"). UK GAAP differs
in certain material respects from generally accepted accounting principles in
the United States ("US GAAP"). The principal differences between UK GAAP and US
GAAP are explained in Note 31 to our consolidated financial statements: "Summary
of differences between UK and US GAAP".

References to a year are, unless otherwise indicated, references to the
Company's fiscal year ending 30 June of such year. In this Annual Report on Form
20-F, financial and statistical information is, unless otherwise indicated,
stated on the basis of such fiscal year.

NDS, VideoGuard, Value@TV, MediaHighway, XTV, Synamedia, OpenBet, Visionik
Games, Streamserver, Provider and Streamshaper are either trademarks or
registered trademarks of NDS Group plc and subsidiaries in one or more countries
worldwide. This Annual Report on Form 20-F also includes trade names and
trademarks of companies other than NDS.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains certain forward-looking
statements, including statements about our business, operations and financial
condition and various statements contained in Item 3: "Key Information - Risk
Factors", Item 4: "Information on the Company" and Item 5: "Operating and
Financial Review and Prospects". Our actual results could differ materially from
such forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements.

In some cases, you can identify forward-looking statements by terminology
such as "may", "will", "should", "could", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of such terms or other comparable terminology.

You are cautioned that any such forward-looking statements are not
guarantees of future performance and include risks and uncertainties. We cannot
guarantee future results, levels of activity, performance or achievements.

                                       1
<PAGE>


                                     PART I
          ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.


                 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.


                             ITEM 3. KEY INFORMATION
Selected financial data
The selected financial data presented below for each year in the three-year
period ended 30 June 2004 and as at 30 June 2004 and 2003, have been derived
from our audited consolidated financial statements and the notes thereto
included elsewhere in this Annual Report on Form 20-F, and should be read in
conjunction with those financial statements and related notes. The selected
financial data presented below for the years ended 30 June 2001 and 2000 and as
at 30 June 2002, 2001 and 2000 have been derived from our audited consolidated
financial statements and the notes thereto for those years.

The consolidated financial statements have been prepared in accordance with
UK GAAP, which differs in certain significant respects from US GAAP. See Note 31
to our consolidated financial statements for a discussion of the principal
differences between UK GAAP and US GAAP.

Profit and loss account information in accordance with UK GAAP
<TABLE>
<CAPTION>



                                                          Year Ended 30 June
                                                          ------------------
                                           2004        2003        2002        2001          2000
                                           ----        ----        ----        ----          ----
                                        GBP '000    GBP '000    GBP '000    GBP '000      GBP '000

<S>                                     <C>         <C>         <C>         <C>           <C>
Revenue                                 220,533     237,237     240,788     215,628       160,214
Cost of sales                           (61,593)    (94,467)    (83,107)    (76,676)      (61,958)
                                    --------------------------------------------------------------
Gross profit                            158,940     142,770     157,681     138,952        98,256
Administrative expenses
 - trading expenses                    (114,357)    (96,365)   (107,636)    (95,182)      (72,415)
                                    --------------------------------------------------------------
                                         44,583      46,405      50,045      43,770        25,841
Administrative expenses
 - amortisation of intangible fixed
  assets                                (12,252)     (9,602)     (7,350)     (4,590)       (1,536)
 - goodwill impairment charge            (6,510)          -           -           -             -
                                    --------------------------------------------------------------
Operating profit                         25,821      36,803      42,695      39,180        24,305
Share of associate's operating
 profit (loss)                                -        (220)         21           5             -
Loss on disposal of associate                 -         (60)          -           -             -
Profit on sale of discontinued
 operations                                   -           -           -           -         5,192
Net interest income (expense)             4,214       2,887       2,513       2,098        (3,389)
                                    --------------------------------------------------------------
Profit on ordinary activities before
 taxation                                30,035      39,410      45,229      41,283        26,108
Taxation                                (12,038)    (13,472)    (14,551)    (12,154)       (6,498)
                                    --------------------------------------------------------------
Profit on ordinary activities after
 taxation                                17,997      25,938      30,678      29,129        19,610
Minority interests                          472         102           -           -          (218)
                                    --------------------------------------------------------------
Profit for the year attributable to
 members of the parent company           18,469      26,040      30,678      29,129        19,392
                                    --------------------------------------------------------------

</TABLE>


Earnings and dividends per share in accordance with UK GAAP
<TABLE>
<CAPTION>

                                                                                   Year Ended 30 June
                                                                                   ------------------
                                                                       2004       2003       2002       2001       2000
                                                                       ----       ----       ----       ----       ----

<S>                                                                   <C>        <C>        <C>        <C>        <C>
Basic earnings per share                                              34.1p      48.4p      57.5p      55.1p      40.1p
Diluted earnings per share                                            33.1p      48.0p      56.1p      52.8p      38.7p
                                                                 -------------------------------------------------------

Weighted average number of shares in issue                       54,093,083 53,856,141 53,347,593 52,824,956 48,309,178
Diluted weighted average number of shares                        55,715,566 54,267,114 54,659,952 55,197,631 50,044,537
                                                                 -------------------------------------------------------
</TABLE>

No dividends have been paid or declared in any of the past five fiscal years.


                                       2
<PAGE>

Profit and loss account information in accordance with US GAAP
<TABLE>
<CAPTION>

                                                          Year Ended 30 June
                                                          ------------------
                                           2004        2003        2002        2001          2000
                                           ----        ----        ----        ----          ----
                                        GBP '000    GBP '000    GBP '000    GBP '000      GBP '000

<S>                                     <C>         <C>         <C>         <C>           <C>
Revenues                                204,399     256,809     234,727     206,592       163,364
                                    --------------------------------------------------------------
Net income                               21,490      35,458      28,650      18,635         6,814
                                    --------------------------------------------------------------

</TABLE>

Earnings per share in accordance with US GAAP
<TABLE>
<CAPTION>

                                                                                   Year Ended 30 June
                                                                                   ------------------
                                                                       2004       2003       2002       2001       2000
                                                                       ----       ----       ----       ----       ----

<S>                                                                   <C>        <C>        <C>        <C>        <C>
Basic earnings per share                                              39.7p      65.8p      53.7p      35.3p      14.1p
Diluted earnings per share                                            38.2p      63.8p      52.4p      33.8p      13.6p

Continuing earnings per share - basic                                 39.7p      65.8p      53.7p      35.3p       3.4p
Continuing earnings per share - diluted                               38.2p      63.8p      52.4p      33.8p       3.3p
Discontinued earnings per share                                           -          -          -          -      10.7p
                                                                 -------------------------------------------------------

Weighted average number of shares in issue                       54,093,083 53,856,141 53,347,593 52,824,956 48,309,178
Diluted weighted average number of shares                        56,237,610 55,566,086 54,640,510 55,170,700 49,963,410
                                                                 -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Balance sheet information in accordance with UK GAAP

                                                            As at 30 June
                                                            -------------
                                           2004        2003        2002        2001          2000
                                           ----        ----        ----        ----          ----
                                        GBP '000    GBP '000    GBP '000    GBP '000      GBP '000

<S>                                     <C>         <C>         <C>         <C>           <C>
Total assets                            322,224     248,271     284,490     230,436       124,096
Long-term liabilities                    (1,083)     (1,533)     (1,445)     (1,684)       (1,474)
Total other liabilities                (117,964)    (60,409)   (119,237)   (102,886)      (70,005)
Minority interests                            -         (58)          -           -             -
                                    --------------------------------------------------------------
Net assets                              203,177     186,271     163,808     125,866        52,617
                                    --------------------------------------------------------------

Equity shareholders' funds              161,177     144,271     121,808      83,866        10,617
Non-equity shareholders' funds           42,000      42,000      42,000      42,000        42,000
                                    --------------------------------------------------------------
                                        203,177     186,271     163,808     125,866        52,617
                                    --------------------------------------------------------------
</TABLE>

Balance sheet information in accordance with US GAAP
<TABLE>
<CAPTION>
                                                            As at 30 June
                                                            -------------
                                           2004        2003        2002        2001          2000
                                           ----        ----        ----        ----          ----
                                                  Restated (1) Restated (1)
                                                  ------------ ------------
                                        GBP '000    GBP '000    GBP '000    GBP '000      GBP '000

<S>                                     <C>         <C>         <C>         <C>           <C>
Total assets                            317,408     234,663     259,407     212,711       129,614
Long-term liabilities                    (1,083)     (1,533)     (1,445)     (1,684)       (1,474)
Total other liabilities                (133,941)    (74,200)   (132,121)   (115,036)      (77,371)
Minority interests                            -         (58)          -           -             -
                                    --------------------------------------------------------------
Net assets                              182,384     158,872     125,841      95,991        50,769
                                    --------------------------------------------------------------
</TABLE>

(1)  Restated to reflect the minimum pension liability and related deferred tax
     asset.


                                       3
<PAGE>
<TABLE>
<CAPTION>

Equity share capital
                                                                             As at 30 June
                                                                             -------------
                                                       2004            2003           2002            2001           2000
                                                       ----            ----           ----            ----           ----
                                                     Number          Number         Number          Number         Number
                                                  of shares       of shares      of shares       of shares      of shares
Equity shares outstanding (number)
<S>                         <C>                  <C>             <C>             <C>            <C>             <C>
Series A ordinary shares of $0.01 each           12,186,598      11,983,681      11,677,033     11,243,400      10,539,126
Series B ordinary shares of $0.01 each           42,001,000      42,001,000      42,001,000     42,001,000      42,001,000
                                             -------------------------------------------------------------------------------

                                                    Nominal         Nominal        Nominal         Nominal        Nominal
                                                      Value           Value          Value           Value          Value
                                                   GBP '000         GBP '000      GBP '000        GBP '000       GBP '000
Equity shares outstanding (nominal value)
Series A ordinary shares of $0.01 each                   76              75              73             70              65
Series B ordinary shares of $0.01 each                  264             264             264            264             264
                                             -------------------------------------------------------------------------------
                                                        340             339             337            334             329
                                             -------------------------------------------------------------------------------

</TABLE>

Exchange rates
Our reporting currency is pounds sterling. The following tables set out,
for the periods and dates indicated, information concerning the noon buying
rates in New York City for cable transfers in foreign currencies as certified by
the Federal Reserve Bank of New York for customs purposes for pounds sterling
expressed in US dollars per GBP 1.00.

As at 19 October 2004, the noon buying rate was US$1.8039 per GBP 1.00.

The highest and lowest exchange rates for each of the previous six months were:

Month                                          High             Low
-----                                          ----             ---

April 2004                                     1.8564           1.7674
May 2004                                       1.8369           1.7544
June 2004                                      1.8387           1.8090
July 2004                                      1.8734           1.8090
August 2004                                    1.8459           1.7921
September 2004                                 1.8105           1.7733

The average exchange rates (calculated by averaging the exchange rates on
the last day of each month during the period) for each of the last five fiscal
years were:

Year Ended 30 June                             Average
------------------                             -------

2000                                           1.5919
2001                                           1.4479
2002                                           1.4477
2003                                           1.5915
2004                                           1.7491


Risk factors
Holders of our securities are exposing themselves to certain risks. Our
business, operating results and financial condition could be materially
adversely affected by any of these risks. The trading price of our securities
could decline due to any of these risks. You should also refer to the other
information set out in this Annual Report on Form 20-F, including our
consolidated financial statements.

Our business will suffer if we do not respond to commercial and
technological changes affecting our industry.
Our business and the market in which we operate is characterised by rapid
commercial and technological change, evolving industry standards and frequent
product enhancements. Many operators of digital broadcast platforms and
broadband networks are seeking more sophisticated software which will afford
them greater flexibility in delivering programming material such as news, films
and sports events to viewers. They are also seeking to offer additional services
such as electronic program guides ("EPGs"), games, gaming and other interactive
applications, personal video recorder ("PVR") functionality and other services.


                                       4
<PAGE>

Our continued success will depend, in part, upon our ability to develop and
market products and services that respond to technological changes and evolving
industry standards in a timely and cost-effective manner. This in turn is
dependent, in part, on our ability to attract and retain employees with the
necessary skills. If the market in which we operate develops more slowly than we
anticipate, or if we should fail to develop and introduce products and services
that are compatible with industry standards, satisfy customer requirements and
compete effectively with products and services offered by our competitors, our
business, operating results and financial condition could be materially
adversely affected.

Additionally, we may choose to develop proto-types and demonstrations of
technologies for potential customers in advance of entering into binding
contracts with those customers. Therefore we may incur costs which might
ultimately not be recovered from our customers should they choose not to proceed
or if our expectations of commercial terms and prices differ from those
ultimately negotiated. As a consequence, our business, operating results and
financial condition could be materially adversely affected.

Our operating results and growth could decline if our customers' subscriber
bases decline or do not continue to increase.

A significant portion of our revenues is derived from the sale of smart
cards to our platform operator customers, the receipt of monthly security fees
and ongoing support and maintenance fees paid by our customers. These fees are
frequently based upon the number of our customers' subscribers or the number of
authorised smart cards in use in each period. We also receive royalties for each
set-top box manufactured which incorporates our technology. Therefore, a
significant portion of our revenues is dependent upon our customers' subscriber
numbers and the growth in those numbers. If our customers' subscriber numbers
decline or do not continue to increase, we are unlikely to be able to generate
substantial revenue growth or sustain our current revenue levels and as a
consequence our business, operating results and financial condition could be
materially adversely affected.

Our business could be harmed if the security provided by our conditional
access systems and products is compromised.

In common with all providers of conditional access systems, we face risks
relating to the failure of those systems to protect pay-TV platform operators
and content providers from signal theft. An important component of our
conditional access systems is the smart cards we provide for the pay-TV platform
operators' individual subscribers. Unauthorised viewing and use of content may
be accomplished by counterfeiting the smart card or otherwise thwarting its
security features. Any significant increase in the incidence of signal theft
could require the replacement of a platform operator's smart cards sooner than
otherwise planned. In those cases where we have accepted specific
responsibilities for maintaining the security of a platform operator's
conditional access system, significant costs could be imposed on us if a
security breach requires an accelerated replacement of smart cards. To the
extent that signal theft may result in the cessation of all, or some portion of
the security fees paid to us by a platform operator while the security breach is
being remedied or, in the event of termination by the broadcaster of our
agreement if the breach is not satisfactorily remedied, the resultant loss of
revenues could have a material adverse effect on our business, operating results
and financial condition. A significant increase in the level of signal theft,
whether or not resulting from a failure of our conditional access systems, could
also injure the reputation of our conditional access systems among our customers
and potential customers and as a consequence, our business, operating results
and financial condition could be materially adversely affected.

Our business could be harmed if a defect in our software or technology
interferes with, or causes any failure in, our customers' systems.

Our software and technology are integrated into the infrastructure of our
customers' systems and the set-top boxes of their subscribers. Accordingly, a
defect, error or performance problem with our software or technology could
interfere with, or cause a critical component of, one or more of our customers'
systems or the set-top boxes of their subscribers to fail for a period of time.
This could result in claims for substantial damages against us, regardless of
whether we are responsible for such failure. Any claim brought against us could
be expensive to defend and require the expenditure of a significant amount of
resources, regardless of whether we prevail. Any such problem could cause severe
customer service and public relations problems for our customers and for us and
as a consequence, our business, operating results and financial condition could
be materially adversely affected.

Intense competition could reduce our market share and harm our financial
performance.

We compete both to attract new customers and to retain our existing
customers. Such competition may cause us to lose market share and may result in
reduced profit margins. It may also hinder our ability to develop our business
in areas such as PVRs and interactive television services. In addition, some of
the companies that currently operate in the software business, but which have
not historically been active competitors of ours may, in the future, through
acquisitions or the development of their own resources, seek to enter and obtain
significant market share in our current or planned business areas. Increased
competition from existing competitors or new entrants into our business areas
could result in price reductions, reduced margins or loss of market share, any
of which could materially and adversely affect our business, operating results
and financial condition.


                                       5
<PAGE>

We derive a significant portion of our revenues from a limited number of
large customers. Our revenues could decline significantly if any of these
customers significantly reduces its purchases of our technology or services, or
terminates its relationship with us.

Our growth has depended historically on a limited number of large digital
pay-TV platform operators introducing, marketing and promoting products and
services that utilise our technology. We currently derive, and we expect to
continue to derive, a significant portion of our revenues from a limited number
of large customers. Our two largest customers have been DIRECTV Operations, LLC
("DIRECTV") in the USA and British Sky Broadcasting Group plc ("BSkyB") in the
UK. In 2004, these two customers accounted for approximately 48% of our total
revenues. We expect that we will continue to be dependent upon a limited number
of customers for a significant portion of our revenues, although the particular
customers may vary from period to period. If a large customer purchases
significantly less of our products or services, defers or cancels orders, or
terminates its relationship with us, our revenues could decline significantly
and as a result, our business, operating results and financial condition could
be materially adversely affected.

The nature of our business is such that our operating results may fluctuate
from period to period.

Our operating results have varied in the past from quarter to quarter and
from year to year and are likely to vary from period to period in the future.
Historically, our revenues have reflected a small number of relatively large
orders for our technology and services, which generally have long sales and
order cycles. Our accounting policies typically relate the timing of recognition
of revenue from those orders to delivery or customer acceptance. Additionally,
our customers replace their subscribers' smart cards from time to time, either
to upgrade the features of the smart cards or for security purposes. Again, the
timing of the delivery of those smart cards dictates when we can recognise the
associated revenue. As a result, we believe that period-to-period comparisons of
our operating results may not be a good indication of our future performance.

Failure to protect the intellectual property rights upon which we depend
could harm our business.

We rely primarily on a combination of patent, trademark and copyright laws,
trade secrets, confidentiality procedures and contractual provisions to protect
our intellectual property rights and the obligations we have to third parties
from whom we license intellectual property rights. Legal protection afforded to
intellectual property rights vary from country to country and may be
significantly less effective in certain countries than in, for example, the USA.
We may not be able to detect unauthorised use of, or take appropriate steps to
enforce, our intellectual property rights and this could have a material adverse
effect on our business, operating results and financial condition.

Defending against intellectual property infringement claims could harm our
business.

We may increasingly be subject to the risk of infringement claims as the
number of products and competitors grows and the functionality of products in
different industry segments overlaps. It may be alleged that products that we
have developed or technology that we have licensed from third parties, infringes
the rights of others. Intellectual property claims could be time consuming to
defend, result in costly litigation, divert management's attention and resources
and cause delays in the release of new functionality for our systems. Such
claims could also require us to seek to enter into royalty or licence
agreements, redesign our products or potentially cease using aspects of
technology, which could have a material adverse effect on our business,
operating results and financial condition.

Political, regulatory and economic risks associated with our international
customers could harm our business.

Our customers are located throughout the world, and we derived
approximately 22% of our revenues during 2004 from outside of the UK, Europe and
the USA. Inherent risks of doing business in international markets include
changes in legal and regulatory requirements, export restrictions, exchange
controls, tariffs and other trade barriers, longer payment cycles, political
disruption, wars, acts of terrorism and civil unrest. We may incur substantial
expense as a result of the imposition of new restrictions or changes in the
existing legal and regulatory environments in the territories where we conduct
our business or due to political and economic instability in these territories.

Fluctuations in foreign exchange rates could harm our financial condition.

A risk inherent in our international operations is the exposure to
fluctuations in currency exchange rates. Our reporting currency and the
functional currency of our principal operating subsidiary is sterling. However,
certain of our customer contracts denominate prices in US dollars and also the
functional currency of our operating subsidiaries in the USA and Israel is the
US dollar. In 2004, approximately 48% of our revenues and 35% of our operating
costs were denominated in US dollars and approximately 13% of our revenues and
16% of our operating costs were denominated in other currencies (mainly euros).
As a result, we are exposed to fluctuations in exchange rates which may have a
material adverse effect on our business, operating results and financial
condition.

Additionally, although most of our contracts with customers in Latin
America and the Asia-Pacific region are denominated in US dollars, those
customers are affected by fluctuations in their local currencies and by exchange
control regulations which may restrict their ability to remit payments to us.

                                       6
<PAGE>

We are subject to certain risks relating to our operations in Israel.

Our conditional access systems' research and development facilities are
located in Israel and we have three conditional access customers in Israel. We
are therefore directly influenced by the political, economic and security
conditions affecting Israel. Any major hostilities involving Israel, or the
interruption or curtailment of trade or the movement of people within Israel or
between Israel and other countries, could significantly harm our business,
operating results and financial condition. Additionally, certain of our
employees are currently required to perform annual reserve duty in the Israeli
Defense Force and are subject to being called for active military duty at any
time. We have, in the past, operated effectively under these requirements. We
cannot predict the effect of these obligations on us in the future.

We are controlled by, and are dependent upon our relationship with, News
Corporation.

We are controlled by The News Corporation Limited ("News Corporation"), an
Australian corporation which is a diversified international media company. As at
the date hereof, News Corporation beneficially owns approximately 77.07% of our
total issued and outstanding share capital. Because News Corporation
beneficially owns 100% of our Series B ordinary shares, which have ten votes per
share (as opposed to our Series A ordinary shares which have one vote per
share), it controls approximately 97.11% of our voting power. By reason of such
ownership, News Corporation is able to elect our entire board of directors and
to control the votes on all other matters submitted to a vote of our
shareholders. Three of our six current directors are directors of News
Corporation. Additionally, Dr. Abe Peled, our President and Chief Executive, is
a member of News Corporation's executive committee and from time to time is
involved in matters pertaining to News Corporation's wider business interests.

Broadcasters and platform operators in which News Corporation has an
interest currently account for, and are expected to continue to account for, a
significant portion of our revenues. Such broadcasters are BSkyB, DIRECTV (from
December 2003), DIRECTV Latin America (from December 2003), Sky Brasil, Sky
Mexico, DTH TechCo, Sky Colombia, Sky Chile, Sky Italia, STAR TV, FOXTEL and Sky
Network Television. During 2004, approximately 59% of our revenues were derived
directly and indirectly from News Corporation-related broadcasters.

We conduct business transactions with News Corporation-related broadcasters
and platform operators on normal commercial terms. Agreements covering these
arrangements were entered into in the context of two entities over which a third
entity exercises significant influence or control. There can be no assurance
that each of the agreements, or the transactions provided for therein, or any
amendments thereof will be effected on terms at least as favourable to NDS as
could have been obtained from unaffiliated third parties.

In addition, because a number of major broadcasters around the world are
owned or controlled by entities that compete with News Corporation or entities
in which News Corporation has an interest, our ability to attract customers in
which News Corporation does not have an interest may be affected by their
perception of our relationship with News Corporation.

Your rights as shareholders differ from the rights of shareholders under US law.

NDS Group plc is a public limited company organised under the laws of
England and Wales. The rights of holders of ordinary shares and, indirectly,
many of the rights of holders of our American Depositary Shares ("ADSs") are
governed by English law and by our Memorandum and Articles of Association. These
rights differ from the rights of shareholders in typical US companies. In
particular, English law significantly limits the circumstances under which
shareholders of English companies may bring derivative actions. Under English
law generally, only NDS can be the proper plaintiff in proceedings in respect of
wrongful acts committed against us. In addition, it may be difficult for you to
enforce liabilities predicated upon US securities laws.


                       ITEM 4. INFORMATION ON THE COMPANY

History and development of the company

NDS Group plc is a public limited company incorporated and operating under
the laws of England and Wales. The company was incorporated in September 1985
and reorganised as a public limited company in October 1996. Our principal
executive offices and our registered office are located at One London Road,
Staines, Middlesex TW18 4EX, United Kingdom. Our main telephone number is +44 20
8476 8000.

We supply open end-to-end digital technology and services to digital pay
television platform operators and content providers. Our technologies include
conditional access and microprocessor security, broadcast stream management,
set-top box middleware, program guides ("EPG"), personal video recorder ("PVR")
technologies, and interactive applications. Our software systems, consultancy
and systems integration services are focused on providing platform operators and
content providers with technology to help them profit from the secure
distribution of digital information and entertainment.

                                       7
<PAGE>

On 16 December 2003, we acquired the MediaHighway middleware business from
a subsidiary of Thomson SA and licensed certain related patents from Thomson SA
for a total consideration of (euro)60 million in cash (GBP 43 million, including
costs). The acquisition involved the addition of approximately 300 employees,
based in Paris, France. The MediaHighway technology includes "middleware" used
in set-top boxes. The word "middleware" is an industry term which refers to
software, similar to the operating system of a PC (such as Microsoft Windows),
that is designed to be used in a set-top box and that enables the launch and
operation of interactive applications. The MediaHighway middleware complements
middleware previously developed by NDS. We are in the process of integrating the
acquired business with our existing middleware operations and now offer a full
range of middleware, from basic to the most advanced, all under the MediaHighway
brand.

During fiscal 2004, we have spent GBP 10.6 million on capital expenditure
in addition to the MediaHighway acquisition. The capital expenditure was driven
by the increase in headcount and included the purchase of equipment from DIRECTV
upon signing the new conditional access contract with them. We have also
invested in additional laboratory facilities to assist in the development and
testing of increasingly complex applications and systems provided to our
customers. We have expanded our research and development facilities in all
regions, including India and Korea. Our MediaHighway operations in France have
relocated to new premises just outside Paris, having previously shared premises
with Thomson. We have increased our smart card processing capacity in the USA.
This investment in facilities and equipment will continue into fiscal 2005, when
we expect to take possession of new leased premises in Jerusalem. Our capital
expenditure, other than by way of a business combination, amounted to GBP 6.6
million in fiscal 2003 and GBP 7.7 million in fiscal 2002.

Our growth, including the acquisition of MediaHighway and our capital
expenditure, has been financed by cash generated from operations. As at 30 June
2004 and as at the date hereof, we had no net debt.


Business overview

Our business is the supply of open end-to-end digital technology and
services to digital pay television platform operators and content providers. Our
technologies include conditional access and microprocessor security, broadcast
stream management, set-top box middleware, EPGs, PVR systems and interactive
applications, which are supplied to pay-TV platform operators and their content
providers. We consider that we operate in a single market and we manage our
business as a single segment. An analysis and discussion of our various revenue
streams (as determined under UK GAAP) is given in Item 5: "Operating and
financial review and prospects". A geographic analysis of the sources of our
revenues (as determined under UK GAAP) for each of the last three fiscal years
is given in Note 2b to our consolidated financial statements.

Our software systems and systems integration services are focused on
providing platform operators and content providers with technology to help them
profit from the secure distribution of digital information and entertainment, by
allowing them to: gain new subscribers; provide new services and gain new
revenue streams; increase revenue per subscriber; and, use software systems to
operate more efficiently.

We have identified three main categories of customers for our technologies
and services:

     o    The platform operator or broadcaster who typically operates the
          broadcast infrastructure. The platform operator is a potential
          customer for all of our technologies and services; we support many
          delivery methods including satellite, cable, terrestrial, fixed
          telecom networks (including broadband internet) and mobile telecom
          networks;

     o    The content provider or channel, who will purchase transmission
          capacity from the platform operator in order to broadcast its programs
          and information. These content providers or channels are potential
          buyers of our interactive television infrastructure and applications.
          Whilst these customers do not comprise a separate business segment, we
          consider them to provide a complementary route to market for some of
          our technologies and services. An application developed once for a
          channel on one platform, can be easily transferred to another platform
          and thereby provide the customer with some economies of scale; and

     o    Set-top box manufacturers and suppliers of other elements of the
          broadcast infrastructure with whom we work to integrate those aspects
          of our technologies which reside in devices supplied by them. In some
          instances we receive payment from these customers; in other instances
          both parties work together for no immediate payment, but receive
          income as and when the device is sold.

Viewers of a digital television service, who are customers (subscribers) of
the platform operator or the content provider, are users of our technology but
are not considered customers of ours because we have no direct commercial
relationship with them.


                                       8
<PAGE>

We are committed to developing industry co-operation by actively
participating in over 35 key standards bodies, consortia and working groups. We
use these forums proactively to promote open interfaces, which maximize
interoperability and enable broadcasters and platform operators to meet the
challenge of integrating broadcast, IT and telecommunications technology.

We consider that it is important for us and for platform operators that our
technology is integrated into many different set-top boxes, chips incorporated
in set-top boxes and other broadcast equipment. This is because the platform
operator and the subscriber have greater choice and security of supply and
because it aids price competition; ultimately it should lower the costs of the
platform operator and the subscriber. Our technology is integrated into set-top
boxes manufactured by over 48 consumer electronics manufacturers.

We compete in a number of business areas and no single company competes
with us in all our product lines. Competition is intense and in addition to
price and commercial terms, we consider the key differentiators to be:

     o    the level of security that our technology offers to a platform
          operator and the ability to maintain it;

     o    the quality and ease of use of our systems;

     o    the availability of other software elements like middleware,
          interactive software, EPG and PVR allowing the platform operators to
          provide additional services;

     o    the level of integration between the various elements;

     o    the availability of set-top boxes offered by manufacturers with whom
          our technology is integrated;

     o    the availability and cost of chips incorporated into our smart cards;

     o    the complexity of the system and the degree of adaptation and
          integration required;

     o    the degree of compliance with the various international, national and
          regional standards that relate to broadcast technology;

     o    the ability of our conditional access technology to work alongside
          that of a competitor's in a process known as "simulcrypt" which allows
          a platform operator to replace one conditional access system with
          another in a controlled manner without disabling a legacy population
          of set-top boxes; and

     o    the ability to integrate our technology with broadcast equipment and
          related systems.

We have our own sales force operating in the UK, Europe and the Middle
East, USA, Latin America and the Asia-Pacific region. They are supported by
regional marketing activity designed to promote awareness of our company and our
technologies and services in each region. We may bid jointly for projects to
implement a new platform with broadcast equipment manufacturers, system
integrators and consumer electronics manufacturers.

We offer technologies and services in the following main areas:

     o    conditional access systems and services;

     o    middleware;

     o    EPGs;

     o    new technologies, including interactive infrastructure, interactive
          applications and services and PVRs; and

     o    professional services.

Our customers may purchase technologies and services from us in one or more
of these main areas. We consider that these technologies and services comprise a
single business segment from which we derive a number of different revenue
streams. A discussion of these revenue streams and a quantitative commentary on
our business is given under Item 5: "Operating and Financial Review and
Prospects".

Conditional access systems and services

Conditional access systems are an essential component of a pay-TV platform.
Conditional access systems enable our customers to manage and control the secure
distribution of entertainment and information over a variety of broadcasting
media (such as cable, satellite, terrestrial, phone-line, internet, etc.), to
protect content from unauthorised viewing and to enable them to charge their
subscribers for viewing that content.

Our main conditional access systems are sold under the brand name
"VideoGuard". The VideoGuard family of systems is compatible with all
internationally accepted digital television transmission standards. VideoGuard
conditional access systems include:

     o    software components that are installed on dedicated server systems at
          the platform operator's facilities (the "head-end") and which are
          responsible for interfacing with the platform operator's subscriber
          management system, back-office and billing systems and play-out and
          transmission management systems;

                                       9
<PAGE>

     o    technologies that are integrated in the set-top box, and which permit
          the decryption of the broadcast signals and support various functions
          essential to the EPG, interactive applications and PVR functionality;
          and

     o    a removable smart card which is inserted into each set-top box and
          contains an embedded computer chip that, if authorised, generates code
          words used by the set-top box to decrypt the broadcast signal, and
          which also maintains information used to identify the subscriber.

The components located at the platform operators' head-end generate the
codes which are used by the transmission equipment to encrypt the content. The
encrypted content together with information describing the content and
information about the entitlement of each subscriber to view it based on his
subscription package are combined into a single transmission stream which is
received at the subscribers' homes. The conditional access software in the
subscriber's set-top box passes the encrypted programme material from the
transmission stream to the sub-system in the set-top box responsible for
decrypting. In parallel the conditional access software in the subscriber's
set-top box passes the information about the content and the information about
the subscriber's entitlement to the smart card. The information is processed by
the smart card which records any updates to the subscriber's viewing
entitlement. When a subscriber selects content or a service which he wishes to
view, the information about the content is checked against the subscriber's
viewing entitlements. If the subscriber is entitled to view the content, the
smart card generates the codes necessary to decrypt it and permit the subscriber
to view it.

A key element of our conditional access technology is the smart card which
is manufactured under strict security conditions by third party manufacturers,
based on proprietary designs provided by us and is subsequently programmed in a
secure manner at our facilities. The use of smart cards allows platform
operators to separate the implementation of conditional access from the set-top
box. This separation allows platform operators to introduce new features and
services without requiring replacement of all of the subscribers' set-top boxes.
New smart cards can be issued, or new security software can be downloaded to
existing smart cards. The smart card also enables the platform operator to
securely address a particular set-top box (or a sub-set of a population of
set-top boxes) to allow the download of new applications or functionality in a
controlled and targeted manner.

In order to maintain flexibility in the smart card procurement process and
to improve our ability to meet customer requirements, we have contracted with
multiple suppliers for smart card components. We generally negotiate with
multiple sources and contract with a sole source supplier to provide a
particular generation of smart card chip for each platform for the lifetime of
the smart card generation, (typically two to five years).

We believe that a long-term contract with a sole supplier for each smart
card generation provides a higher level of system security than other available
alternatives. The process for manufacturing chips is complex and our ability to
obtain supplies of particular chips when we need them is dependent on the
manufacturer having available capacity in its plant when we need it. The price
and availability of manufacturing capacity is also dependent on worldwide demand
for specialist computer chips generally. We also hold stocks of smart cards and
components as a buffer against demand exceeding supply. This inventory may be
held at our risk or we may, where possible, negotiate contract terms with our
customers to reduce the risk of our holding stock in excess of firm orders
placed by our customers.

All of our smart cards are tested, programmed and despatched from two
facilities, one in the UK and one in the US, which together are capable of
processing up to 40 million cards per year. In fiscal 2004, we distributed 8.0
million smart cards (which was significantly lower than the volumes processed in
fiscal 2003 and the volumes expected to be processed in fiscal 2005 and
subsequent years).

Implementations of VideoGuard range from multi-million subscriber digital
broadcast platforms down to small regional broadcasters with a few thousand
subscribers. VideoGuard is customisable and scaleable to a particular customer's
requirements. Variants of VideoGuard include one where all of the software is
securely embedded within the set-top box (dispensing with the separate smart
card) and, at the other extreme, variants where more of the set-top box
functionality is combined with that of the smart card and contained in a
detachable point of deployment module or "pod".

The security of our customers' content is a primary concern both for the
protection of their revenue streams and for our reputation as a provider of
conditional access systems. There have been in the past, and we expect that
there will continue to be, instances of unauthorised viewing or smart card
piracy affecting conditional access systems generally. A number of individuals
and organisations are engaged in the business of selling, or attempting to sell,
unauthorised viewing devices, including counterfeit smart cards. Other
unauthorised devices have the ability to upgrade the access permitted by genuine
smart cards or to reactivate genuine smart cards that have previously been
disabled by the platform operator.

We maintain a pro-active security policy by implementing electronic
over-the-air countermeasures altering authorised smart cards in a manner which
then renders counterfeit smart cards obsolete. We also provide our customers
with periodic replacement smart cards. Because we use a unique smart card chip
design for each of our large customers, a security failure affecting one of our
large customers should not affect the security of another customer. We refine
and update our technologies on a continuing basis as well as monitor signal
theft activity, and work with platform operators and law enforcement agencies to
detect and prosecute instances of unauthorised viewing and signal theft.

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<PAGE>

We negotiate individual agreements with each of our conditional access
customers reflecting the level of services they require. We receive revenues
from our conditional access systems and services by some combination of:

     o    fees for signal and network security, typically on a per authorised
          smart card basis ("subscriber fees");

     o    licence fees for the use of our technologies;

     o    fees for the ongoing maintenance, support and enhancement of the
          head-end components;

     o    fees for the design and adaptation of our systems to meet a customer's
          specific requirements;

     o    charges for the supply of smart cards for new subscribers, typically
          on a per-unit basis;

     o    fees for the supply of replacement smart cards;

     o    integration fees from set-top box manufacturers to incorporate our
          technologies in their products; and

     o    royalties from set-top box manufacturers or platform operators, based
          upon the number of set-top boxes manufactured, sold or activated.

We consider our main conditional access competitors to be NagraVision, a
division of Kudelski SA; DigiCypher, developed by Motorola, Inc.; Power Key,
developed by Scientific-Atlanta, Inc.; Irdeto BV; and Viaccess, a division of
France Telecom.

Middleware

Middleware is operating system software integrated in digital set-top
boxes. The combination of our conditional access technologies and set-top box
middleware enables applications to be run on the set-top box in a controlled and
secure manner, allowing our customers to provide applications and secure
interactive services to their subscribers.

Middleware receives information and applications from the broadcast stream
and executes the instructions contained in it as an application on the
television screen after receiving an input from the viewer by means of the
remote control or other external devices. Middleware therefore creates the
opportunity for a platform operator to enhance the subscriber's experience by
providing an audio and video environment capable of supplying shopping, e-mail,
games, banking and other interactive services.

Following the acquisition of the MediaHighway middleware business from
Thomson, we now have a full range of middleware solutions from basic to the most
advanced. Our entry-level solution, MediaHighway Core is an upgradeable
middleware solution that allows platform operators to deploy a wide range of
services, such as EPGs, interactive applications, and PVR capability, on low
cost set top boxes. MediaHighway Advanced is a middleware solution that runs on
high-end set-top boxes. MediaHighway Advanced complies with the major TV and web
open standards, including DVB-MHP, HTML 4.0, and JavaScript.

Our middleware solutions support advanced graphics and complex character
sets such as Chinese, Hebrew, Russian and Korean as well as supporting
application development tools to ease the production of new applications, either
by ourselves or by third parties.

We negotiate individual agreements with each of our middleware customers.
We receive revenues from our middleware systems and services by some combination
of:

     o    licence fees for the use of our technologies;

     o    royalties from set-top box manufacturers or platform operators, based
          upon the number of set-top boxes manufactured, sold or activated with
          our middleware;

     o    fees for ongoing maintenance, support and system enhancement;

     o    fees for the design and adaptation of our systems to meet a customer's
          specific requirements;

     o    integration fees from set-top box manufacturers to incorporate our
          middleware in their products; and

As at 30 June 2004, approximately 18 million set-top boxes had been shipped
incorporating MediaHighway technology. MediaHighway is integrated with our
VideoGuard conditional access technology and also with competitor conditional
access technologies. Conversely, VideoGuard is integrated with competitor
middleware. MediaHighway can also be used on "free to view" TV on platforms that
do not have a conditional access system. MediaHighway's principal competitor
products are OpenTV (developed by OpenTV Corp.), Alticast, Microsoft's TV
Foundation and Scientific Atlanta's PowerTV. Each of these middleware products
has different functionality and requires significantly different amounts of
processing and memory capacity in the set-top box.


                                       11
<PAGE>

EPGs

The EPG software application in the set-top box processes the programme
information contained in the transmission stream and provides an on-screen
listing of content and functions available to the subscriber, together with
details about individual programs. It is an essential component of any
multi-channel platform operator's system and provides the subscriber with a
logical, fast and easy-to-use means of selecting and changing channels. The
subscriber navigates around the EPG by using the remote control unit to view
program schedule information, change channels, store favourite channels, adjust
set-top box settings and, in some applications, purchase current and future
pay-per-view events.

Interactive infrastructure, applications and services

The ability of subscribers to interact with content creates opportunities
for the platform operator or content provider to generate additional revenues by
offering services designed to strengthen the relationship between the subscriber
and the platform and content. A broadcast infrastructure that enables
interactive services may aid the platform operator to win subscribers from rival
platform operators who have a less sophisticated infrastructure. Interactive
applications include voting applications, shopping applications and the mass
customisation of content based upon subscribers' preferences. Revenues generated
by these new technologies vary and include mainly development fees, license fees
and royalties per subscriber or user. In some cases an ongoing fee is payable
for support and maintenance which is dependent upon the number of subscribers
having access to, or making use of, the enhanced functionality, and in some
cases a fee based on a share of the revenues generated by our customers from
these services based on our new technologies. The revenue models for these new
technologies are in early stage of development and can therefore vary
significantly from customer to customer.

Interactive applications require functions to be executed both at the
platform operator's head-end and in the subscriber's set-top box. The more
sophisticated applications may depend on the ability to conduct secure
transactions between the subscriber and the platform operator via the return
path (e.g., a telephone line). We have developed capabilities for applications
to be downloaded into set-top boxes "over the air" quickly and securely.

Most companies compete with us only in certain aspects of interactive
television technologies and applications. Our main competitors are Open TV
Corp., Gemstar - TV Guide International, Inc. and many small software-authoring
companies.

Value@TV

Value@TV is our suite of software tools and technologies used to develop
interactive applications on various middleware systems. Value@TV allows
subscribers to execute transactions off-line because transaction information is
stored on the subscriber's smart card for later transmission to the broadcaster
over the return path. Applications using this technology are operated by
individual channels, but utilise the conditional access technology within the
broadcast platform's infrastructure.

Examples include: sports applications (which allow subscribers to watch a
sporting event while selecting from multiple camera angles, watching replays on
demand and downloading statistics about that sporting event in graphic or text
forms); shopping applications (such as those deployed by QVC: The Shopping
Channel UK on the BSkyB platform); music channel applications; banking
applications; and, voting applications.

Games

We have expertise in developing games and gaming applications for
television. These have been implemented on various middleware products and are
used by platform operators such as DIRECTV Latin America, BSkyB and Cablevision.
The games range from amusements for children to more sophisticated games for
adults. We believe that games provide content providers and platform operators
for the opportunity to add value to traditional programming by generating new
revenue streams, driving subscriber retention and acting as a showcase for the
introduction of interactive TV services.

PVR Technology - XTV

We have developed a PVR technology called XTV which extends the television
viewing experience by integrating mass-storage devices such as hard drives in
set-top boxes. The XTV software in the set-top box offers the viewer simple ways
to select viewing choices from the EPG. Subsequently, the XTV software accesses
the content being transmitted and records it onto the disk. Stored content can
then be viewed by the subscriber at his convenience. The technology also enables
the viewer to "pause live TV". The XTV-enabled set-top boxes and head-end
systems are tightly integrated with our conditional access technologies,
ensuring that the content in the subscriber's set-top box is stored in encrypted
form so that viewing, copying or distribution can be controlled by the platform
operator or content owner.

We do not manufacture or market the XTV-enabled set-top box. We have worked
with several set-top box manufacturers to develop XTV-enabled set-top boxes for
BSkyB and Sky Latin America in Brazil and Mexico. We are now working on the
implementation of XTV for four other platform customers.

Most of our competitors in PVR technologies are companies that market the
set-top box as well as the software required to operate a PVR. These companies
include Tivo, Inc. and Scientific Atlanta, Inc.

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OpenBet

Our OpenBet software is used by licensed bookmakers and gaming
organisations as a platform for internet and television-based bookmaking and
gaming operations. Although such bookmaking and gaming operations are highly
restricted in the US, their use is permitted in several jurisdictions including
the UK. OpenBet allows a single operator to create multiple betting sites (e.g.,
retail locations, internet, TV) all powered by the same OpenBet server. It has
two main elements: the OpenBet gambling engine and the OpenBet game framework.
The OpenBet gambling engine is the core of the system. It contains all the
central features required by any gambling site, including customer accounts,
registration and identity validation, electronic payment, event management,
liability management and monitoring, multi-currency and multi-lingual functions,
regulatory compliance, administration and reports. The OpenBet game framework
allows operators to develop their own games. Different types of games can be
hosted by the OpenBet game framework, such as sports betting, casino games,
lottery games and fantasy competitions. We are expanding the OpenBet product
group to include our own casino-type games and person-to-person betting.

OpenBet is used by many of the major bookmakers in the UK and some
companies in the Asia-Pacific region. It is the system that is used by several
bookmakers and gaming companies that operate specialist channels or applications
on the BSkyB platform.

Synamedia

Synamedia is our solution for distributing pay-TV content over broadband
networks, which incorporates our technologies for content personalisation,
content information, content protection, encryption and rights management. It
provides a broadband network operator with the ability to offer services such as
video-on-demand, multi-cast TV, video streaming, content guides, interactive
applications, secure commerce and PVR-type functionality. The subscriber to a
Synamedia platform may be using a PC or a set-top box, and the connection to the
network operator will typically be via a high-speed phone line. We have worked
closely with companies such as Alcatel to integrate Synamedia with other network
components. Our Synamedia technology has been successfully deployed in Japan
with BB Cable and is currently being deployed with four other customers.

Secure Video Processor - "SVP"

Unprotected digital content is a major issue for content owners because it
can be copied, widely redistributed and consumed at its original quality without
the content owners' ability to generate revenues out of it. Content protection
mechanisms are an essential element for content owners and service providers to
have in order to protect their business. The rights of content owners must be
balanced with the consumer's expectation to enjoy the content they have
purchased on different devices. Our SVP solution is designed to meet these
requirements. SVP is created by adding a small number of electronic components
into an existing video processor chip which can then be integrated into any
consumer electronic device such as digital television, set-top boxes, PVRs, DVDs
and portable devices. An SVP-enabled chipset manages both the content and the
right to use the content and allows content owners and service providers new
opportunities to distribute and package digital content while ensuring that
content owners' copyright are protected.

We are promoting SVP as an open standard, available to a wide range of
chipset developers, consumer electronics manufacturers and pay-TV operators to
ensure that the distribution of content in home networks is secure, low cost,
and meets the needs of consumers. We established the SVP alliance which is an
industry grouping of interested parties committed to promoting widespread secure
use of digital entertainment content in the home.

During 2004 we entered into a co-operation agreement with Thomson SA to
promote jointly the development of SVP and to combine it with Thomson's
technology for digital content protection. We also signed an agreement with ST
Microelectronics, a global chip manufacturer, to adopt our SVP technology.

Mobile DRM

Our mobile digital rights' management ("DRM") solution is designed to
leverage our technologies and expertise in content protection to deliver content
to mobile users. This will allow our existing customers and new potential
customers to benefit from the opportunities presented by the growing
availability of sophisticated mobile networks and devices. Our mobile DRM
solution is aimed at assisting companies who wish to distribute valuable content
to mobile phones in protecting the content revenues from threats of piracy and
providing flexible business models that raise revenues and increase network
traffic. Our solutions comply with relevant standards such as OMA DRM and
support multiple delivery mechanisms including downloading, streaming,
unicasting, multicasting, broadcasting, and secure billing and payments.


Professional Services

We complement our technologies with a wide range of services, including
consulting, broadcast system design and integration, support and maintenance
and, in some cases, on-site operation and management of systems we have supplied
to our customers.

                                       13
<PAGE>

Our experience in implementing large and complex systems has enabled us to
sell services to assist companies in planning and designing new platforms.
System integration involves both the selection of appropriate vendors and the
integration of various components, including those of third party manufacturers,
into a single operational broadcast system. Once our customers' systems are
operational, we offer them after-sale services including ongoing support and
maintenance. We also offer consulting services, including business consulting
and technical assistance, as well as security design for interactive and other
advanced services.

We charge one-time fees for our software and systems that vary depending on
the scale and complexity of the implementation. We provide design, customisation
and integration services for either a fixed price fee or on a time and materials
basis.

In broadcast systems integration we compete with other TV platform
suppliers such as Motorola, Inc., Scientific-Atlanta, Inc., Thomson and Philips
Electronics.


Intellectual property

The technology on which our business is dependent is critical to our
success. We need to protect our intellectual property rights, both in our
proprietary technology and in technology which is licensed to us. We rely on a
combination of patent, copyright and trademark laws, trade secrets, licences,
confidentiality agreements and contractual provisions to protect our proprietary
rights. We generally enter into confidentiality and non-disclosure agreements
with our employees, customers and suppliers.

We are the exclusive worldwide licensee of various patents, patent
applications and patentable inventions from Yeda Research & Development Company
Limited in Israel in the area of digital identification and signature schemes,
which have been invented by Professor Adi Shamir ("the Shamir Patents"). We pay
a royalty to Yeda Research & Development Company based on a percentage of
relevant revenues arising from our conditional access technologies.

We have a worldwide non-exclusive licence to use certain patents owned by
Thomson SA which support the MediaHighway middleware technologies. The licence
was entered into as part of the MediaHighway acquisition.

We are also a non-exclusive licensee of intellectual property rights owned
by various third parties. These rights have been acquired by the payment of a
fixed sum or royalty.

We have developed core competencies in advanced technologies that are
incorporated in a number of our systems. These proprietary technologies address
specific needs of our customers and help us establish and maintain a competitive
advantage.

We work on the development of high security encryption algorithms. These
are mathematical procedures implemented in software that are used to accomplish
a specific function such as encrypting or decrypting data, messages or video
signals by means of secret keys and code words. Our security research team has
developed a number of proprietary high-security encryption algorithms used in
our conditional access systems.

Our chip design team has developed a number of proprietary improvements to
the security and functionality of chips that we integrate into our smart cards.
Such improvements include, for example, functions that hinder the unauthorised
duplication of our smart cards or the use of counterfeit smart cards in a
set-top box.

We have developed a number of techniques that allow us to send specially
disguised and encoded messages that disable or alter the operating
characteristics of our smart cards. These technologies allow our customers to
disable the smart cards of delinquent subscribers. In addition, they allow our
customers to combat signal theft more effectively, by altering the operating
characteristics of all valid smart cards in a way which makes counterfeit smart
cards incompatible with the signals transmitted by our customers.

We have developed sophisticated protocols for transmitting authorisation,
entitlement and other control messages to smart cards. These protocols allow
control messages to be compressed in a way which consumes only a small fraction
of the broadcaster's bandwidth, allowing the broadcaster to transmit more
programmes and channels to its subscribers without having to compromise its
ability to control each individual subscriber's viewing entitlements.


Regulation

We are not an operator of conditional access systems. However, our
technology is used by broadcasters and operators of conditional access systems.
Our customers may therefore be subject to regulation in the jurisdictions in
which they offer their services. These regulations, which differ from
jurisdiction to jurisdiction, and future changes or additions to such
regulations, may affect our ability to sell our conditional access technologies
and services.

                                       14
<PAGE>

We do not operate as a bookmaker. However, our OpenBet software is a
betting and gaming application. Our customers are therefore subject to
regulation in the jurisdictions in which they offer their services. This may
involve the independent certification of our software. In many jurisdictions,
betting and gaming regulations are being reviewed, specifically to address
betting and gaming on the internet and via interactive television applications.
It is possible that our customers will become subject to new regulations in this
area. The current regulations, which differ from jurisdiction to jurisdiction,
and any future changes in such regulations, may affect our ability to sell our
technologies and services related to betting and gaming.


Organisational structure

NDS Group plc operates through a number of subsidiaries. There is a common
management structure across the Group, which ensures that the various subsidiary
companies operate in a co-ordinated and complementary manner. A list of the
Company's significant subsidiaries is attached as Exhibit 8 to this Annual
Report. We manage our business as a single operating unit or segment.


Property, plants and equipment

We operate from a number of locations principally located in the UK,
Israel, France and USA. All of our facilities are leased. A list of our main
facilities is set out below.
<TABLE>
<CAPTION>

                                                                                       Approximate
    Location                       Principal Use                                       Size (sq ft)

<S>                                                                                           <C>
    Staines, UK                    Executive and administrative offices                       42,000
    Maidenhead, UK                 Smart card processing and distribution                     15,000
    Chandlers Ford, UK             Software development and system integration                29,000
    Chiswick, UK                   Development of betting applications                        15,000
    Jerusalem, Israel              Research and development, conditional access system       100,000
                                   support
    Newport Beach, CA, US          Executive offices of NDS Americas                          16,000
    Lake Forest, CA, US            Smart card processing and distribution                     29,000
    Issy-les-Moulineaux, France    Software development                                       66,000
</TABLE>

In addition, we have leased premises in Hong Kong; Copenhagen, Denmark;
Beijing, China; Bangalore, India; Seoul, South Korea; and Sydney, Australia.

During the year ended 30 June 2004, we incurred capital expenditure of GBP
1.9 million related to fixtures, fittings and other improvements to leasehold
premises.

Our premises in Jerusalem, Israel are in a number of separate buildings. We
have entered into a lease to occupy a single building of approximately 160,000
square feet in the same area of Jerusalem. We expect to take possession of the
premises by the end of calendar 2004 and we have agreed to terminate our current
leases thereafter. We will incur some capital expenditure in fitting out the new
premises and have budgeted approximately GBP 1 million of such expenditure in
fiscal 2005.

We also have identified some surplus property leases which we have either
sub-let or are attempting to dispose of. We have a provision as at 30 June 2004
of GBP 4.8 million in respect of future rental costs on properties which we will
probably be unable to sub-let and certain other costs relating to termination of
contracts. The maximum potential liability is approximately GBP 9.4 million and
extends to 2014. The provision is based on the net amount we expect to pay after
recoveries from third parties.

Apart from office accommodation and equipment, we own laboratory, design,
development and test equipment that is necessary in order to conduct our
research and development activities and provide our customers with products and
services. During 2004 we spent approximately GBP 8.6 million on such capital
items. The nature of the equipment is such that it has a relatively short
estimated useful life (typically three to five years) and we expect to incur
capital expenditure in the future so that our facilities remain up-to-date.

We have received grants from the government of the State of Israel towards
the cost of certain capital expenditure. If the conditions of the grants are not
complied with, we may be required to refund the grants, in whole or in part,
with interest from the date of receipt. The major conditions relating to a grant
concern the maintenance of adequate non-distributable reserves and retention of
the associated assets for a set period of time. The cumulative amount received
and receivable to 30 June 2004 amounted to approximately GBP 6 million. It is
not anticipated that any repayment will be required. The fixed assets of NDS
Technologies Israel Limited, with a net book value of approximately GBP 5.4
million as at 30 June 2004, are the subject of a floating charge to secure
compliance with the terms of the grants.

                                       15
<PAGE>


              ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our
consolidated financial statements, including the related notes, that appear
elsewhere in this Annual Report on Form 20-F. Our consolidated financial
statements have been prepared in accordance with UK GAAP, which differs in some
respects from US GAAP. Note 31 to our consolidated financial statements explains
the principal differences and provides reconciliations of profits and
shareholders' equity determined under UK GAAP to those that would be reported
under US GAAP.

The following discussion contains forward-looking statements relating to
future events and the future financial performance of NDS, each of which
involves risks and uncertainties. Future events and actual results could differ
materially from those described in the forward-looking statements.

Overview

Our business is described in Item 4: "Information on the Company". The
technology that we supply is a business-critical element of the broadcasting
systems used by pay-TV platform operators and others involved in the
distribution of entertainment and related content to multiple consumers. We have
long-term contracts with many of our customers reflecting the fact that the
technology choices made by our customers are major investment decisions which
are not easy to change and which require on-going commitment from both parties.
A significant proportion of our revenues is driven by the number of subscribers,
and the growth in the number of subscribers, to a particular pay-TV platform.
Certain of our new technologies may provide platform operators and content
providers with additional revenue streams and may further drive subscriber
growth or aid subscriber retention. Therefore, a key performance measure for our
business is the number of subscribers to our platform customers and the
potential of those platform customers to grow their subscriber bases. As of 30
June 2004, there were 44.0 million active set-top boxes using our conditional
access technology, a rise of 9.3 million of the year. A cumulative 18 million
set-top boxes had been distributed incorporating our middleware. We currently
support 40 pay-TV platforms around the world in the UK, Europe and the Middle
East, the USA, Latin America and the Asia-Pacific region

Until 13 August 2003, we provided conditional access services, including
the supply of smart cards to DIRECTV in the USA. The contract came to an end on
13 August 2003 and subsequently we received payments under post-termination
support arrangements. Additionally, we received payments from DIRECTV for the
use of NDS technology contained within cards which DIRECTV had procured from a
third party. In March 2004, NDS and DIRECTV signed a new six-year contract for
conditional access services, which was effective from 1 March 2004. Under the
new contract, we receive monthly fees for the provision of conditional access
services, which includes NDS taking on the obligation to provide periodic
replacement smart cards in the future as an integral part of the security
maintenance activities. In June 2004, we also took on the supply of new smart
cards. Therefore fiscal 2004 was a year of transition as we moved from the end
of one DIRECTV contract to a new relationship with them.

During fiscal 2004, we have increased our headcount and purchased
additional technical equipment for use by our research and development and
operations staff. This has increased our operating cost base. Part of this
increase is to support the new conditional access agreement with DIRECTV. We
have also increased the number of employees involved in the development of
applications which we characterise as new technologies. Much of this development
has been in advance of signing contracts with customers for such new
applications.

A further element of investment in fiscal 2004 was been the acquisition of
the MediaHighway middleware business from Thomson SA in December 2003 for
EUR 60 million. This has increased the range of middleware functionality that
we can offer our customers.

During fiscal 2004, we worked on major delivery projects for Foxtel, Sky
Italia, Sky Life, Sky Latin America, Galaxy, Cablevision and BSI. We also
completed the conditional access conversion for Viasat from a competitor system
to NDS VideoGuard, eliminating piracy and expanding functionality.

As a consequence of these factors our revenues were GBP 221 million in
fiscal 2004 compared to GBP 237 million in fiscal 2004. Our net income was GBP
18 million in fiscal 2004 compared to GBP 26 million in fiscal 2003.


                                       16
<PAGE>

Explanation of revenues and expenses

We consider that we operate as a single segment and our business is managed
as such. There are no separate divisions or profit centres. To assist in
assessing the financial performance of our business, we have identified a number
of revenue streams and cost categories. Elements within each line item are
measured according to our accounting policies which are set out in Note 1 to our
consolidated financial statements.

Revenues

We have identified four principal revenue streams of our business:
conditional access revenues; integration, development and support fees; licence
fees and royalties; and revenues from new technologies. These revenues are
derived as follows:

Conditional access revenues

Conditional access revenues from a particular platform operator are
generally related to the number of subscribers to that platform. Contracts with
customers typically provide for the long-term supply of smart cards and the
provision of conditional access services to preserve the security of the
platform. The volume of smart cards supplied depends on demand by consumers for
set-top boxes, which enable the subscriber to receive a broadcaster's programmes
and services. The nature and extent of the security services vary by customer
and are reflected in the fees paid, which are typically determined by the number
of smart cards in use and authorised by the platform operator. Thus, a
significant proportion of the growth in conditional access revenues is driven by
the growth in the underlying subscriber bases of our pay-TV customers.

Conditional access revenues consist of sales of smart cards and the receipt
of subscriber fees. Smart cards are sold to the broadcaster at an agreed unit
price for use by their subscribers. In some circumstances, we receive fees from
broadcasters for the maintenance of the security of conditional access systems
for a specified duration which is typically between 24 and 48 months. Fees are
received over the duration of the agreed service period and are related to the
number of subscribers to the platform. In some instances, the maintenance of
security requires us to replace a population of smart cards ("changeover
cards"). In other cases, a broadcaster may purchase separately new cards for all
its customers at an agreed price which may be discounted to reflect the size of
an order and the fact that the development of the replacement cards has been
paid for separately.

Integration, development and support revenues

Integration, development and support consists of activities such as
software development and adaptation; design, implementation and project
management of broadcasting systems; and, ongoing support and maintenance of
software and broadcast systems. Integration, development and support fees are
related to our ability to obtain new customers for systems and technology and to
provide sufficient resources to accept a new contract. Such revenues depend on
the amount of time required to manage the integration, customise or develop the
software and also on the level of support and assistance required by the
customer.

Contracts for development, integration and installation work are undertaken
for customers on the basis of time and materials, or according to fixed price
terms, or a combination of the two. The duration of such contracts has varied
from a few weeks to approximately two years. Contracts for the initial supply of
a system are typically followed by separate contracts for system enhancements
and additional features. Support and maintenance contracts typically involve
negotiation of a fixed periodic fee over the term of the contract.

Licence fees and royalties

We derive licence fees and royalties from licensing technology to
broadcasters for use in their head-end and to set-top box manufacturers. Licence
revenues are dependent upon our ability to obtain new customers and upon the
ongoing needs of existing customers to expand their services or upgrade their
systems to more sophisticated technology. Royalty income is typically receivable
on the basis of the number of units manufactured or deployed by a licensee.
Royalties are generally a function of the number of set-top boxes manufactured,
which in turn is dependent upon the ability of the broadcaster or service
provider to generate new subscribers.

New technologies

We have developed, and are marketing, new technologies which offer the
platform operator or content provider the opportunity to increase the revenue
per subscriber through enhancing the viewing experience and delivering more than
just video. Examples include games and gaming, interactive applications, PVR
technologies, OpenBet, and Synamedia (technology to manage and control the
secure distribution of digital content via broadband networks). Revenues under
this category are in the form of development fees, licence fees or royalties per
subscriber or user. These are typically earned on the successful deployment of
technology to a customer or on the manufacture of the set-top box or device
containing the technology. In some instances, an ongoing fee is payable for
support and maintenance which is dependent upon the number of subscribers having
access to, or making use of, the enhanced functionality. We have entered into
several revenue-share arrangements.

                                       17
<PAGE>

The new technologies revenue stream depends upon us developing and selling
applications for use by platform operators and content providers, and the
take-up by subscribers of new services, applications and functions offered by
the service provider.

Expenses

Expenses consist of cost of goods sold, sales and marketing expenses,
research and development costs and general and administration expenses. The
largest element of our total operating expenses is personnel costs.

Cost of goods sold

Cost of goods sold primarily consists of the physical and processing costs
of smart cards, personnel costs incurred in the provision of services and
royalties paid to owners of certain intellectual property rights which we have
incorporated within our technologies.

The physical costs of smart cards include the costs of the integrated
circuits manufactured by third party suppliers, the micro-module which houses
the computer chips and the plastic body of the smart cards. We do not
manufacture smart cards, but our engineers design their embedded computer chips,
arrange for their manufacture and assembly by third party suppliers and then
program the smart cards with proprietary software. Component costs are dependent
upon the costs of raw materials, including the cost of computer chips, plastic
and assembly, and the volume of smart cards purchased and processed in any
period.

Cost of goods sold also includes an appropriate provision towards the cost
of replacing smart cards where we have agreed to assume this liability and the
obligation is reflected in the fees charged to the customer.

Personnel costs included in cost of goods sold are largely determined by
the time spent by relevant employees in fulfilling customer contracts. Costs
include an allocation of direct overhead.

Royalty costs are payable under licensing agreements with third parties for
the use of intellectual property rights incorporated in our technologies. Such
royalties are typically a function of relevant revenues. Where we have purchased
rights to use technologies developed by third parties (other than as part of a
business acquisition), this cost category includes the amortisation of the
purchase price.

Sales and marketing

Sales and marketing costs mainly consist of personnel and related costs of
our sales and marketing staff in the UK, Europe and the Middle East, the USA and
the Asia-Pacific region. Marketing costs also include advertising, exhibitions,
marketing communications and demonstration activities.

Research and development

Research and development costs consist mainly of salary and related costs
attributable to employees in Israel, the UK, France, Denmark, China and India
who are developing our technology. Costs include consumables and the
depreciation of equipment used in development and test activities and the
benefit of grants which we have received from the government of the State of
Israel. All research and development costs are written off in the period in
which they are incurred.

General and administration

General and administration costs consist primarily of personnel,
facilities, infrastructure, legal and administration costs. A separate element
of operating costs is foreign exchange gains and losses. As an international
business, NDS transacts with customers and suppliers in a number of currencies
and is therefore exposed to gains and losses arising on the translation of
monetary assets and liabilities denominated in currencies other than pounds
sterling.

Amortisation of intangible fixed assets

Our assets include goodwill and other intangible assets arising on the
acquisition of the businesses which together comprise NDS as it is now
structured. This includes goodwill and other intangible assets recognised as
part of the acquisitions of Orbis, Visionik and MediaHighway.


Critical accounting policies

Our discussion and analysis of our financial condition and financial
performance are based upon our consolidated financial statements, which have
been prepared in accordance with UK GAAP. Our reported financial results are
dependent, amongst other things, on our choice of accounting policies, the
application of those policies, and on the use of estimates. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the amounts of reported revenues and expenses for the fiscal period. Judgements
involved in making estimates can significantly affect our reported profits,
assets and liabilities.



                                       18
<PAGE>

Our accounting policies are set out in detail in Note 1 to our consolidated
financial statements. The policies and estimation techniques which we consider
are most critical relate to the valuation of assets (principally intangible
fixed assets, accounts receivable and inventory) and the recognition or
de-recognition of liabilities (principally revenue recognition and provisions).
The following accounting policies require significant management judgements and
estimates.

Intangible fixed assets

We have significant intangible assets, primarily intellectual property
rights and goodwill arising in connection with business combinations. We account
for business combinations under the purchase method of accounting. The total
cost of acquisitions is allocated to the underlying net assets acquired, based
on their respective estimated fair market values. Goodwill is recorded as the
difference between the cost of acquiring an entity and the estimated fair market
values assigned to its tangible and identifiable intangible net assets at the
date of acquisition. Determining the fair market value of assets acquired and
liabilities assumed requires management's judgement and often involves the use
of significant estimates and assumptions, including assumptions with respect to
future cash inflows and outflows, discount rates, asset lives, and market
multiples. Intangible assets are amortised over their expected useful lives and
the remaining useful life is re-assessed from time to time. If we identify a
permanent diminution in value of intangible fixed assets we record an impairment
provision. The judgements made in determining the estimated fair market value
assigned to each class of intangible assets acquired as well as their useful
lives and any potential impairment can significantly impact on our reported
operating profits.

Liabilities to customers

The technologies and services we supply to our customers are technically
complicated and are frequently covered by long-term contracts. In assessing the
amounts of revenue recognised in any period, we must make estimates about such
matters as the future costs we will incur to complete our contractual
obligations and, if these costs exceed estimated future revenues, make a
provision for the estimated loss. Where we have obligations to supply smart
cards in the future as part of our support and maintenance obligations, we are
required to estimate future costs and revenues associated with this activity and
accrue a provision for a proportion of the cost of our card changeover
obligations. These estimates include an assessment of the likely timing of the
card changeover, the number of smart cards to be supplied and the costs of those
smart cards. The judgements made in determining the value of our liabilities to
customers can significantly impact our reported operating profits.

Stocks

Stocks are valued at the lower of costs and net realisable value. The
judgements made in estimating net realisable value include making estimates
about the volume of cards which we will supply to our customers and an
assessment of any imbalance between future estimated card supply and our stock
and our purchase commitments which we make to the manufacturers of our smart
cards. These judgements can significantly impact our reported operating profits.

Litigation and intellectual property claims

Certain of our customers and others have from time to time made allegations
and claims in law against us. The existence of these matters require us to make
estimates of the likely outcome of the actions or potential claims and to make a
provision for any liabilities where it is probable that we will make a
settlement or be subject to an adverse court ruling. The judgements made in
assessing the amount, if any, of provisions required can significantly impact
our reported operating profits.

New accounting pronouncements

UK law has mandated the use of International Financial Reporting Standards
("IFRS") for listed companies reporting within the European Union for financial
periods ending on or after 31 December 2005. NDS Group plc will be subject to
this requirement, commencing with the financial statements for the year ending
30 June 2006. IFRS differ in many respects from UK GAAP and there is a
prescribed methodology for first-time adoption. Not all the standards that will
be applicable on first-time adoption have yet been published in final form. We
have made an initial study of the key differences between UK GAAP and IFRS and
continue to monitor the evolving standards as they are published. We are not
able to ascertain at this time what the effect adoption of IFRS will have on our
reported financial results or financial position.


                                       19
<PAGE>

Results of operations

The results of our operations for the three years in the period ended 30
June 2004 are presented and analysed below according to the revenue streams and
cost categories identified above. The measurement of revenues and costs is in
accordance with our accounting policies under UK GAAP as described in detail in
Note 1 to our consolidated financial statements.
<TABLE>
<CAPTION>

                                                           Year ended            Year ended            Year ended
                                                              30 June                30 June              30 June
                                                                 2004                   2003                 2002
                                                          GBP '000                  GBP '000             GBP '000
Revenues
<S>                                                           <C>                    <C>                   <C>
Conditional access                                            118,880                144,789               125,068
Integration, development & support                             32,044                 33,234                43,737
Licence fees & royalties                                       29,101                 22,254                30,615
New technologies                                               36,950                 32,451                33,338
Other revenue                                                   3,558                  4,509                 8,030
                                                      ------------------     ------------------    ------------------
Total revenues                                                220,533                237,237               240,788
                                                      ------------------     ------------------    ------------------

Cost of sales
Smart card & changeover provisions                            (28,352)               (63,309)              (49,160)
Operations & support                                          (27,322)               (21,124)              (23,300)
Royalties                                                      (4,250)                (4,638)               (4,397)
Other                                                          (1,669)                (5,396)               (6,250)
                                                      ------------------     ------------------    ------------------
Total cost of sales                                           (61,593)               (94,467)              (83,107)
                                                      ------------------     ------------------    ------------------
Gross profit                                                  158,940                142,770               157,681
                                                      ------------------     ------------------    ------------------
Gross profit as % of revenue                                   72.1%                  60.2%                 65.5%

Operating expenses, excluding amortisation of
intangible fixed assets and exceptional items
Sales & marketing expenses                                    (14,445)               (14,208)              (15,876)
Research & development                                        (82,491)               (61,294)              (68,738)
General & administration                                      (18,252)               (21,528)              (21,619)
Foreign exchange gains (losses)                                 1,085                  1,130                (1,403)
Losses on investments                                            (244)                  (465)                    -
                                                      ------------------     ------------------    ------------------
Total                                                        (114,357)               (96,365)             (107,636)
                                                      ------------------     ------------------    ------------------
Operating income, before amortisation of intangible
fixed assets (EBITA)                                           44,585                 46,405                50,045
Operating income as % of revenue                               20.2%                  19.6%                 20.8%

Regular amortisation of intangibles                           (12,252)                (9,602)               (7,350)
Impairment charge                                              (6,510)                     -                     -
                                                      ------------------     ------------------    ------------------
Operating profit                                               25,821                 36,803                42,695

Share of associate's operating profit (loss)                        -                   (280)                   21
Net interest income                                             4,214                  2,887                 2,513
                                                      ------------------     ------------------    ------------------
Profit on ordinary activities before tax                       30,035                 39,410                45,229

Taxation                                                      (12,038)               (13,472)              (14,551)
                                                      ------------------     ------------------    ------------------
Profit on ordinary activities after tax                        17,997                 25,938                30,678

Equity minority interests                                         472                    102                     -

                                                      ------------------     ------------------    ------------------
Net profit                                                     18,469                 26,040                30,678
                                                      ------------------     ------------------    ------------------

</TABLE>

Commentary on year ended 30 June 2004 compared to year ended 30 June 2003

The results of the year and the comparison with prior year are
significantly affected by business conducted with DIRECTV. Until 13 August 2003,
we provided conditional access services, including the supply of smart cards to
DIRECTV in the United States. The contract came to an end on 13 August 2003 and
subsequently we received payments under post-termination support arrangements.
Additionally, we received payments from DIRECTV for the use of NDS technology
contained within cards which DIRECTV had procured from a third party.


                                       20
<PAGE>

In March 2004, NDS and DIRECTV signed a new six-year contract for
conditional access services, which was effective from 1 March 2004. Under the
new contract, we receive monthly fees for the provision of conditional access
services, which includes NDS taking on the obligation to provide periodic
replacement smart cards in the future as an integral part of the security
maintenance activities. In June 2004, we also took on the supply of new smart
cards.

Comparisons are also affected by the results of the MediaHighway business
which we acquired on 16 December 2003.

Revenues

Full year revenues were GBP 220.5 million, compared to GBP 237.2 million in
the prior year. The reduction in revenues of 7% is due to the decrease in
revenues from DIRECTV, off-set in part by the acquisition of the MediaHighway
business; excluding DIRECTV and the acquisition of the MediaHighway business,
underlying revenues have increased by 19%.

Conditional access revenues were GBP 118.9 million for the year, compared
to GBP 144.8 million in the prior year, a reduction of 18%. In fiscal 2003, we
shipped substantial volumes of smart cards to DIRECTV for their card changeover.
These shipments ceased in May 2003 and resumed, following completion of
transitional arrangements in the new contract, in June 2004. Conditional access
services income from DIRECTV, based on the number of authorised cards and
subscribers ceased on expiry of the old contract in August 2003 and resumed, at
a higher level, in March 2004. We shipped a total of 8.0 million cards in the
year across all our customers, compared to 19.3 million in fiscal 2003.
Subscriber growth has continued across most platforms. As at June 2004, 44.0
million authorised smart cards containing NDS technology were in use, a rise of
9.6 million or 28% over the year. In addition to growth at DIRECTV, there has
also been substantial shipment of cards and growth in subscribers at Sky Italia
(which is in the process of switching all its subscribers to NDS technology),
Viasat in Scandinavia (where NDS conditional access is replacing an incumbent
supplier) and FOXTEL in Australia (which launched a full digital service in
March 2004).

Integration, development and support revenues were GBP 32.0 million for the
year, compared to GBP 33.2 million in the prior year, a decline of 4%. Major
project deliveries in the year include FOXTEL, Sky Italia, Galaxy in Hong Kong,
Viasat and Voom in the US. Additional system enhancements were provided to BSkyB
in the UK, Cablevision in the US, Sky Life in Korea and our customers in Latin
America and Israel. We have delivered change requests and routine maintenance
services to existing pay-TV customers. We continue to earn revenues from
integrating our technology with many different manufacturers of set-top boxes
and components for use in consumer devices. We have earned revenues from several
manufacturers who have brought out new set-top box models, particularly for use
in the Asia-Pacific and European markets.

Licence fee and royalty income was GBP 29.1 million for the year, compared
to GBP 22.3 million in the prior year, an increase of 30%. There has been a
decline in licence fee income (i.e., fees paid on delivery of a system),
reflecting the nature of systems delivered in the year and an evolution in our
business model whereby a greater proportion of our revenues is dependent on
subscriber growth. Royalty income (i.e. fees paid on deployment of set-top
boxes) has increased. This is due to higher production volumes of set-top boxes
reported by manufacturers across many platforms, reflecting the growth in
subscribers. This revenue stream includes royalties from set-top box
manufacturers in respect of MediaHighway middleware, arising principally from
the Canal+ platform family.

Revenues from new technologies increased by 14% to GBP 37.0 million for the
year, from GBP 32.5 million in the prior year. The increase reflects an
increasing penetration of our MediaHighway advanced middleware and of our PVR
technology into deployed set-top boxes. We continue to earn revenues for the
authentication and authorisation of interactive services on the BSkyB and other
platforms, which are driven by underlying subscriber numbers.

The comparison of reported revenues has been adversely affected by the
relative weakness of the US dollar in the current year compared to the previous
year. We estimate that the weaker US dollar reduced reported revenues in fiscal
2004 by about 4% in comparison to fiscal 2003.

Margins

Gross margin was 72.1%, compared to 60.2% in the prior year. As with
revenues, comparative margins are materially affected by the DIRECTV contracts.
In fiscal 2003, card sales to DIRECTV were very high and at a discounted price
reflecting the size of the order. This lowered the margin over the year as a
whole, but the effect was less marked in the fourth quarter as the order was
completed. Margins in the first two quarters of fiscal 2004 were boosted by
compensatory conditional access payments from DIRECTV which had no associated
material cost of sales. Margins have been lower since March 2004 as the new
DIRECTV contract has come into effect. A major component of cost of sales is now
the provision for future DIRECTV card changeovers. Prior year numbers were also
adversely affected by a bad debt charge, part of which was reversed in the
current year on the partial payment of debts previously written off, due to two
customers emerging from bankruptcy protection.

                                       21
<PAGE>

Operating Expenses

We made a decision to increase substantially the resources and capacity of
the NDS business in fiscal 2004, as we believed that this would be fundamental
to the positioning of NDS to take full advantage of renewed economic growth and
the plans of our major customers further to develop their businesses. As a
result, headcount has risen substantially. At June 2004 we employed just over
2,000 staff (including contractors). We have recruited 245 new employees since
June 2003 and the MediaHighway acquisition added a further 300 employees,
resulting in increased operating expenses. This has been especially marked in
research and development where costs (including facilities and support costs)
have increased from GBP 61.3 million to GBP 82.5 million for the year. This
includes all of the costs of the MediaHighway operations in France. The increase
in underlying costs is greater than the reported amounts would indicate, as the
costs of our Israel facilities are denominated in US dollars and therefore
reported sterling amounts have benefited from the weaker dollar / sterling
exchange rate.

Sales and marketing costs have remained flat year-on-year. General and
administrative expenses (which exclude foreign exchange gains and losses, and
the amortisation of intangible fixed assets acquired as part of a business
combination) have declined. The prior year included costs incurred in connection
with litigation of GBP 3.8 million. Litigation costs have continued to be
incurred in the current year, albeit it at a lower level.

Included within operating costs in the current quarter is a net amount of
GBP 0.2 million related to the disposal of our 80% investment in Fancy a Flutter
Limited, which operated a games and gaming channel on the BSkyB platform. Having
invested in setting up the channel in May 2003, in partnership with the Rank
Group, as a means of demonstrating how our technologies could be combined into
an integrated way to offer a new gaming experience to the viewer, we decided to
sell it as a going concern to a company that had the expertise in consumer
marketing required to grow the business. Its results were not material to NDS.

We also incurred net foreign exchange gains resulting from the volatility
in the currency exchange rates. Substantially all of the current year gain of
GBP 1.1 million arose on a Euro forward purchase contract to fix the purchase
price of the MediaHighway acquisition in the period between signing the
acquisition agreement and the completion of the transaction. Other net gains and
losses on currency revaluations broadly cancelled out, compared to a net gain of
GBP 1.1 million in fiscal 2003 because we have had a "natural hedge" on various
currency flows. We have not entered into any other free-standing derivative
contracts during either of the two years ended 30 June 2004 to mitigate against
currency risk, but we continue to monitor the situation.

EBITA

Our preferred operating measure of profitability, EBITA (defined as
operating profit before amortisation of intangible fixed assets acquired as part
of a business combination) was GBP 44.6 million, compared to GBP 46.4 million in
the prior full year. We consider this to be a useful measure of profitability
for investors and management in comparing results from different periods. Some
of our intellectual property rights have been developed internally and are not
recognised as assets; others have been purchased by way of a business
combination and recognised as assets whose amortisation is an expense in
subsequent periods. Therefore EBITA measures profitability before this
distortion. Operating profit under UK GAAP is equal to EBITA less charges for
amortisation of intangible fixed assets acquired as part of a business
combination as shown below under "Operating profit". Operating profit as
measured under UK GAAP was GBP 25.8 million for the year (being EBITA as defined
above of GBP 44.6 million less amortisation and impairment charge totalling GBP
18.8 million), compared to GBP 36.8 million for the prior year (being EBITA of
GBP 46.4 million less amortisation of GBP 9.6 million). The change in EBITA over
the year reflects a combination of changed gross margins related primarily to
the DIRECTV contracts and increased operating costs. Much of the increased
operating cost has been devoted to new product development and has not yielded
additional revenues in the current period. Additionally, the incremental
operational costs resulting from the MediaHighway acquisition have, as expected,
exceeded the incremental revenues. Together, all these factors have slightly
increased the operating margin percentage in the current year.

Amortisation

The charge for the amortisation of intangible fixed assets acquired as part
of a business combination includes amounts relating to the MediaHighway
acquisition. Following the acquisition, we obtained an independent valuation of
the separable intangible assets acquired. We also examined in detail the plans
and projections of the acquired business and the way in which it has been
integrated quickly into the rest of the NDS organisation. As a result of this
assessment we have concluded that the values attributed to the intellectual
property rights and products of the MediaHighway business (GBP 34.7 million at
acquisition) are supported by our business plans and cash flow projections.
However, the projections of the incremental future cash flows attributable to
the acquired business do not support the value of goodwill acquired. Accordingly
we have recorded an impairment charge to write down the acquired goodwill from
its cost of GBP 6.5 million to nil.

Operating profit

As a result of the factors outlined above, operating profit as measured
under UK GAAP was GBP 25.8 million for the year (being EBITA as defined above of
GBP 44.6 million less amortisation and impairment charge totalling GBP 18.8
million), compared to GBP 36.8 million for the prior year (being EBITA of GBP
46.4 million less amortisation of GBP 9.6 million).


                                       22
<PAGE>

Interest

Interest income was higher in the current year due to higher average cash
balances.

Taxation

Our effective tax rate has increased from 34.2% in fiscal 2003 to 40.0% in
fiscal 2004. This is due to a greater proportion of disallowable amortisation
charges and in particular, the goodwill impairment charge. We have also
generated tax losses in certain subsidiaries for which no immediate relief is
available and for part of which, no deferred tax asset has been recognised. This
is partially off-set by the availability of certain research and development tax
credits in the UK.

Profit for the year attributable to shareholders

The net profit attributable to shareholders was GBP 18.5 million for the
full year, compared to GBP 26.0 million for the prior year.


Commentary on year ended 30 June 2003 compared to year ended 30 June 2002
Revenues

Revenues decreased by 1% to GBP 237.2 million in 2003 from GBP 240.8
million in 2002.

Conditional access revenues increased by 16% to GBP 144.8 million in 2003
from GBP 125.1 million in 2002. The bulk of the increase was attributable to
DIRECTV. During the period commencing in February 2002 and finishing in May
2003, we supplied 20 million smart cards to DIRECTV as part of a planned card
changeover programme. 14.1 million units were shipped in 2003 versus 5.9 million
units in 2002. Demand for smart cards from customers in Europe and Latin America
was at similar levels to 2002, but shipments to customers in Latin America were
much lower in 2003. We recognised income on a total of 19.3 million units in
2003, compared to 14.7 million in 2002. A further 6.7 million units were
supplied to BSkyB as part of the planned card changeover required to sustain the
security of the system. BSkyB paid for these replacement cards as part of its
monthly per-subscriber fee and therefore these units had no direct impact on
reported revenues in the period. As at 30 June 2003, 34.4 million smart cards
supplied by NDS were in use by our customers' subscribers, compared to 29.6
million at 30 June 2002. This represents a net increase of 4.8 million
subscribers or 16% over the year.

Integration, development and support revenues declined by 24% to GBP 33.2
million in 2003 from GBP 43.7 million in 2002. During 2003, we delivered new
systems to customers in Taiwan and China, but these projects were smaller than
those completed in 2002, which included a major system for SkyLife in Korea.
Income was also earned in the year from enhancements to major systems installed
in previous periods, as well as from long-term ongoing support and maintenance
contracts. The number of support and maintenance contracts increased as more
broadcasters purchased these services. However gross revenues declined during
2003 because several customers purchased support for hardware directly from the
supplier, rather than via NDS.

Licence fees and royalty income declined by 27% to GBP 22.3 million in 2003
from GBP 30.6 million in 2002. Licence fee income declined as a consequence of
the low number of larger new systems supplied in 2003 compared to 2002. During
the first half of 2003, we experienced a marked decline in set-top box
royalties, which we attribute to manufacturers and distributors drawing down
their inventories (on which we had been paid royalties in previous periods).
This decline reversed in the second half of 2003. An increasing proportion of
royalty income was derived from NDS Core and our EPGs.

Revenues from new technologies declined by 2% to GBP 32.5 million in 2003
compared to GBP 33.3 million in 2002. Several new licence agreements were signed
during the year for our OpenBet software. During 2003, we delivered our
Synamedia system for use over broadband networks to BB Cable in Japan. We
continued to earn fees for the authentication and authorisation of interactive
services on the BSkyB and other platforms, which are driven by underlying
subscriber numbers. Revenues in this caption in 2002 included initial amounts
received in respect of our XTV PVR technology which is being used by BSkyB and
which is being marketed under the brand "Sky+", and additional but lower
revenues were recognised in 2003.

Other revenues include income earned from managing the personalisation,
fulfilment and distribution of smart cards for certain customers and hardware
supplied to customers as part of an overall system. Revenue from smart card
fulfilment services was higher because of the high volumes of smart cards
supplied to BSkyB as part of its card changeover. Hardware supplied to customers
was lower in 2003 because we supplied fewer large systems.

Overall, revenues were also adversely affected in 2003 compared to 2002
because of the weaker US dollar compared to sterling. Approximately 61% of our
revenues were denominated in US dollars.

Cost of sales and gross margin

Cost of goods sold increased to GBP 94.5 million in 2003 from GBP 83.1
million in 2002. Gross profit as a percentage of revenues declined to 60.2% in
2003 from 65.5% in 2002. The biggest cost increase was in smart card material
costs, due to the high volumes of cards supplied during the year. Because of
lower prices charged to DIRECTV, reflecting a volume discount because of the
size of the order, gross margins from card sales were lower. Lower costs of
operations and support, which are largely a function of staff costs, reflected
the lower level of system deliveries in 2003. The higher charge for royalties
was primarily due to revenue mix, as our conditional access revenues attract
higher royalty payments. Other cost of sales was lower because of fewer
purchases of hardware for supply to customers as part of a system delivery.
Other cost of sales included a bad debt expense of GBP 1.6 million in 2003 and
GBP 1.8 million in 2002. The charge in 2003 related to two customers who
defaulted on agreed payment plans; the charge in 2002 related to three customers
who entered bankruptcy.

                                       23
<PAGE>

Operating expenses

Sales and marketing expenses declined by 11% to GBP 14.2 million in 2003
from GBP 15.9 million in 2002. The decline was as a result of a more targeted
approach to marketing, concentrating on key trade shows and audiences, combined
with some redeployment of employees within our business. The weaker US dollar
reduced sterling-reported costs of our US sales and marketing activities, where
we increased headcount and activity.

Research and development expenditure decreased by 11% to GBP 61.3 million
in 2003 from GBP 68.7 million in 2002. Average full-time headcount in research
and development activities actually increased from 841 to 879. Most of the
growth was in relatively low-cost regions, particularly in India. The main
reason for the decline in research and development expenditure in 2003 was the
weaker US dollar, which reduced the sterling-reported costs of our Israeli
operations. In US dollar terms, the costs of our Israeli operations declined by
about 10%, mainly through reduced use of contractors and lower discretionary
expenditure, including travel, which is a consequence of the lower level of
project deliveries in the year.

General and administration costs (which exclude foreign exchange gains and
losses, losses on investments and charges for the amortisation of intangible
fixed assets acquired as part of a business combination) decreased marginally to
GBP 21.5 million in 2003 from GBP 21.6 million in 2002. During 2003 were
incurred costs associated with litigation of GBP 3.8 million, compared to GBP
1.6 million in 2002. In 2002 we also recorded a charge of GBP 2.3 million in
respect of onerous property leases identified as being surplus to our
requirements.

During 2003 and following discussions with the fund manager, it became
apparent that there was little prospect of realising value in the foreseeable
future from an investment in a venture capital fund. Accordingly the investment
with a cost of GBP 0.5 million was written-off.

During 2003 we recorded foreign exchange gains of GBP 1.1 million compared
to losses of GBP 1.4 million in 2002. We estimate that foreign exchange gains
reported in the profit and loss account, combined with the reduction in reported
revenues and costs referred to above, have had a broadly neutral effect on
reported operating profit and a negative affect on reported net assets (the
latter showing in the accounts as a movement in reserves).

EBITA

The factors outlined above have resulted in a decrease in the EBITA measure
of profitability to GBP 46.4 million in 2003 from GBP 50.0 million in 2002. As a
percentage of revenues, this measure has decreased from 20.8% in 2002 to 19.6%
in 2003. Operating profit under UK GAAP is equal to EBITA less charges for
amortisation of intangible fixed assets acquired as part of a business
combination as shown below under "Operating profit". Operating profit as
measured under UK GAAP was GBP 25.8 million for the year (being EBITA as defined
above of GBP 44.6 million less amortisation and impairment charge totalling GBP
18.8 million), compared to GBP 36.8 million for the prior year (being EBITA of
GBP 46.4 million less amortisation of GBP 9.6 million).

Amortisation

Charges for the amortisation of intangible fixed assets acquired as part of
a business combination rose from GBP 7.4 million in 2002 to GBP 9.6 million in
2003. This is due to the acquisition of certain intellectual property rights as
part of the Visionik acquisition in May 2002 and the consequence of increasing
(in March 2002) the amount of goodwill arising on the Orbis acquisition.

Operating profit

The factors outlined above have resulted in a decrease in operating profit
under UK GAAP to GBP 36.8 million (being EBITA of GBP 46.4 million less
amortisation of GBP 9.6 million) in 2003 from GBP 42.7 million in 2002 (being
EBITA of GBP 50.0 million less amortisation of GBP 7.4 million).

Non-operating items

In 2003 we earned net interest income of GBP 2.9 million on cash balances
compared to GBP 2.5 million in 2002. Our cash balances have increased in the
year but this has been offset by reductions in interest rates.

During 2003 we terminated our relationship with ADSR Limited, a chip design
and consultancy company in which we had a 40% equity interest. As part of the
termination we received a rebate of certain fees paid to ADSR, we purchased
certain of its fixed assets and obtained full repayment of loan financing
provided to ADSR. We then sold our shares for a nominal sum. These transactions
resulted in a net charge of GBP 0.3 million.

                                       24
<PAGE>

Taxation

The effective tax rate increased to 34.2% of profit before tax in 2003 from
32.2% of profit before tax in 2002. The increase in the effective tax rate was
due to the increase in the proportion of non-deductible charges for the
amortisation of goodwill and the generation of certain losses for which no
effective relief is available as a result of the write-off of fixed asset
investments and the disposal of our investment in ADSR.

Profit for the year attributable to shareholders

As a result of the factors outlined above, net profit attributable to the
ordinary shareholders of NDS Group plc declined 15% from GBP 30.7 million to GBP
26.0 million.


Differences between UK GAAP and US GAAP

The financial information discussed in the preceding section has been
prepared in accordance with UK GAAP, which differs in some respects from US
GAAP. An explanation and reconciliations of the differences in net income
between UK GAAP and US GAAP is given in Note 31 to our consolidated financial
statements. None of the recent US GAAP pronouncements is expected to have a
significant effect on reported income or net assets of NDS.


Liquidity and capital resources

Cash generated from operating activities amounted to GBP 62.4 million for
the year ended 30 June 2004. The increase in business activity towards the end
of the year has resulted in large movements in working capital. Receivables have
increased by GBP 30 million over the year. This is due to higher billings,
especially in the fourth quarter. Customer deposits and deferred income have
increased by GBP 17 million over the year as a result of orders received and
partially paid, for cards and services to be delivered in fiscal 2005. Inventory
has increased by GBP 12 million over the year as a result of procuring smart
cards to meet orders from Sky Italia and DIRECTV. Other liabilities and
provisions have increased by GBP 34 million due to higher liabilities in respect
of card changeover obligations, very large inventory purchases towards the end
of the year (which were unpaid as at year end) and increases in other
liabilities reflecting the growth in the number of employees and general trading
activity. In particular, our obligations to DIRECTV to provide future changeover
cards to ensure the security of the conditional access system will become very
significant in the future and generate large movements in working capital.

After interest, tax and capital expenditure, we generated cash of GBP 42
million. Net cash generated in the year, after acquisition payments of GBP 38
million, was GBP 4 million and we ended the year with cash of GBP 125 million.

As at 30 June 2004, approximately GBP 18.6 million of our cash was held in
US dollars and GBP 10.5 million in euros, with most of the remainder being held
in sterling. To date, we have placed cash in excess of our immediate
requirements on deposit with banks, typically with a term of between one day and
three months. We have not invested in marketable securities. As at 30 June 2004,
GBP 91.5 million was held on short-term deposit, with the remaining GBP 33.6
million being in immediately available funds.

As at 30 June 2004, and as of the date hereof, we have an unused facility
to borrow up to GBP 30 million from a subsidiary of The News Corporation
Limited. No amounts have been drawn under this facility during fiscal 2004 or
subsequently.

Cash accumulated is being held with the intention of using it for the
future development of the business and there are currently no plans to pay any
dividends to shareholders, although this is regularly reviewed by the Directors.
We expect that we have sufficient working capital resources for our present
requirements.


Research and development, patents and licences, etc.

Expenditure on research and development in each of the three years ended 30
June 2004 is shown in Note 3a to our consolidated financial statements; the
numbers of staff involved are disclosed in Note 6b to our consolidated financial
statements. Software engineers and equipment are the biggest components of
research and development expenditure. Most of our research and development
activities are conducted either in our conditional access research and
development facilities in Israel, or in our software development facilities in
the UK, France, China, India, Korea and Denmark. The majority of our research
and development activities are centred on enhancing and expanding the scope and
functionality of our existing technologies.


                                       25
<PAGE>

Where we license our patents and other forms of intellectual property to
third parties we receive revenue. This may be by way of a licence fee or
royalty, or the value of the intellectual property rights may be reflected in
the overall package of fees negotiated for our technologies and services, or
some combination thereof. We believe that we have the necessary licences for the
use of third party software incorporated into our technologies. Revenues and
costs associated with licensed rights are discussed above.


Trend information

The results of fiscal 2004 and the comparison with fiscal 2003 are
significantly affected by business conducted with DIRECTV. Until 13 August 2003,
we provided conditional access services, including the supply of smart cards to
DIRECTV in the United States. The contract came to an end on 13 August 2003 and
subsequently we received payments under post-termination support arrangements.
Additionally, we received payments from DIRECTV for the use of NDS technology
contained within cards which DIRECTV had procured from a third party. In March
2004, NDS and DIRECTV signed a new six-year contract for conditional access
services, which was effective from 1 March 2004. Under the new contract, we
receive monthly fees for the provision of conditional access services, which
includes NDS taking on the obligation to provide periodic replacement smart
cards in the future as an integral part of the security maintenance activities.
In June 2004, we also took on the supply of new smart cards.

A significant portion of our revenues is derived from our sale of smart
cards, security fees paid by our customers based upon the number of their
subscribers and royalties paid to us for each set-top box incorporating our
technology which is manufactured or deployed. These revenues are largely
dependent upon our customers' subscriber numbers, the growth in our customers'
subscriber numbers and the number of smart cards required in any period by our
customers. If our customers' subscriber numbers do not continue to increase, or
if the number of smart cards required in any period by our customers decreases
substantially, we are unlikely to be able to generate or sustain substantial
revenue growth and our operating results will be seriously harmed.

Part of our approach to maintaining the security of a particular platform
is to replace the population of smart cards from time to time. For some
customers, we have not assumed any liabilities to replace a population of smart
cards so that when this happens it significantly changes the number of smart
cards shipped from period to period, with the associated effects on revenues,
costs and inventory balances. Under the previous contract with DIRECTV, we
earned revenues from the supply of changeover cards and this significantly
boosted revenues in fiscal 2003. No such card changeovers occurred in fiscal
2004; two are currently expected to occur in fiscal 2005. For certain other
customers (including DIRECTV under our new contract) we assume the liability for
maintaining the security of their conditional access systems; we change over a
population of smart cards from time to time as an integral part of our security
maintenance obligations. Our assessment of the risks of security breach and the
effect that assessment has on the timing of card changeovers significantly
affects our margins and the liabilities recognised at any balance sheet date.
This factor will become more significant in the future as a greater proportion
of our customer base is covered by this type of security maintenance contract.

A majority of the existing large digital satellite broadcasters have
already entered into arrangements relating to conditional access software and
services, and few new large systems are being planned. If we are unsuccessful in
obtaining new digital broadcasting customers, we are unlikely to be able to
generate or sustain substantial revenue growth and our operating results will be
seriously harmed.

The largest element of our operating costs are employee costs and property
costs incurred to provide the facilities in which our employees work. The number
of employees has risen to reflect the increase in the number of platform
customers and the increase in the complexity of our technologies. Our headcount
increased significantly in fiscal 2004, both due to the MediaHighway acquisition
and the growth in our research and development and customer operations groups.
We are continuing to recruit additional employees and therefore we expect our
operating costs to be higher in fiscal 2005 than in 2004.

Comparisons are also affected by the results of the MediaHighway business
which we acquired on 16 December 2003. For the period from 16 December 2003
until 30 June 2004 the MediaHighway business contribution to our consolidated
results was revenue of GBP 7.8 million, cost of sales of GBP 0.5 million,
operating expenses of GBP 14.2 million, plus GBP 2.6 million of regular
amortisation and GBP 6.5 million of goodwill impairment charge.

We have increased the number of employees working on development of new
technologies, especially PVR and advanced middleware functionality. We have
chosen to develop proto-types and demonstrations of technologies for potential
customers in advance of entering into binding contracts with those customers
(which may include DIRECTV). These costs, which will continue to be incurred in
fiscal 2005, might ultimately not be recovered from our customers should they
choose not to proceed or if our expectations of commercial terms and prices
differ from those ultimately negotiated.

                                       26
<PAGE>

We are involved in a number of ongoing litigation matters, which are
discussed more fully under Item 8: "Financial Information - Litigation". We may
incur costs in the future in defending actions initiated against us and in
pursuing matters initiated by us. This may have a materially adverse affect on
our operating results.


Off-balance sheet arrangements

We do not have any off-balance sheet arrangements requiring disclosure
under this section.


Tabular disclosure of contractual obligations
<TABLE>
<CAPTION>
                                                                              Payments due by period
                                                   -----------------------------------------------------------------------------
                                                                       Less than                                      More than
Contractual obligations                                    Total          1 year       1-3 years      3-5 years         5 years
                                                        GBP '000        GBP '000        GBP '000       GBP '000        GBP '000
<S>                         <C>                           <C>             <C>            <C>             <C>            <C>
Long-term debt obligations                                     -              -               -               -              -
Capital (finance) lease obligations                            -              -               -               -              -
Operating lease obligations (1)                           63,414          8,027          14,855          12,443         28,089
Smart card purchase obligations (2)                       64,917         64,917               -               -              -
Capital expenditure purchase obligations (3)                 300            300               -               -              -
Changeover provisions (4)                                 15,975              -               -          15,975              -
Provisions for employee benefits and taxes (5)             2,054              -               -               -          2,054
Due in respect of acquisitions (6)                             9              9               -               -              -
                                                   -------------- --------------- --------------- -------------- ---------------
Total                                                    146,669         73,253          14,855          28,418         30,143
                                                   -------------- --------------- --------------- -------------- ---------------
</TABLE>

(1) Operating lease obligations
This is as shown in Note 26b to our consolidated financial statements. GBP
4,775,000 of the total is provided for as at 30 June 2004, in respect of vacant
leasehold premises as described in Note 17 to our consolidated financial
statements. The provision is based on the net amount expected to be paid by NDS
after recoveries from third parties.

(2) Smart card purchase obligations
This represents the value of binding orders placed on suppliers. The amount
relates to the future purchase of stocks to be used in the ordinary course of
business and is not provided for in the financial statements.

(3) Capital expenditure purchase obligations
This represents the value of binding orders placed on suppliers. The amount
relates to the future purchase of capital equipment to be used in the ordinary
course of business and is not provided for in the financial statements.

(4) Changeover provisions
The amount stated above is the amount provided for as at 30 June 2004, as
determined using the accounting policy set out in Note 1m to our consolidated
financial statements. We estimate that the total cost of providing changeover
cards to satisfy our liabilities under the current cycle of our security
maintenance obligations amounts to approximately GBP 100 million. The timing of
the expenditure depends on our assessment of the security risk facing our
customers and the timing of deliveries of smart cards from our suppliers,
amongst other factors.

(5) Provisions for employee benefits and taxes
GBP 1,336,000 of this amount relates to employee severance pay obligations
referred to in Note 26d to our consolidated financial statements. Amounts are
only payable if employees cease to be in employment in certain circumstances and
only to the extent that the amount due is not funded by insurance policies. GBP
478,000 of this amount relates to our liability to pay UK Employer's National
Insurance on the exercise by employees of certain share options. The timing and
amount actually payable depends on when the employees exercise the options and
the share price prevailing on the date of exercise. GBP 240,000 of this amount
relates to a UK defined benefit scheme. The actual deficit on the scheme as at
30 June 2004 was GBP 4,042,000, as set out in Note 27 to our consolidated
financial statements.

(6) Due in respect of acquisitions
A final payment of GBP 9,000 is due to the vendors of Visionik, which we
acquired in May 2002. The amount is included within current liabilities as at 30
June 2004.


                                       27
<PAGE>


               ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and senior management

As of the date hereof, our directors are as follows:
<TABLE>
<CAPTION>

Name                        Date of birth         Position                                 Position held since

<S>                         <C>       <C>                                                          <C>
David DeVoe                 5 January 1947        Non-Executive Director                   October 1996
Nathan Gantcher             17 July 1940          Non-Executive Director                   January 2004
Lachlan Murdoch             8 September 1971      Non-Executive Director                   February 2002
Dr. Abe Peled               21 September 1945     Executive Director, President and        July 1995
                                                  Chief Executive Officer
Peter Powers                9 April 1944          Non-Executive Director                   January 2000

Arthur Siskind              11 October 1938       Non-Executive Director                   October 1996
</TABLE>

David DeVoe, Arthur Siskind and Lachlan Murdoch are directors of News
Corporation, which beneficially owns approximately 77.1% of our total issued and
outstanding share capital and controls approximately 97.1% of the voting power
of the Company.

The sole executive officer of NDS (in addition to Dr. Peled) is Rick
Medlock, Chief Financial Officer and Company Secretary, whose date of birth is 1
April 1960 and who has held the position since July 1996. Rick Medlock will
resign as Chief Financial Officer and Company Secretary upon the filing of this
Annual Report.

The persons named above together comprise the body which exercises
administrative, supervisory and management responsibility for our affairs. Set
out below is further information with respect to these persons.

David DeVoe has been a non-executive director of NDS since October 1996 and
is a member of the Audit and Remuneration Committees. Mr. DeVoe has also been an
Executive Director of News Corporation since 1990, Senior Executive Vice
President since 1996 and Chief Financial Officer and Finance Director since
1990. Mr. DeVoe served as an Executive Vice President of News Corporation from
1990 until 1996. He has been a director of News America Incorporated since 1991,
Senior Executive Vice President since 1998 and Executive Vice President from
1991 to 1998. Mr. DeVoe has been a director of Fox Entertainment Group, Inc.
since 1991, and Senior Executive Vice President and Chief Financial Officer
since 1998. Mr DeVoe has been a director of STAR Group Limited since 1993. Mr.
DeVoe has been a director of BSkyB since 1994, a director of Gemstar-TV Guide
International, Inc. since 2001 and a director of DIRECTV since December 2003.

Nathan Gantcher joined the board as a non-executive director on 5 January
2004. He is a member of the Audit and Remuneration Committees. Mr Gantcher is a
private investor and serves on several corporate boards. He was the Chief
Executive Officer and co-chairman of Alpha Investment Management LLC and prior
to that was the vice-chairman of CIBC World Markets Corporation.

Rick Medlock was appointed Chief Financial Officer and Company Secretary of
NDS in 1996. Mr. Medlock served as Finance Director of Creative Group Holdings
Ltd. from April 1994 until its sale in December 1994 to Policy Management
Systems Corporation ("PMSC"), at which time Mr. Medlock was appointed Chief
Financial Officer, Europe of PMSC. He is currently a non-executive director of
Mondiale Publishing Limited and until 12 February 2004 was a non-executive
director of Logistics Technology Group Limited. He is a fellow of the Institute
of Chartered Accountants in England and Wales. Mr. Medlock received an M.A. in
Economics from the University of Cambridge in 1983. Rick Medlock will resign as
Chief Financial Officer and Company Secretary upon the filing of this Annual
Report.

Lachlan Murdoch has been a director of NDS since February 2002. Mr. Murdoch
has been an Executive Director of News Corporation since 1996 and Deputy Chief
Operating Officer since 2000. Mr. Murdoch served as a Senior Executive Vice
President of News Corporation from 1999 to 2000. Mr. Murdoch has been a director
of News Limited since 1995, Chairman since 1997 and served as Chief Executive
from 1997 to 2000, Managing Director from 1996 to 1997 and Deputy Chief
Executive from 1995 to 1996. He has been a director of News America Incorporated
since 1999. Mr. Murdoch has been the Chairman of Queensland Press Limited since
1996 and a director since 1994. Mr. Murdoch has been Deputy Chairman of STAR
Group Limited since 1995. Mr. Murdoch has been a director of FOXTEL Management
since 1998 and a director of Gemstar-TV Guide International, Inc. since 2001.
Mr. Murdoch is the son of Mr. K. Rupert Murdoch, Chairman and Chief Executive of
News Corporation.

Abe Peled joined NDS as a director, President and Chief Executive Officer
in July 1995. Prior to his employment with us, Dr. Peled served as Senior Vice
President for business development for Elron Electronic Industries, based in
Haifa. Dr. Peled was employed by IBM in the US from 1974 to 1993, at which time
he served as Research Division Vice President, Systems and Software, with
responsibility for all research and advanced development worldwide. Dr. Peled
received his BSc and MSc degrees in Electrical Engineering from the
Technion-Israel Institute of Technology and his M.A. and Ph.D. degrees in
Electrical Engineering from Princeton University. Dr. Peled also serves on News
Corporation's Executive Committee and advises News Corporation with respect to
various technology matters.

                                       28
<PAGE>

Peter Powers has been a non-executive director of NDS since January 2000.
He is chairman of the Remuneration and Audit Committees. Mr. Powers is President
and Chief Executive Officer of Powers Global Strategies LLC and served as First
Deputy Mayor of the City of New York from 1994 to 1996. He has served as a
director of Fox Entertainment Group, Inc. since 2003. Mr Powers is a director of
Partnership for New York City, Association for a Better New York, NYC&Co.,
Central Park Conservancy and Safe Horizons. He is also a director of
International Steel Group where he serves on the Compensation Committee and the
Nominating and Corporate Governance Committee.

Arthur Siskind has been a non-executive director of NDS since October 1996.
Mr. Siskind has also been an Executive Director of News Corporation since 1991.
He has been a Senior Executive Vice President of News Corporation since 1996 and
Group General Counsel since 1991. Mr Siskind served as Executive Vice President
of News Corporation from 1991 until 1996. Mr Siskind has been a director of News
America Incorporated since 1991, a Senior Executive Vice President since 1998
and served as Executive Vice President from 1991 to 1998. Mr. Siskind has been a
director, Senior Executive Vice President and General Counsel of Fox
Entertainment Group, Inc. since 1998. Mr. Siskind has been a director of STAR
Group Limited since 1993 and a director of BSkyB since 1992. Mr. Siskind has
been a Member of the Bar of the State of New York since 1962.


Compensation

The Company's policy on senior executive's remuneration for the current and
future fiscal years is that the overall remuneration package should be
sufficiently competitive to attract, retain and motivate high quality executives
capable of achieving the Group's objectives and thereby enhancing shareholder
value.

The remuneration of the individuals identified above in respect of the year
ended 30 June 2004 was as follows:
<TABLE>
<CAPTION>

                          Salary or fees       Benefits          Bonus      Expense           Pension          Total
                                                                          allowance     contributions
                                     GBP            GBP            GBP          GBP                              GBP
<S>                              <C>              <C>          <C>           <C>              <C>            <C>
 David DeVoe                           -              -              -            -                                -
 Nathan Gantcher                  25,427              -              -            -                -          25,427
 Rick Medlock                    190,000          5,181        120,000       11,580           14,878         341,639
 Lachlan Murdoch                       -              -              -            -                                -
 Abe Peled                       500,000        116,708        400,000       40,000           50,000       1,106,708
 Peter Powers                     43,707              -              -            -                -          43,707
 Arthur Siskind                        -              -              -            -                -               -
                         ---------------- -------------- -------------- ------------ ----------------- --------------
                                 759,134        121,889        520,000       51,580           64,878       1,517,481
                         ---------------- -------------- -------------- ------------ ----------------- --------------
</TABLE>

Benefits comprise the provision of a company car and health insurance and,
in respect of Abe Peled only, the provision of accommodation in London. Pension
contributions are amounts paid by NDS in respect of a money purchase pension
scheme. Fees paid in respect of Nathan Gantcher and Peter Powers were paid, at
their request, to entities connected with them, rather than to the individuals
personally.


Interests in options

David DeVoe, Nathan Gantcher, Lachlan Murdoch and Arthur Siskind have no
interest in options over shares in the Company. Interests of the other directors
and officers in options over Series A ordinary shares of US$0.01 each are set
out below. All options have been granted under the employee share options
schemes described in Note 19c to our consolidated financial statements. There
are no performance criteria associated with vesting.

                                       29
<PAGE>
<TABLE>
<CAPTION>


a)  Rick Medlock
Exercise            Held at      Exercised during   Granted during    Cancelled during            Held at
price          30 June 2003           fiscal 2004      fiscal 2004         fiscal 2004       30 June 2004
<S>                   <C>                                                                         <C>
$8.14                 19,000                -                    -                 -              19,000
$8.14                 30,500                -                    -                 -              30,500
$9.85                 30,500                -                    -                 -              30,500
$20.00                60,000                -                    -                 -              60,000
$21.90                21,100                -                    -                 -              21,100
$8.096                 1,799                -                    -                 -               1,799
$6.50                 16,000                -                    -                 -              16,000
$17.12                     -                -               20,000                 -              20,000
             ---------------- -------------------- ----------------- ------------------- -----------------
                     178,899                -               20,000                 -             198,899
             ---------------- -------------------- ----------------- ------------------- -----------------
</TABLE>

Subsequent to 30 June 2004, Rick Medlock exercised 10,000 options at an
exercise price of $8.14. On 24 September 2004, his unvested options lapsed. As
of 18 October 2004, he has the following options:

Exercise              Vested as at
price              18 October 2004
$8.14                       9,000
$8.14                      30,500
$9.85                      30,500
$20.00                     60,000
$21.90                     10,550
$6.50                       4,000
                 ------------------
                          144,550
                 ------------------

These options expire on 23 September 2005.
<TABLE>
<CAPTION>

b)  Abe Peled
Exercise             Held at          Exercised   Granted during         Cancelled             Held at            Vested as at
price           30 June 2003      during fiscal      fiscal 2004     during fiscal    30 June 2004 and         18 October 2004
                                           2004                               2004       at 18 October
                                                                                                  2004
<S>                  <C>                                                                     <C>                     <C>
$8.14                132,500                 -                 -                 -           132,500                 132,500
$8.14                 88,000                 -                 -                 -            88,000                  88,000
$9.85                 88,000                 -                 -                 -            88,000                  88,000
$20.00               200,000                 -                 -                 -           200,000                 200,000
$21.90                56,000                 -                 -                 -            56,000                  42,000
$6.50                 40,000                 -                 -                 -            40,000                  10,000
$17.12                     -                 -            60,000                 -            60,000                       -
             ----------------- ----------------- ----------------- ----------------- ------------------     -------------------
                     604,500                 -            60,000           (40,000)          664,500                 560,500
             ----------------- ----------------- ----------------- ----------------- ------------------     -------------------
</TABLE>

These options expire between 21 May 2007 and 5 November 2013.

<TABLE>
<CAPTION>

c)  Peter Powers
Exercise             Held at          Exercised   Granted during         Cancelled             Held at            Vested as at
price           30 June 2003      during fiscal      fiscal 2004     during fiscal    30 June 2004 and         18 October 2004
                                           2004                               2004       at 18 October
                                                                                                  2004
<S>                    <C>                                                                     <C>                     <C>
$20.00                 5,000                 -                 -                 -             5,000                   5,000
$21.90                 5,000                 -                 -                 -             5,000                   3,750
$6.50                  5,000                 -                 -                 -             5,000                   1,250
$17.12                     -                 -             5,000                 -             5,000                       -
             ----------------- ----------------- ----------------- ----------------- ------------------     -------------------
                      15,000                 -             5,000                 -            20,000                  10,000
             ----------------- ----------------- ----------------- ----------------- ------------------     -------------------
</TABLE>

These options expire between 24 January 2010 and 5 November 2013.

During the year ended 30 June 2001, Peter Powers was granted 5,000 options
at an exercise price which was below their intrinsic value on the date of grant.
The value of the discount is charged to the profit and loss account over the
vesting period of the options as share-based compensation and the charge for
2004 was GBP 6,466, which is in addition to the amounts of remuneration
disclosed above. Save for this item, all other options issued since our initial
public offering have been granted at the closing price quoted on Nasdaq on the
last trading day preceding the grant. Options granted prior to our initial
public offering were granted based on the directors' estimate of the market
value of the Company, having taken independent advice.

                                       30
<PAGE>

Board practices

Board of directors

Our business is managed by our board of directors. Our Articles of
Association provide that the number of our directors is not subject to a
maximum, but shall not be less than two. Directors may be appointed by our
shareholders by ordinary resolution. In addition, the board of directors or the
holder of a majority of the voting rights exercisable, on a poll, at general
meetings may appoint directors. A director so appointed by the board of
directors retires from office at the next annual general meeting, but is then
eligible for reappointment.

A director holding the office of chairman or chief executive or appointed
by the holders of a majority of the voting rights and any director appointed by
the board of directors since the previous annual general meeting are not subject
to retirement by rotation. At each annual general meeting, generally one-third
of those directors subject to retirement by rotation are obliged to retire by
rotation, based principally upon the length of time in office, and are eligible
for re-election. Any director may be removed from office in a general meeting,
or by the holder of a majority of the voting rights, or by all the other
directors.

No person is disqualified from being appointed or reappointed as a director
and no director is required to vacate his office by reason of attaining the age
of 70 or any other age. A director is not required to own any of our shares. The
quorum for meetings of the board is two directors, unless otherwise decided by
the board.

A director may hold any other office of NDS (except that of auditor) and no
contract, arrangement or transaction involving NDS in which a director is in any
way interested (directly or indirectly) shall be avoided, provided that such
director has disclosed such interest in accordance with the UK Companies Act
1985. Subject to such disclosure, a director may vote or be counted in the
quorum with respect to any resolution of the board or of a committee concerning
any contract, arrangement, transaction or proposal to which we are, or will be,
a party in which he is interested, except a resolution concerning his own
appointment.

The Directors who served during the year and up to the date hereof were as
follows:

 Julian Brodsky    Non-Executive Director; retired 3 November 2003
 David DeVoe       Non-Executive Director
 Nathan Gantcher   Non-Executive Director; appointed 5 January 2004
 James Murdoch     Non-Executive Director; resigned 4 November 2003
 Lachlan Murdoch   Non-Executive Director
 Abe Peled         Executive Director, President and Chief Executive Officer
 Peter Powers      Independent Non-Executive Director
 Arthur Siskind    Non-Executive Director

James Murdoch was, and David DeVoe, Lachlan Murdoch and Arthur Siskind are,
Directors of The News Corporation Limited, the party which exercises ultimate
control over the Company. Abe Peled is a member of The News Corporation
Executive Committee.

In accordance with our Articles of Association, Nathan Gantcher will retire
from office and Peter Powers will retire by rotation at the Annual General
Meeting to be held on 3 November 2004, and will offer themselves for
re-election.

Based on its current beneficial share ownership, News Corporation, through
its subsidiary News Nominees Limited, has the power to appoint and remove any
director.

Apart from Abe Peled, none of the directors has a service contract with the
Company. Dr. Peled was employed by the Company pursuant to a service agreement
dated 1 December 1999 for an original term of three years. On 30 November 2002,
and again on 30 November 2003, the contract was automatically extended for a
further year and will be extended for further one-year periods unless either
party gives 12 months' written notice not to extend. As of the date hereof, no
such notice has been received or given. On termination, one year's salary is
payable to Dr. Peled if the Company terminates the contract for reasons other
than cause or death. Dr. Peled's remuneration package consists of a basic
salary, benefits and discretionary bonuses. He is also eligible to participate
in the Group's share option schemes. There are no specific performance criteria
attaching to the remuneration package.

                                       31
<PAGE>

Audit Committee

During fiscal 2004, the members of the Audit Committee were Peter Powers
(chairman from 3 November 2003), Julian Brodsky (chairman until his retirement
on 3 November 2003), Nathan Gantcher (from 5 January 2004) and David DeVoe.
Peter Powers and Nathan Gantcher are, and Julian Brodsky was, deemed
"independent" audit committee members under the SEC's and Nasdaq's rules. David
DeVoe is not deemed to be "independent" under these rules due to his position as
Senior Executive Vice President and Chief Financial Officer of The News
Corporation Limited, which has a controlling interest in NDS.

The Audit Committee Charter specifies that the purpose of the Audit
Committee is to assist the Board of Directors in fulfilling its oversight of (i)
the integrity of the Company's financial statements and the Company's financial
reporting processes and systems of internal control, (ii) the qualifications,
independence and performance of the Company's independent accountants and the
performance of the Company's corporate auditors and corporate audit function,
including the pre-approval of fees for audit and non-audit services, (iii) the
Company's compliance with legal and regulatory requirements, and (iv) if
requested by the Board of Directors, review potential conflicts of interest, and
shall provide an open avenue of communication among management, the independent
accountants, the corporate auditors, and the Board of Directors. The Audit
Committee Charter is reviewed annually.

Remuneration Committee

During fiscal 2003, the members of the Remuneration Committee were Peter
Powers (chairman), Julian Brodsky (until his retirement on 3 November 2003),
Nathan Gantcher (from 5 January 2004) and David DeVoe. The committee has the
authority to review and approve on behalf of the Company the entire individual
remuneration package for each executive director and senior executive, including
approval of: any service contract; any benefit, pension or incentive scheme
entitlement; any other fees and expenses; and any compensation payable on the
termination of a service contract. It also exercises all the powers and
discretions vested in the Board in respect of the Group's share option schemes.
The committee is authorised to obtain outside legal advice or other independent
professional advice, as well as information about remuneration practices in our
industry.


Employees

An analysis of the average number of employees for each of the last three
fiscal years, together with the actual numbers employed as at 30 June 2004, by
category of activity and geographic location is as follows:
<TABLE>
<CAPTION>

                                                 Actual              Average             Average              Average
                                                  As at           Year ended          Year ended           Year ended
                                           30 June 2004         30 June 2004        30 June 2003         30 June 2002
    Category of activity
<S>                                                  <C>                <C>                 <C>                  <C>
    Operations                                       318                288                 253                  228
    Sales and marketing                               99                 98                 133                   92
    Research and development                       1,518              1,315                 879                  841
    General and administration                        77                 72                  63                   65
                                         ---------------     ----------------    ----------------     ----------------
                                                   2,012              1,773               1,328                1,226
                                         ---------------     ----------------    ----------------     ----------------

    Geographic location
    UK                                               643                600                 524                  495
    Israel                                           675                660                 546                  546
    USA                                              123                100                  75                   81
    Asia-Pacific                                      98                 87                  74                   56
    Europe                                           335                218                  42                    3
    India                                            138                109                  67                   45
                                         ---------------     ----------------    ----------------     ----------------
                                                   2,012              1,773               1,328                1,226
                                         ---------------     ----------------    ----------------     ----------------
</TABLE>

The growth in the number of employees is due to the growth in the number
and complexity of customer contracts and the need to provide an appropriate
infrastructure to support the growth of our business. Employee numbers also
increased as a result of the acquisition of the MediaHighway business. We use
temporary labour from time to time to provide short-term increases in capacity
as and when required. During the year ended 30 June 2004 we employed an average
of 144 full time equivalent temporary staff (who are included in the totals
shown above). Our employees in France are subject to a collective bargaining
agreement, but this does not apply to any other employees. We believe that
relations with our employees are satisfactory.


                                       32
<PAGE>

Share ownership

The only director or senior executive who owns shares in the company is
Rick Medlock, who owns 3,600 Series A ordinary shares of $0.01 each.

We operate various share option schemes under which options are granted to
employees and directors at the discretion of the Remuneration Committee. A
description of our share option schemes is provided in Note 19c to our
consolidated financial statements. Details of options held by directors and the
senior executive are given above.

As of 18 October 2004, the number of options outstanding was as follows:
<TABLE>
<CAPTION>

    Grant date                 Expiry date               Exercise Price               Number         Number
                                                                                 Outstanding         Vested

<S> <C>    <C>                 <C>        <C>                   <C>                 <C>               <C>
    01 May 2001                30 October 2004                  $34.500             3,001             3,001
    01 September 2002          30 April 2006                     $8.096           288,732                 -
    22 May 1997                21 May 2007                       $8.140           497,865           497,865
    06 April 1998              05 April 2008                     $8.140           370,113           370,113
    25 March 1999              24 March 2009                     $9.850           461,574           461,574
    05 May 1999                04 May 2009                       $9.850             4,000             4,000
    23 November 1999           22 November 2009                 $20.000           719,873           719,873
    25 January 2000            24 January 2010                  $43.000            11,500            11,500
    28 April 2000              27 April 2010                    $56.875            10,092            10,092
    25 September 2000          24 September 2010                $20.000             8,750             8,750
    05 December 2000           04 December 2010                 $60.000            19,067            14,300
    04 October 2001            03 October 2011                  $21.900           876,379           657,284
    13 March 2002              12 March 2012                    $16.950            23,600            11,800
    03 June 2002               02 June 2012                     $11.400             5,000             2,500
    21 November 2002           20 November 2012                  $6.500           204,658            51,164
    09 January 2003            08 January 2013                   $7.530           152,200            38,050
    10 February 2003           09 February 2013                  $7.490             4,000             1,000
    05 November 2003           04 November 2013                 $17.120           823,935                 -
    01 July 2004               30 June 2014                     $25.150            25,000                 -

                                                                            ----------------- --------------
                                                                                4,509,339         2,862,866
                                                                            ----------------- --------------
</TABLE>


            ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major shareholders

As at 18 October 2004, our outstanding voting securities consisted of
12,493,352 Series A ordinary shares of $0.01 each (having one vote per share)
and 42,001,000 Series B ordinary shares of $0.01 each (having ten votes per
share). All of the Series B ordinary shares are held by News Nominees Limited,
an indirect subsidiary of News Corporation. As a consequence of its ownership of
the Series B ordinary shares, News Corporation is entitled to approximately
97.11% of the aggregate voting power of NDS. News Corporation is a diversified
international media company.

Approximately 30% of the voting stock of News Corporation is owned by (1)
Mr. K. Rupert Murdoch, (2) Telegraph Investment Co. Pty. Ltd., (3) Cruden
Investments Pty. Limited, a private Australian investment company owned by Mr.
Murdoch, members of his family and various corporations and trusts, the
beneficiaries of which include Mr. Murdoch, members of his family and certain
charities and (4) corporations which are controlled by trustees of settlements
and trusts set up for the benefit of the Murdoch family, certain charities and
other persons. By virtue of shares of News Corporation owned by such persons and
entities and Mr. Murdoch's positions as Chairman and Chief Executive of News
Corporation, Mr. Murdoch may be deemed to control the operations of News
Corporation and therefore also the Company. News Corporation has proposed to its
shareholders a reorganization transaction that would change the place of
incorporation of News Corporation to the United States. In connection with this
reorganization, News Corporation would acquire from Murdoch family interests
certain companies holding approximately 58% of Queensland Press Pty Ltd not
already owned by News Corporation. This transaction is subject to shareholder
and court approval and, if approved, is expected to be completed in November
2004. As a result of the proposed transaction, the Murdoch family interests will
own approximately 29.47% of the voting shares of News Corporation, which is
slightly less than the 29.86% of the voting shares of News Corporation that the
Murdoch family interests currently control.


                                       33
<PAGE>

As at 18 October 2004, all but 16 of the 12,493,352 Series A ordinary
shares in issue were held by The Bank of New York as custodian in respect of
ADSs they have issued. We are informed by The Bank of New York that as at 30
September 2004, there were 8 holders of record in the US.

As far as is known to us, there are no arrangements the operation of which
may at a subsequent date result in a change of control of the Company.


Related party transactions

There have been no transactions between the Company or its subsidiaries and
any director or officer (or parties connected with them) acting in a personal
capacity, other than in respect of their remuneration and options as set out in
Item 6: "Directors, Senior Management and Employees".

We conduct business transactions with entities which are subsidiaries or
affiliates of News Corporation on normal commercial terms. These entities are
considered to be related parties. Agreements covering these arrangements were
entered into in the context of two entities over which a third entity exercises
significant influence or control. There can be no assurance that each of the
agreements, or the transactions provided for therein, or any amendments thereof
will be effected on terms at least as favourable to NDS as could have been
obtained from unaffiliated third parties. Such agreements and amendments thereto
are approved by our Audit Committee.

These transactions are of two main types, which are the provision by NDS of
technology and services for digital pay-TV systems and the receipt by NDS of
administrative services from News Corporation. Information about such related
party transactions is given in Note 28 to our consolidated financial statements.


                          ITEM 8. FINANCIAL INFORMATION

The financial statements filed as part of this Annual Report on Form 20-F
are listed in Item 18 and begin on page F-1.

Export sales

Export sales, being sales to customers located outside the UK, are a
significant proportion of our total sales. For the year ended 30 June 2004,
export sales amounted to GBP 140.4 million (or 63.6% of our total sales); year
ended 30 June 2003: GBP 162.3 million (or 68.4% of our total sales); year ended
30 June 2002: GBP 168.1 million (or 70.2% of our total sales).

Litigation

On 6 June 2003, Echostar Communications Corporation, Echostar Satellite
Corporation, Echostar Technologies Corporation and Nagrastar L.L.C.
(collectively, "Echostar") filed an action against NDS in the United States
District Court for the Central District of California. Echostar filed an amended
complaint on 8 October 2003. The amended complaint purported to allege claims
for violation of the Digital Millennium Copyright Act ("DMCA"), the
Communications Act of 1934 ("CA"), the Electronic Communications Privacy Act,
The Computer Fraud and Abuse Act, California's Unfair Competition statute and
the federal RICO statute. The complaint also purported to allege claims for
civil conspiracy, misappropriation of trade secrets and interference with
prospective business advantage. The complaint sought injunctive relief,
compensatory and exemplary damages and restitution. On 22 December 2003, all of
the claims were dismissed by the court, except for the DMCA, CA and unfair
competition claims, and the Court limited these claims to acts allegedly
occurring within three years of the filing of the complaint. Echostar filed a
second amended complaint. NDS filed a motion to dismiss the second amended
complaint on 31 March 2004. The motion was scheduled to be heard by the Court on
23 July 2004. On 21 July 2004, the Court issued an order granting a motion for a
more definite statement and gave Echostar 10 days in which to file a third
amended complaint that corrects the deficiencies noted in the court's order.
EchoStar filed a third amended complaint on 4 August 2004. NDS intends
vigorously to defend the action and has filed a motion to dismiss the third
amended complaint. A hearing has been set for 13 December 2004.

On 25 July 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital,
S.L., Spanish satellite broadcasters and customers of Canal+ Technologies SA
(together, "Sogecable"), filed an action against NDS in the United States
District Court for the Central District of California. Sogecable filed an
amended complaint on 9 October 2003. The amended complaint purported to allege
claims for violation of the DMCA and the federal RICO statute. The amended
complaint also purported to allege claims for interference with contract and
prospective business advantage. The complaint sought injunctive relief,
compensatory and exemplary damages and restitution. On 22 December 2003, all of
the claims were dismissed by the court. Sogecable filed a second amended
complaint. NDS filed a motion to dismiss the second amended complaint on 31
March 2004. On 4 August 2004, the court issued an order dismissing the second
amended complaint in its entirety. Sogecable has indicated its intention to
appeal the court's order.

                                       34
<PAGE>

In September 2002, NDS Group plc and two of its subsidiaries were named as
defendants in a lawsuit filed by DIRECTV, Inc. and certain of its affiliates in
the United States District Court for the Central District of California. At
DIRECTV's request, the action was filed under seal. On 21 October 2002, NDS
filed counterclaims against DIRECTV and a chip manufacturer. In late April 2003,
the parties agreed to stay proceedings pending efforts to resolve the disputes
through mediation. In August 2003, the parties agreed to stay the litigation
between them until the closing of The News Corporation Group's acquisition of a
34% interest in Hughes Electronics Corporation ("Hughes"), the parent company of
DIRECTV. The closing of the acquisition of the Hughes interest occurred on 22
December 2003, and on 30 December 2003 the litigation and all claims and
counterclaims alleged therein were dismissed with prejudice.

On 2 October 2002, NDS Americas, Inc. was served with subpoenas by the U.S.
Attorney's office in San Diego, California, seeking documents apparently in
connection with an investigation related to claims made in early 2002 by Canal+
Technologies SA (these claims having been dismissed) and the Echostar claims
referred to below. NDS is co-operating with the investigation. NDS was advised
by the U.S. Attorney's Office in San Diego that it was not currently considered
either a target or a subject in the investigation. Lead responsibility for the
investigation has been transferred to the U.S. Attorney's office for the Central
District of California. On 3 February 2004, the U.S. Attorney's office notified
NDS that it had completed its investigation and concluded that, based on
information and evidence gathered, the claims against NDS did not warrant
further investigation or action.

As a company operating within the European Union ("EU"), we are under an
obligation to comply with applicable EU competition regulations. Currently we
and our customer Viasat are the subject of a complaint filed with the Danish
Competition Authority by a competitor of Viasat, Canal Digital Danmark A/S. The
complaint alleges that Viasat is carrying out its business in a way that is
anti-competitive and that we are complicit in this. A response to the complaint
has been filed by each of NDS and Viasat, which strongly rebuts the allegation
of anti-competitive behaviour. The Danish Competition Authority is reviewing the
complaint and responses with a view to deciding on whether to institute a formal
inquiry into the allegations. Prior to taking such a decision the matter will be
referred to the European Competition Network for an assessment on whether there
is an EU dimension, and if so, the matter will be taken on by the European
Commission. We are confident that we are compliant with the applicable EU
competition regulations and we do not undertake our business in any way that may
be considered to be anti-competitive.


Dividends

It has been our policy to retain profits for the future development of the
business and accordingly no dividends have been paid or are proposed. We intend
to keep this policy under review and will consider whether it is appropriate to
pay dividends in the future.

Changes in financial condition

There has been no significant change in our financial condition since 30
June 2004.


                          ITEM 9. THE OFFER AND LISTING

Listing details

ADSs, each representing one of our Series A ordinary shares, have been
traded on Nasdaq since our initial public offering on 22 November 1999. Prior to
that date, there was no public trading market in our securities. The principal
trading market for our ADSs is Nasdaq. The ADSs are evidenced by American
Depositary Receipts ("ADRs") issued by The Bank of New York as depositary under
a Deposit Agreement dated 26 November 1999 among the Company, The Bank of New
York and the owners and beneficial owners of ADRs.

Since 13 November 2003, our ADSs have also been listed on the First Market
- Continuous of the Euronext Brussels exchange in Belgium. Prior to 28 November
2003, our ADSs were listed on Nasdaq Europe in Belgium. The volume of ADSs
traded on Euronext (and previously, on Nasdaq Europe) has been negligible.


                                       35
<PAGE>

The high and low closing prices for our ADSs as reported on Nasdaq for each
period since their listing were:
<TABLE>
<CAPTION>

Period                                                              High Price                   Low Price
------                                                              ----------                   ---------
                                                                       per ADS                     per ADS
                                                                       -------                     -------

Most recent fiscal years (since listing)
<C>         <C>     <C>     <C>                                      <C>                           <C>
22 November 1999 to 30 June 2000                                     $102.000                      $28.000
1 July 2000 to 30 June 2001                                           $82.250                      $33.100
1 July 2001 to 30 June 2002                                           $37.350                       $8.450
1 July 2002 to 30 June 2003                                           $16.700                       $5.000
1 July 2003 to 30 June 2004                                           $32.030                      $13.751

Most recent quarter and two most recent fiscal years
1 July 2002 to 30 September 2002                                      $11.900                       $6.710
1 October 2002 to 31 December 2002                                     $8.750                       $5.000
1 January 2003 to 31 March 2003                                        $8.500                       $6.420
1 April 2003 to 30 June 2003                                          $16.700                       $5.000
1 July 2003 to 30 September 2003                                      $18.310                      $13.751
1 October 2003 to 31 December 2003                                    $23.190                      $17.120
1 January 2004 to 31 March 2004                                       $32.020                      $22.050
1 April 2004 to 30 June 2004                                          $27.610                      $23.100
1 July 2004 to 30 September 2004                                      $27.680                      $19.950

Most recent six months
April 2004                                                            $27.560                      $25.150
May 2004                                                              $27.610                      $23.100
June 2004                                                             $25.460                      $23.100
July 2004                                                             $25.230                      $22.750
August 2004                                                           $23.900                      $19.950
September 2004                                                        $27.680                      $22.490
</TABLE>


                         ITEM 10. ADDITIONAL INFORMATION

Memorandum and Articles of Association
General information

Clause 4 of our Memorandum of Association defines our objects as being to
carry on business as a general commercial company and states that the clause
shall be interpreted in the widest and most general manner. We are registered
under the Companies Act 1985 of Great Britain in England and Wales under number
1950497.

Directors

Directors' interests, age qualification, share qualification and retirement
of directors by rotation For information relating to directors' interests, age
qualification, share qualification and retirement of directors by rotation,
please refer to the information given under Item 6: "Directors, Senior
Management and Employees - Board Practices".

Remuneration

For information relating to remuneration of directors, please refer to the
information contained in the registration statement on Form F-1 (File No.
333-11086) declared effective by the SEC on 22 November 1999 ("Form F-1"), under
the caption "Management - Compensation of Directors and Officers" which is
incorporated herein by reference.

At our Annual General Meeting to be held on 3 November 2004, shareholders
are to be asked to amend our Articles of Association, to increase the amounts
which may be paid as remuneration to non-executive directors to a maximum total
annual amount of $1 million. The proposed change is to be effective from 1
January 2004. It is considered necessary in order more properly to reflect the
duties and responsibilities of the non-executive directors.

Borrowing Powers

The directors can exercise all of the borrowing powers of the Company.

                                       36
<PAGE>

Our shares - rights, preferences and restrictions

Dividends, voting rights, rights to share in any surplus in the event of
liquidation, actions necessary to change the rights of holders of shares,
general meetings, limitations on the right to own securities and changes in
capital

For information relating to dividend rights, voting rights, rights to share
in any surplus in the event of liquidation, actions necessary to change the
rights of holders of shares, general meetings, limitations on the right to own
securities and changes in capital, please refer to the information contained in
Form F-1, under the caption "Description of Share Capital" which is incorporated
herein by reference.

Redemption and sinking fund

Our Articles of Association do not provide for redemption of any of the
shares currently on issue (that is, the Series A ordinary shares or the Series B
ordinary shares) and it does not provide for any sinking fund.

Liability for further capital calls

Members are not liable for any capital calls except in relation to money
unpaid on that member's shares.

Provisions discriminating against the owning of a substantial number of shares

Except where a shareholder fails to disclose its holding as requested by
the Company there are no provisions in the Articles of Association that
discriminate against an existing or prospective member as a result of that
member owning a substantial number of shares. The board has the power to suspend
certain rights in respect of the shares held for so long as the shareholder
remains in default of its failure to give the information required by statute.

Changes in control of the Company

Automatic conversion of our Series B ordinary shares into Series A ordinary
shares will occur if any sale, transfer or disposal results in the cessation of
the ultimate beneficial ownership of the Series B ordinary shares being retained
by entities controlled by News Corporation.

Disclosure of substantial shareholdings

Under the Companies Act 1985 of Great Britain, any person who acquires
(alone or, in certain circumstances, with others) a material interest in the
voting share capital of the Company in excess of 3%, or a non-material interest
in excess of 10%, is obliged to disclose prescribed particulars to the Company
in respect of those shares. An obligation of disclosure also arises where such
person's notifiable interests subsequently fall below the notifiable percentage,
or where, above that level, the percentage of the Company's voting share capital
in which he is interested (expressed in whole numbers) increases or decreases.
In addition, the Company may require persons who it believes to be, or to have
been within the previous three years, interested in its voting shares to
disclose prescribed particulars of those interests.


Material contracts

One material contract has been entered into by the Group, other than in the
ordinary course of business, in the past two years, as follows:

Acquisition of MediaHighway

On 16 December 2003, we acquired the MediaHighway middleware business from
a subsidiary of Thomson SA and licensed certain related patents from Thomson SA
for a total consideration of EUR 60 million in cash. Further information is
given in Note 9a to our consolidated financial statements.

Exchange controls

There are currently no UK laws, decrees or regulations restricting the
import or export of capital or affecting the remittance of dividends or other
payments to holders of our shares or ADSs, although from time to time UK
government sanctions may restrict our ability to sell securities, pay dividends
or make other distributions to the governments of certain countries, persons
associated with those governments or residents of those countries.

There are no restrictions under our Memorandum and Articles of Association
that limit the right of non-UK residents or citizens to hold our securities,
including our ordinary shares and ADSs.


Taxation

The following discussion summarises certain UK and US tax consequences of
the acquisition, ownership and disposition of shares and shares represented by
ADSs by a US Holder. For the purposes of this discussion, a US Holder is a
beneficial owner of shares or ADSs who is (i) an individual who is a citizen or
resident of the US for US income tax purposes, (ii) a corporation or partnership
organised under the laws of the US or any state thereof or the District of
Columbia, (iii) an estate, the income of which is subject to US federal income
taxation regardless of its source, or (iv) a trust, if a court within the US is
able to exercise primary supervision over the administration of the trust and
one or more US persons have the authority to control all substantial decisions
of the trust. If a partnership (including any entity treated as a partnership
for US federal income tax purposes), estate or trust holds the ADSs, the US
federal income tax consequences to the partners or beneficiaries of such
partnership will depend on the activities of the partnership, estate or trust
and the status of the partners or beneficiaries.

                                       37
<PAGE>

This summary is based (i) upon current UK law and UK Inland Revenue
practice, (ii) upon the US Internal Revenue Code, Treasury Regulations, case law
and Internal Revenue Service rulings, all of which are subject to change,
possibly with retro-active effect, (iii) upon the UK-US Income Tax Convention
that entered into force on 31 March 2003 (the "Treaty"'), and (iv) in part upon
representations of the Depositary and assumes that each obligation provided for
in or otherwise contemplated by the Deposit Agreement and any related agreement
will be performed in accordance with their respective terms. For withholding tax
purposes, the Treaty applies to payments made on or after 1 May 2003. For other
income and corporation tax purposes, the Treaty applies to US taxable years
beginning on or after 1 January 2004, and to UK taxable years beginning on or
after 1 April 2003. Persons entitled to greater benefits under the old treaty
may elect to apply the old treaty, in its entirety, for the first 12 months
during which the Treaty otherwise would apply.

The summary of UK tax consequences relates to the material aspects of the
UK taxation position of US Holders and does not address the UK tax consequences
to a US Holder (i) that is resident (or, in the case of an individual,
ordinarily resident) in the UK for UK tax purposes, (ii) whose holding of
ordinary shares or ADSs is effectively connected with a permanent establishment
in the UK through which such US Holder carries on business activities or, in the
case of an individual who performs independent personal services, with a fixed
base situated therein, or (iii) that is a corporation which alone or together
with one or more associated companies, controls directly or indirectly, 10% or
more of our voting stock.

The summary of US tax consequences may not completely or accurately
describe tax consequences to all US Holders. For example, special rules may
apply to US expatriates, insurance companies, tax-exempt organisations, banks
and other financial institutions, real estate investment trusts, regulated
investment companies, grantor trusts, US Holders that have a "functional
currency" other than the US dollar, persons subject to the alternative minimum
tax, securities broker-dealers, traders in securities that elect to
mark-to-market, traders in currencies, and persons holding their ordinary shares
or ADSs as part of a straddle, hedging or conversion transaction, among others.

The discussion set out below is only a general summary and does not purport
to be a technical analysis nor a description of all possible tax consequences.
Tax consequences to each US Holder will depend upon the particular facts and
circumstances of such holder. Accordingly, each person should consult with his
own professional advisor with respect to the tax consequences of his ownership
and disposition of shares or ADSs. This summary does not discuss any tax rules
other than UK tax and US federal income tax rules. The UK and US tax authorities
and courts are not bound by this summary and may disagree with its conclusions.

US Holders of ADSs will be treated as owners of the shares underlying the
ADSs. Accordingly, except as noted, the tax consequences discussed below apply
equally to US Holders of ADSs and shares.

Taxation of distributions

Under current UK tax legislation, no tax is withheld from dividend payments
by the Company and generally no UK tax is payable by eligible US Holders on
dividends declared on the shares. US Holders who are not resident or ordinarily
resident for tax purposes in the UK with no other source of UK income are not
required to file a UK income tax return.

For US federal income tax purposes, the gross amount of any distribution
made by the Company to a US Holder with respect to any shares or ADSs held by
the US Holder will generally be included in a US Holder's gross income as
dividend income when payment is actually or constructively received by the US
Holder in the case of ordinary shares or the Depositary in the case of ADSs, to
the extent they are paid out of the Company's current or accumulated earnings
and profits as calculated for US federal income tax purposes (subject to the
discussion below under "- US passive foreign investment company rules"). Such
dividends generally will not be eligible for the dividends received deduction
allowed to corporations. Dividends will generally constitute foreign source
"passive" income for foreign tax credit purposes. If the amount of any
distribution exceeds the Company's current and accumulated earnings and profits
as calculated for US federal income tax purposes, such excess first will be
treated as a tax-free return of capital to the extent of the US Holder's tax
basis in its shares or ADSs, and thereafter as gain from the sale or exchange of
property.

Dividends received by an individual US Holder before 1 January 2009 with
respect to such US Holder's shares or ADSs will generally be subject to a
reduced rate of US federal taxation, provided that certain holding period and
other requirements are met, and provided the Company is a qualified foreign
corporation. A qualified foreign corporation includes a foreign corporation that
is eligible for the benefits of certain comprehensive income tax treaties with
the US. The US Treasury Department guidance indicates that a foreign corporation
organised in the UK, such as the Company, will qualify. US Holders should
consult their own tax advisors regarding the application of these rules.

                                       38
<PAGE>

Also for US federal income tax purposes, the amount of any dividend paid in
non-US currency will be equal to the US dollar value of such currency on the
date the dividend is included in income, regardless of whether the payment is in
fact converted into US dollars. A US Holder will generally be required to
recognise US source ordinary income or loss when such US Holder sells or
disposes of non-US currency. A US Holder may also be required to recognise
foreign currency gain or loss upon receipt of a refund under the Treaty of tax
withheld in excess of the Treaty rate. The US Holder will have a tax basis in
this non-US currency equal to the US dollar value of the currency on the date
the dividend is included in the US Holder's income. This foreign currency gain
or loss will generally be US source ordinary income or loss.

Taxation of capital gains

A Holder who is not resident and not ordinarily resident for tax purposes
in the UK will not normally be liable for UK tax on chargeable gains realised on
the disposal of his ordinary shares or ADSs unless at the time of the disposal
such Holder carries on a trade, profession or vocation in the UK through a
branch or agency and such ordinary shares or ADSs are used or held or have been
acquired for use by or for the purposes of such trade, profession or vocation or
branch or agency. The surrender of ADSs in exchange for Shares will not be a
taxable event for the purposes of UK corporation tax or UK capital gains tax.
Accordingly, US Holders will not recognise any gain or loss for such purposes
upon such surrender.

In general, for US federal income tax purposes, a US Holder will recognise
capital gain or loss if such US Holder sells or exchanges ordinary shares or
ADSs, provided that such Shares or ADSs are capital assets in the hands of such
US Holder (subject to the discussion below under "- US passive foreign
investment company rules"). Any gain or loss will generally be US source gain or
loss. For an individual, any capital gain will generally be subject to US
federal income tax at preferential rates if the individual has held the ordinary
shares or ADSs for more than one year. For an individual, any capital gain will
generally be subject to US federal income tax at preferential rates if the
individual has held the ordinary shares or ADSs for more than one year.

US passive foreign investment company rules

The Company believes that it will not be treated as a passive foreign
investment company ("PFIC") for US federal income tax purposes for the current
taxable year or for future taxable years. However, an actual determination of
PFIC status is factual and cannot be made until the close of the applicable
taxable year. The Company will be a PFIC for any taxable year in which either:

     o    75% or more of its gross income is passive income; or

     o    its assets that produce passive income or that are held for the
          production of passive income amount to at least 50% of the value of
          its total assets on average.

For purposes of this test, the Company will be treated as directly owning
its proportionate share of the assets, and directly receiving its proportionate
share of the gross income, of each corporation in which it owns, directly or
indirectly, at least 25% of the value of the shares of such corporation.

If the Company was, or were to become a PFIC, the tax applicable to
distributions on ordinary shares or ADSs and any gains a US Holder recognises on
disposition of ordinary shares or ADSs may be less favourable to such US Holder.
Accordingly, each investor should consult with his own professional advisor
regarding the PFIC rules.

US controlled foreign corporation rules for 10% shareholders

The Company is a controlled foreign corporation ("CFC") for US federal
income taxes. In general, a foreign corporation will constitute a CFC if more
than 50% of its shares, measured by reference to combined voting power or value,
is held, directly or indirectly, by "US Shareholders". A US Shareholder, for
this purpose, is any US person that owns constructively, directly or indirectly
10% or more of the combined voting power of all classes of shares of a
corporation. A foreign corporation is not a PFIC with respect to a shareholder
for any period after 1997 during which the shareholder was a US Shareholder and
the corporation was a CFC.

As long as the Company is a CFC, each US Shareholder possessing 10% of the
combined voting power of the Company is treated, subject to certain exceptions,
as receiving a dividend at the end of the Company's taxable year in an amount
equal to that person's pro-rata share of "subpart F income" and certain earnings
invested in US property of the Company (or any foreign affiliate that is a CFC),
whether or not such income is actually distributed. Among other items, and
subject to certain exceptions, "subpart F income" includes dividends, interest,
rents, royalties, annuities, gains from the sale of shares and securities,
certain gains from commodities transactions, certain types of insurance income
and income from certain transactions with related parties.

                                       39
<PAGE>

If a US Shareholder possessing 10% of the combined voting power of the
Company sells or exchanges any of the ordinary shares or ADSs, any gain
recognised is treated as ordinary dividend income (and not capital gain) to the
extent that such US Shareholder's pro-rata share of the earnings and profits of
the Company accumulated after 31 December 1962 and during the period(s) the
ordinary shares or ADSs were held by such US Shareholder while the Company was a
CFC.

UK Inheritance Tax

(a) Ordinary shares and ADSs will be assets situated in the UK for the
purposes of UK inheritance tax. A gift of such assets by, or the death of, an
individual holding such assets may (subject to certain exemptions and reliefs)
give rise to a liability to UK inheritance tax. Such a charge may arise even if
the Holder is neither domiciled in the UK nor deemed to be domiciled there for
UK inheritance tax purposes under special rules relating to long residence or
previous domicile. For inheritance tax purposes, a transfer of assets at less
than full market value may be treated as a gift. Special rules apply to gifts
where the donor reserves or retains some benefit. Special inheritance tax rules
also apply to ordinary shares and ADSs held by close companies or by trustees of
settlements bringing them within the charge to inheritance tax.

(b) An individual who is domiciled in the US for the purposes of the
UK/United States Estate and Gift Tax Convention (the "Estate Tax Treaty") and
who is not a national of the UK for the purposes of the Estate Tax Treaty will
generally not be subject to UK inheritance tax in respect of the ordinary shares
or ADSs on the individual's death or on a gift of the ordinary shares or ADSs
during the individual's lifetime, provided that any applicable US federal gift
or estate tax liability is paid, unless the ordinary shares or ADSs are part of
the business property of a permanent establishment of an enterprise of the
individual in the UK or pertain to a fixed base in the UK of the individual used
for the performance of independent personal services. Where the ordinary shares
or ADSs have been placed in trust by a settlor who, at the time of settlement,
was domiciled in the US for the purposes of the Estate Tax Treaty and not a
national of the UK for the purposes of the Estate Tax Treaty, the ordinary
shares or ADSs will generally not be subject to UK inheritance tax (provided
that the ordinary shares or ADSs are not part of the business property of a
permanent establishment in the UK and do not pertain to a fixed base in the UK
as mentioned above). In the exceptional case where the ordinary shares or ADSs
are subject both to UK inheritance tax and to US federal gift or estate tax, the
Estate Tax Treaty generally provides for the tax paid in the UK to be credited
against tax paid in the US or for tax paid in the US to be credited against tax
payable in the UK based on priority rules set out in the Estate Tax Treaty.

UK Stamp Duty/Stamp Duty Reserve Tax

(a) Any conveyance or transfer on sale of the ordinary shares will usually
be subject to stamp duty on the instrument of transfer, generally at a rate of
0.5% of the amount or value of the consideration rounded up (if necessary) to
the nearest multiple of GBP 5. A charge to stamp duty reserve tax ("SDRT") at
the rate of 0.5% of the amount or value of the consideration will arise in
relation to an agreement to transfer such ordinary shares. However, where within
6 years of the date of the agreement (or, if the agreement is conditional, the
date on which it becomes unconditional) an instrument of transfer is executed
pursuant to the agreement and stamp duty is paid on that instrument, any
liability to stamp duty reserve tax will be cancelled and any such tax which has
been paid will be repaid.

(b) Stamp duty or SDRT charges at the rate of 1.5% of the amount or value
of the consideration, or in some circumstances, the value of the ordinary
shares, may arise on a transfer or issue of ordinary shares to the Custodian of
the Depositary or to certain persons providing a clearance system (or their
nominees or agents) and will be payable by the Depositary or such other persons.

(c) In accordance with the terms of the Deposit Agreement, any tax or duty
payable by the Depositary or the Custodian of the Depositary on any deposit of
ordinary shares will be charged by the Depositary to the Holder of the ADS or
any deposited security represented by the ADS.

(d) No UK stamp duty will be payable on the acquisition or transfer of an
ADS or beneficial ownership of an ADS, provided that the ADS and any separate
instrument of transfer or written agreement to transfer remains at all times
outside the UK, and provided further that any instrument of transfer or written
agreement to transfer is not executed in the UK An agreement to transfer ADSs
will not give rise to a liability to SDRT.

(e) Any transfer for value of the underlying ordinary shares represented by
ADSs (which will exclude a transfer from the Custodian of the Depositary or the
Depositary to an ADS holder on a cancellation of the ADSs), may give rise to a
liability to UK stamp duty. The amount of UK stamp duty payable is generally
calculated at the rate of 0.5% of the amount or value of the consideration for
the transfer of the ordinary shares rounded up (if necessary) to the nearest
multiple of GBP 5. However, on a transfer from the Custodian of the Depositary
to a US Holder or registered Holder of an ADS upon cancellation of the ADS, only
a fixed UK stamp duty of GBP 5 per instrument of transfer will be payable.

(f) It should be noted that certain categories of person are not liable to
stamp duty or SDRT or may, although not primarily liable for SDRT, be required
to notify and account for it under the Stamp Duty Reserve Tax Regulations 1986.

                                       40
<PAGE>

US information reporting and backup withholding

Dividend payments on the ordinary shares or ADSs and proceeds from the
sale, exchange or other disposition of the ordinary shares or ADSs may be
subject to information reporting to the Internal Revenue Service and possible US
backup withholding at a rate of 28%. US federal backup withholding generally is
imposed on specified payments to persons that fail to furnish required
information. Backup withholding will not apply to a Holder who furnishes a
correct taxpayer identification number or certificate of foreign status and
makes any other required certification, or who is otherwise exempt from backup
withholding. Any US persons required to establish their exempt status generally
must file Internal Revenue Service Form W-9: "Request for Taxpayer
Identification Number and Certification".

Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a US Holder's US federal income tax
liability. A US Holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the
Internal Revenue Service and furnishing any required information.


Documents on display

It is possible to read and copy documents referred to in this Annual Report
on Form 20F that have been filed with the SEC at the SEC's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms and
their copy charges. Where required, from 4 November 2002, we have filed or
furnished documents on the SEC's Electronic Data Gathering and Retrieval
("EDGAR") system and these may be accessed via the SEC's website at www.sec.gov.


       ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The only significant market risk to which we are exposed is to changes in
foreign exchange rates. We operate in international markets and have operational
presence in several countries. Accordingly, a significant proportion of our
costs and revenues are denominated in currencies other than sterling,
principally US dollars and euros. Historically, we have not entered into
free-standing derivative contracts to hedge foreign exchange exposure from
trading transactions. We expect to review this policy from time to time as
circumstances change.

Further qualitative information is given in Note 29 to our consolidated
financial statements.


         ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.


                                     PART II
            ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.


 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
                                   PROCEEDS.

Not applicable.


                        ITEM 15. CONTROLS AND PROCEDURES.

Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this Annual Report on Form 20-F and,
based on this evaluation, have concluded that the disclosure controls and
procedures are effective.

There has been no change in our internal control over financial reporting
that occurred during our fiscal year ended 30 June 2004 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


                                       41
<PAGE>

                   ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

We are considered to be a "foreign private issuer" under the rules of the
Securities and Exchange Commission (the "SEC"). None of the Audit Committee
members are deemed to be "audit committee financial experts" as that term is
defined under the rules of the SEC with respect to foreign private issuers.
However, the Board has determined that the members of the Audit Committee have
the appropriate financial expertise to serve in that capacity, and that such
financial expertise meets the audit committee membership requirements of the
NASDAQ listing standards.


                            ITEM 16B. CODE OF ETHICS

We have adopted "Standards if Business Conduct", a code issued by News
Corporation for use by all its subsidiaries. It includes a specific code of
ethics for the Chief Executive and senior financial officers. It is published on
our website, www.nds.com.


                 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICE

Fees billed by Ernst & Young LLP, in each of the last two fiscal years were
as follows:
<TABLE>
<CAPTION>

                                                                                    Year ended            Year ended
                                                                                  30 June 2004          30 June 2003
                                                                                      GBP '000              GBP '000

<S>                                                                                       <C>                   <C>
Audit fees                                                                                250                   200
Audit-related fees                                                                         42                     -
Tax fees                                                                                    7                     -
All other fees                                                                              9                     4
                                                                             ------------------    ------------------
                                                                                          308                   204
                                                                             ------------------    ------------------
</TABLE>

Audit-related fees comprise fees for local statutory audits of certain
overseas subsidiaries. Tax fees comprise fees for tax compliance in certain
overseas countries. Other fees comprise miscellaneous fees related to pensions,
expatriate employees, statutory reports and publications.

The Audit Committee has established policies and procedures under which all
audit and non-audit services performed by the Company's principal accountants
must be approved in advance by the Audit Committee. The Audit Committee's policy
provides for pre-approval of audit, audit-related, tax and certain other
services specifically described by the Audit Committee on an annual basis. In
addition, individual engagements anticipated to exceed pre-established
thresholds, as well as certain other services, must be separately approved. The
policy also requires specific approval by the Audit Committee if total fees for
tax services would exceed total fees for audit and audit-related services in any
given fiscal year. The policy also provides that the Audit Committee can
delegate pre-approval authority to the Audit Committee Chairman provided that
the decision to pre-approve is communicated to the full Audit Committee at the
next meeting. As provided in the Sarbanes-Oxley Act of 2002, all audit and
non-audit services provided after May 6, 2003 have been pre-approved by the
Audit Committee in accordance with these policies and procedures. The Audit
Committee reviewed the non-audit services provided by Ernst & Young LLP during
the fiscal years ended 30 June 2004 and 2003, and determined that the provision
of such non-audit services was compatible with maintaining the accountants'
independence.


      ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

We have not applied for any exemptions from the listing standards for audit
committees.


 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                                   PURCHASERS

Not applicable.

                                       42
<PAGE>


                                    PART III
                          ITEM 17. FINANCIAL STATEMENTS

We have elected to respond to Item 18 in lieu of responding to this Item.


                          ITEM 18. FINANCIAL STATEMENTS

Our financial statements, together with the related reports of independent
registered public accounting firms, filed as part of this Annual Report are as
follows:


Index to consolidated financial statements
<TABLE>
<CAPTION>
                                                                                                                  Page
Reports of Independent Registered Public Accounting Firms:
<S>                                                                                                                 <C>
       Ernst & Young LLP.......................................................................................   F-1
       Somekh Chaikin..........................................................................................   F-2

Audited Financial Statements
       Consolidated Profit and Loss Accounts for the years ended 30 June 2004, 2003 and 2002...................   F-3
       Consolidated Statements of Total Recognised Gains and Losses for the years ended 30 June 2004, 2003 and
       2002....................................................................................................   F-4
       Consolidated Balance Sheets as at 30 June 2004 and 2003.................................................   F-5
       Consolidated Statements of Cash Flows for the years ended 30 June 2004, 2003 and 2002...................   F-6
       Notes to the Consolidated Financial Statements..........................................................   F-7


                                ITEM 19. EXHIBITS
Index to exhibits
                                                                                                         Exhibit number in
                                                                                                         -----------------
                                                                                             Page    document incorporated by
                                                                                             ----    ------------------------
                                                                                                             reference
                                                                                                             ---------
1          Memorandum and Articles of Association(1)......................................                          3.1
2.1        Specimen Series A ordinary share certificate(1)................................                          4.1
2.2        Form of American Depositary Receipt(1).........................................                          4.3
4.1        Master Intercompany Agreement(1)...............................................                         10.1
4.2        Group Relief Agreement(1)......................................................                         10.2
4.3        Deposit agreement(1)...........................................................                          4.2
4.4        Agreement between the Company and Abe Peled, dated 1 December 1999.............    E-1
4.5        Agreement between the Company and Rick Medlock, dated 23 November 1999.........   E-10
8          Subsidiaries...................................................................   E-15
12.1       Certification by the Chief Executive Officer pursuant to SEC Rule 13a-14(a) /
           15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
                                                                                             E-16
12.2       Certification by the Chief Financial Officer pursuant to SEC Rule 13a-14(a) /
           15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
                                                                                             E-17
13.1       Certification of the Chief Executive Officer pursuant to U.S.C section 1350,
           as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002...........   E-18
13.2       Certification of the Chief Financial Officer pursuant to U.S.C section 1350,
           as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002...........   E-19
</TABLE>

(1)  Incorporated by reference to the Registration Statement filed by NDS Group
     plc with the Securities and Exchange Commission on Form F-1 (File No.
     333-11086) and declared effective on 22 November 1999.


                                       43
<PAGE>

                                   SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused and authorised the undersigned to sign
this Annual Report on its behalf.

                                                                  NDS Group plc





                                                              By /s/ CRK Medlock
                                                               -----------------
                                                                     CRK Medlock
                                                         Chief Financial Officer


                                                           Date: 21 October 2004




                                       44
<PAGE>



             Report of Independent Registered Public Accounting Firm

To: The Board of Directors
NDS Group plc

We have audited the accompanying consolidated balance sheets of NDS Group
plc as of 30 June 2004 and 2003, and the related consolidated profit and loss
accounts and consolidated statements of total recognised gains and losses and
cash flows for each of the three years in the period ended 30 June 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of NDS Technologies Israel
Limited, a wholly-owned subsidiary, which statements reflect total assets of GBP
38 million and GBP 35 million as of 30 June 2004 and 2003, respectively, and
total cost of sales of GBP 35 million, GBP 35 million and GBP 40 million and
total administrative expenses - trading expenses of GBP 11 million, GBP 11
million and GBP 13 million for years ended 30 June 2004, 2003 and 2002,
respectively. Those financial statements, presented in accordance with
accounting principles generally accepted in Israel, were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts utilised by the Company's management (before conversion
to accounting principles generally accepted in the United Kingdom) so as to
include NDS Technologies Israel Limited in the consolidated financial statements
of NDS Group plc, is based solely on the report of the other auditors.

We conducted our audits in accordance with United Kingdom auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts (including the Company's conversion of the financial
statements of NDS Technologies Israel Limited to accounting principles generally
accepted in the United Kingdom) and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of NDS Group plc at 30 June 2004 and 2003,
and the consolidated results of its operations and its consolidated cash flows
for each of the three years in the period ended 30 June 2004, in conformity with
accounting principles generally accepted in the United Kingdom which differ in
certain respects from those generally accepted in the United States (see Note 31
of Notes to the Consolidated Financial Statements).



                                ERNST & YOUNG LLP

London, England
21 October 2004

                                      F-1
<PAGE>

             Report of Independent Registered Public Accounting Firm

Auditor's Report to the Shareholders of
NDS Technologies Israel Limited

We have audited the balance sheets of NDS Technologies Israel Limited ("the
Company") as at 30 June 2004 and 2003, and the related statements of income,
changes in shareholder's equity and cash flows for each of the years then ended
[not separately included herein]. These financial statements are the
responsibility of the Company's Board of Directors and of its Management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Such standards require that we plan and perform
the audit to obtain reasonable assurance that the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Board of Directors and by Management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
fair basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as at 30 June
2004 and 2003 and the results of its operations, changes in shareholder's equity
and cash flows for each of the years then ended in conformity with generally
accepted accounting principles in Israel.

As explained in Note 1B1, the above mentioned financial statements are
stated in US dollar values adjusted for the changes in the US dollar / New
Israeli Shekels exchange rate, in accordance with Opinions of the Institute of
Certified Public Accountants in Israel.

Somekh Chaikin
Certified Public Accountants (Isr.)

Jerusalem, Israel
25 July 2004

                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                                  NDS Group plc
                      Consolidated Profit and Loss Accounts

                                                         Notes         Year ended          Year ended          Year ended
                                                                     30 June 2004        30 June 2003        30 June 2002
                                                                         GBP '000            GBP '000            GBP '000

Revenue
<S>                                                                      <C>                  <C>                 <C>
Existing operations                                                      212,709              237,237             240,788
Acquisitions                                                               7,824                    -                   -
                                                                  ----------------     ---------------     ---------------
                                                           2             220,533              237,237             240,788

Cost of sales                                                            (61,593)             (94,467)            (83,107)
                                                                  ----------------     ---------------     ---------------
Gross profit                                                             158,940              142,770             157,681

Administrative expenses - trading expenses                 3a           (114,357)             (96,365)           (107,636)
                                                                  ----------------     ---------------     ---------------
                                                                          44,583               46,405              50,045
Administrative expenses - amortisation of intangible
fixed assets                                               3b            (18,762)              (9,602)             (7,350)
                                                                  ----------------     ---------------     ---------------
Operating profit                                                          25,821               36,803              42,695

------------------------------------------------------- --------- ---------------- --- --------------- --- ---------------
Comprising:
Operating profit from existing operations                                 41,846               36,803              42,695
Operating loss from acquisitions                                         (16,025)                   -                   -
------------------------------------------------------- --------- ---------------- --- --------------- --- ---------------

Share of associate's operating (loss) profit, net of
goodwill amortisation                                      4                   -                 (220)                 21
Loss on disposal of associate                              4                   -                  (60)                  -
                                                                  ----------------     ---------------     ---------------
Profit on ordinary activities before interest                             25,821               36,523              42,716

Net interest income                                        5               4,214                2,887               2,513
                                                                  ----------------     ---------------     ---------------
Profit on ordinary activities before taxation              6              30,035               39,410              45,229

Taxation                                                   7             (12,038)             (13,472)            (14,551)
                                                                  ----------------     ---------------     ---------------
Profit on ordinary activities after taxation                              17,997               25,938              30,678

Equity minority interests                                  18                472                  102                   -
                                                                  ----------------     ---------------     ---------------
Profit for the year attributable to members of the
parent company                                                            18,469               26,040              30,678
                                                                  ----------------     ---------------     ---------------


Earnings per share                                         8
Basic earnings per share                                                   34.1p                 48.4p              57.5p
Diluted earnings per share                                                 33.1p                 48.0p              56.1p
                                                                  ----------------     ---------------     ---------------
</TABLE>

The statement of movement in reserves and the reconciliation of movements
in shareholders' funds are provided in Notes 20 and 21, respectively.

A summary of the significant adjustments to profit attributable to
shareholders (net income) that would be required if United States generally
accepted accounting principles were applied instead of those generally accepted
in the United Kingdom is set out in Note 31.

The accompanying notes form an integral part of these consolidated profit
and loss accounts.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                                  NDS Group plc
          Consolidated Statements of Total Recognised Gains and Losses

                                                                       Year ended          Year ended          Year ended
                                                                     30 June 2004        30 June 2003        30 June 2002
                                                                         GBP '000            GBP '000            GBP '000
<S>                                                                       <C>                  <C>                 <C>

Profit for the year, excluding share of profits of
associate                                                                 18,469               26,185              30,605
Share of associate's profit (loss) for the year                                -                 (145)                 73
                                                                  ----------------     ---------------     ---------------
Profit for the year attributable to members of the
parent company                                                            18,469               26,040              30,678
Foreign exchange loss on translation of net assets of
subsidiary undertakings                                                   (2,780)              (3,617)             (2,338)
                                                                  ----------------     ---------------     ---------------
Total recognised gains relating to the year                               15,689               22,423              28,340
                                                                  ----------------     ---------------     ---------------

</TABLE>


The statement of comprehensive income required under United States
generally accepted accounting principles is set out in Note 31.

The accompanying notes form an integral part of these consolidated
statements of total recognised gains and losses.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                                  NDS Group plc
                           Consolidated Balance Sheets

                                                             Notes           30 June 2004          30 June 2003
                                                                                 GBP '000              GBP '000

Fixed assets
<S>                                                            <C>                <C>                   <C>
Intangible fixed assets                                        10                 86,321                64,049
Tangible fixed assets                                          11                 17,749                14,697
                                                                        ------------------    ------------------
                                                                                 104,070                78,746
                                                                        ------------------    ------------------

Current assets
Investments                                                    9c                    414                     -
Stocks                                                         12                 19,682                 7,617
Deferred tax asset                                             7c                  3,081                 4,273
Debtors                                                        13                 69,891                36,115
Cash                                                           14                125,086               121,520
                                                                        ------------------    ------------------
                                                                                 218,154               169,525
Creditors
Amounts falling due within one year                            15                (95,160)              (54,081)

                                                                        ------------------    ------------------
Net current assets                                                               122,994               115,444
                                                                        ------------------    ------------------

Total assets less current liabilities                                            227,064               194,190

Creditors
Amounts falling due after one year                             16                 (1,083)               (1,533)

Provision for liabilities and charges                          17                (22,804)               (6,328)
                                                                        ------------------    ------------------
                                                                                 203,177               186,329
Equity minority interests                                      18                      -                   (58)
                                                                        ------------------    ------------------
Net assets                                                                       203,177               186,271
                                                                        ------------------    ------------------


Equity capital and reserves
Equity share capital                                           19                    340                   339
Share premium                                                  20                129,025               127,777
Merger reserve                                                 20                 49,816                49,816
Profit and loss account                                        20               (151,269)             (166,926)
Capital contribution                                           20                133,265               133,265
                                                                        ------------------    ------------------
Total equity shareholders' funds                                                 161,177               144,271

Non-equity share capital                                       19                 42,000                42,000

                                                                        ------------------    ------------------
Total shareholders' funds                                                        203,177               186,271
                                                                        ------------------    ------------------

</TABLE>


A summary of the significant adjustments to shareholders' funds that would
be required if United States generally accepted accounting principles were
applied instead of those generally accepted in the United Kingdom is set out in
Note 31.

The accompanying notes form an integral part of these consolidated balance
sheets.

                                      F-5
<PAGE>
<TABLE>
<CAPTION>

                                  NDS Group plc
                      Consolidated Statements of Cash Flows

                                                          Notes        Year ended          Year ended          Year ended
                                                                     30 June 2004        30 June 2003        30 June 2002
                                                                         GBP '000            GBP '000            GBP '000

<S>                                                         <C>           <C>                  <C>                 <C>
Net cash inflow from operating activities                   22            62,448               44,797              67,916

Returns on investments and servicing of finance             23             3,942                2,922               2,565
Taxation                                                    23           (14,103)             (14,591)            (13,075)
Capital expenditure and financial investment                23           (10,245)              (5,175)             (6,417)
Acquisitions and disposals                                  23           (38,012)               1,671              (6,561)

                                                                  ----------------     ---------------     ---------------
Cash inflow before management of liquid resources and
financing                                                                  4,030               29,624              44,428

Management of liquid resources                                            (3,589)             (25,637)            (62,482)
Financing                                                   23             1,273                  526                 525

                                                                  ----------------     ---------------     ---------------
Increase (decrease) in cash                                 24             1,714                4,513             (17,529)
                                                                  ----------------     ---------------     ---------------
</TABLE>


The significant differences between the statements of cash flows above and
those required if United States generally accepted accounting principles were
applied instead of those generally accepted in the United Kingdom are set out in
Note 31.

The accompanying notes form an integral part of these consolidated
statements of cash flows.

                                      F-6
<PAGE>

                                  NDS Group plc
                 Notes to the Consolidated Financial Statements

1.  Accounting policies and principal activity

NDS Group plc (the "Company") is incorporated in Great Britain. The
Company, together with its subsidiaries ("NDS" or the "Group"), is engaged in
the business of supplying digital technology and services, enabling and
supporting digital pay-TV platform operators and content providers.

The principal accounting policies, all of which have been applied
consistently throughout the year and the preceding periods, are summarised
below.

a)  Basis of accounting

The financial statements have been prepared under the historical cost
convention and in accordance with applicable UK financial reporting and
accounting standards.

These financial statements do not comprise statutory accounts within the
meaning of section 240 of the Companies Act 1985 of Great Britain (the "Act").
Statutory accounts for each of the three years in the period ended 30 June 2004
have been delivered to the Registrar of Companies in England and Wales. The
auditors' reports on those accounts were unqualified and did not contain a
statement under section 237(2) or 237(3) of the Act.

b)  Basis of consolidation

The financial statements consolidate the accounts of the Company and all
its subsidiary undertakings, drawn up to 30 June each year. All intercompany
transactions and balances have been eliminated on consolidation. The results and
cash flows of subsidiaries or businesses acquired or sold are consolidated for
the periods from or to the date on which control passed to or from the Group.
Entities, other than subsidiary undertakings, in which the Group has a
participating interest and over whose operating and financial policies NDS
exercises a significant influence are treated as associates and accounted for
using the equity method.

The Company has taken advantage of section 131 of the Companies Act 1985 to
apply merger relief in respect of shares issued in connection with the
acquisition of the share capital of Orbis Technology Limited ("Orbis"). The
difference between the fair value and the nominal value of shares issued has
been credited to a merger reserve.

The Company's ultimate controlling party is The News Corporation Limited,
which taken together with its subsidiary and associated undertakings is referred
to herein as "The News Corporation Group".

c)  Goodwill

Goodwill arising on the acquisition of subsidiary undertakings or
businesses represents the excess of the fair value of the consideration given
over the fair value of the identifiable assets and liabilities acquired.
Goodwill is capitalised and amortised on a straight-line basis over its useful
economic life. Provision is made for any impairment. The useful life of goodwill
is considered by the Directors on a case by case basis. The Directors' estimates
of the periods over which benefits will accrue to the Group in respect of
goodwill have ranged from seven to twenty years.

d)  Intellectual property rights

Intellectual property rights purchased by the Group are included at cost as
intangible fixed assets and depreciated on a straight-line basis over their
useful economic lives. Provision is made for any impairment. The useful life of
purchased intellectual property rights is considered by the Directors on a case
by case basis. The Directors' estimates of the periods over which benefits will
accrue to the Group in respect of purchased intellectual property rights have
ranged from three to ten years.

e)  Investments

Investments are stated at cost less any provision for impairment. Income
from investments is included in the profit and loss account only if received, or
declared and receivable.

f)  Associates

In the consolidated financial statements, investments in associates are
accounted for using the equity method. The consolidated profit and loss account
includes the Group's share of associates' profits less losses while the Group's
share of the net assets of the associates is shown in the consolidated balance
sheet. Goodwill arising on the acquisition of associates is accounted for in
accordance with the policy set out above. Any unamortised balance of goodwill is
included in the carrying value of the investment in associates.

                                      F-7
<PAGE>

g)  Research and development

Research and development expenditure is written off to the profit and loss
account as incurred.

h)  Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost net of depreciation and any
provision for impairment. They are depreciated on a straight-line basis over
their expected useful economic lives or anticipated length of use by NDS.
Leasehold improvements are depreciated over the lesser of their useful life or
period of lease. The expected useful life of equipment and furniture is between
two and five years.

i)  Stocks and work-in-progress

Stocks and work-in-progress are valued at the lower of cost (calculated on
a first in, first out basis) and net realisable value. Cost represents purchase
price and, in respect of manufactured or processed items, includes an
appropriate proportion of production overheads. Net realisable value is based on
estimated selling price, less further costs expected to be incurred to
completion and disposal. Provision is made for obsolete, slow-moving or
defective items where appropriate. Where stock is to be used to satisfy a
liability incurred under subscriber fee arrangements (see Note 1m under
subscriber fees), the stock is held at cost and the liability is measured by
reference to that cost.

Contract work-in-progress represents the cost of bought-in goods and
services and the direct labour cost of work undertaken for customer contracts,
where such costs can be clearly related to development and integration work for
which the associated revenue has not been recognised.

j)  Debtors

Debtors are recognised at the amounts due to NDS, net of any provision for
doubtful debts.

k)  Foreign currency

The reporting currency and functional currency of NDS Group plc is UK
pounds sterling. The functional currency of each of the subsidiaries of NDS
Group plc is the local currency of the country in which each subsidiary is
located, except in the case of the subsidiaries operating in Israel, where the
functional currency is the US dollar.

Normal trading activities denominated in foreign currencies are recorded in
the functional currency of the relevant company at actual exchange rates as at
the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the year end are reported at the rates of exchange
prevailing at the year end with any resulting gain or loss being recorded in the
profit and loss account.

The results and cash flows of overseas operations are translated into
sterling at the average rates of exchange during the period and their balance
sheets at the rates prevailing at the balance sheet date. Exchange differences
arising on translation of the opening net assets and results of overseas
operations are dealt with through reserves.

l)  Taxation

Corporation tax and its overseas equivalents are provided on the taxable
profits for the year at the rate prevailing during the year.

Full provision is made for deferred tax assets and liabilities arising from
timing differences between the recognition of gains and losses in the financial
statements and their recognition for tax purposes, measured using tax rates that
have been enacted or substantively enacted. Deferred tax assets and liabilities
are not discounted to reflect the time value of money. The recoverability of
deferred tax assets is considered and a provision is made if it is considered
more likely than not that the asset will not be recoverable. No deferred tax is
recorded in respect of tax that would be payable on the remittance by way of
dividend of the past earnings of overseas subsidiaries until such time as the
remittance becomes binding on the subsidiary.

m)  Revenue

Revenue represents amounts receivable by the Group for goods and services
provided in the ordinary course of business, net of trade discounts, value added
tax and other sales-related taxes.

NDS derives revenues from the provision of conditional access, broadcast
control, interactive software, systems and other services to pay-TV platform
operators and content providers. Conditional access systems enable such
customers to manage and control the distribution of content and to protect such
content from signal theft. Other software and systems provide platform operators
and content providers with additional functionality and enable them to offer
additional services. The Group's systems include software that is installed at
the platform operators' facilities as well as software and smart cards in
set-top boxes, digital televisions and PCs. The Group's business gives rise to a
number of revenue streams for which accounting policies are applied as follows:


                                      F-8
<PAGE>

Smart cards

Smart cards are sold to platform operators for distribution to and use by
their subscribers. The revenues derived from these sales are recognised upon
delivery of the cards in accordance with the customers' instructions.
Appropriate provision is made for warranty and similar arrangements agreed with
customers.

Subscriber fees

For some contracts, NDS receives fees from broadcasters for the maintenance
of security of conditional access systems for a specified duration which is
typically between 24 and 48 months. Fees are received over the duration of the
agreed service period and are related to the number of subscribers that the
broadcasters have. These revenues are recognised over the term of the security
contract in the period in which the security services are performed.

In some instances, the maintenance of security requires NDS to replace a
population of smart cards ("changeover cards"). This is an integral part of the
wider security maintenance activities and the subscriber fees continue to be
recognised as the services are performed. Costs associated with such
arrangements include, therefore, the production of changeover cards to be
provided. In these circumstances, the liability is recognised by way of a
provision in the financial statements. The value of this liability at each
balance sheet date is calculated as the total anticipated cost of providing
changeover cards multiplied by the proportion of revenues recognised to date as
compared with total security fees expected over the duration of the maintenance
agreement. Movement in the provision is included within the profit and loss
account as part of cost of sales. Amounts provided for as at each balance sheet
date are included in provisions for liabilities and charges. The provision is
utilised by the supply of smart cards from stock. The liability is not
extinguished until the necessary cards have been supplied. Accordingly, it is
appropriate to recognise separate assets and liabilities until that event
occurs.

Development, integration and installation contracts

Contracts for development, integration and installation work are undertaken
for customers on the basis of time and materials or according to fixed price
terms, or a combination of the two. The duration of such contracts has varied
from a few weeks to approximately two years. Revenue for contracts negotiated on
a time and materials basis is recognised as costs are incurred. Where there is
uncertainty as to the scope of work or the fee payable, revenue is deferred
until any uncertainties are resolved. For fixed price contracts involving
significant adaptation of software, revenue and profit are recognised according
to the proportion of the estimated contract value completed, ascertained by
reference to percentage of technical completion, having regard to any customer
acceptance provisions in the contract. Where a contract has not sufficiently
progressed for the outcome to be seen with reasonable certainty, but no loss is
expected, then revenue is deferred until any uncertainties are resolved. All
losses are recognised as soon as incurred or reasonably foreseen. Total contract
revenue and profitability to date are reviewed periodically and the cumulative
effects of changes are recognised in the period in which they are identified.
Revenue from the supply of hardware and other items procured from third party
suppliers, which are an integral part of an overall system, is recognised once
customer acceptance is achieved, where this is a critical element of the
contractual arrangements with the customer.

Licence fees and royalties

Licence fee income is recognised when the software is delivered to the
customer unless the supply is closely linked to customisation, integration and
installation work, in which case revenue recognition is deferred until customer
acceptance has occurred.

Royalty income is typically receivable on the basis of the number of units
manufactured or deployed by a licensee. Such income is recognised when it is
fixed or determinable.

Support and maintenance

Support and maintenance income is recognised over the term of the contract.

Contingent income

Revenue which is dependent on the number of subscribers or is contingent
upon the occurrence of specified events is recognised when the amount has become
fixed or determinable.

n)  Pension costs

NDS makes contributions for the benefit of employees to defined
contribution schemes. The amount charged to the profit and loss account in
respect of pension costs is the contributions payable in the year. Differences
between contributions payable in the year and contributions actually paid are
shown either as accruals or as prepayments in the balance sheet.

                                      F-9
<PAGE>

Certain current and former US employees are members of a defined benefit
pension scheme operated for the benefit of certain US employees of The News
Corporation Group. As such it is a multi-employer defined benefit scheme. It is
not possible to determine the assets and liabilities of the scheme relating to
the obligations of NDS to current and former employees. Accordingly, the amounts
recorded in the profit and loss account are the contributions payable in the
year, as determined by third party actuaries. Differences between contributions
payable in the year and contributions actually paid are shown either as accruals
or as prepayments in the balance sheet.

NDS also has certain liabilities to a small number of current and former
employees who are members of a UK defined benefit pension scheme. The amount
charged to the profit and loss account in respect of this scheme is the
estimated regular cost of providing the benefits accrued in the year, adjusted
to reflect variations from that cost. The regular cost is calculated so that it
represents a substantially level percentage of current and future payroll.
Variations from regular cost are charged or credited to the profit and loss
account as a constant percentage of payroll over the estimated average remaining
working life of scheme members. The scheme is funded, with the assets of the
scheme held separately from those of the Group, in a separate trustee
administered fund. Differences between amounts charged to the profit and loss
account and amounts funded are shown as either provisions or prepayments in the
balance sheet.

NDS has adopted the transitional provisions of FRS17: "Retirement
benefits". The disclosure required by this standard is provided in Note 27.

o)  Government grants

NDS receives grants towards the cost of certain capital expenditure. Such
grants are treated as deferred income and released to the profit and loss
account over the expected useful lives of the assets concerned.

p)  National Insurance on share options and similar items

UK law levies Employer's National Insurance contributions on the gains made
by employees upon exercise of options issued under certain share option schemes.
Similarly, a charge to Employer's National Insurance arises when vested assets
held in an employee benefit trust are distributed. Provision is made over the
vesting period, based on the prevailing National Insurance rate and the market
value of the underlying assets as at the balance sheet date.

q)  Leases

Amounts payable under operating leases, net of any incentives, are charged
on a straight-line basis over the term of the lease.

r)  Licence agreements

NDS has the right to use certain intellectual property under various
licence agreements. Royalties payable under these licence agreements are
typically calculated as a percentage of relevant revenues and are charged in the
profit and loss account to match with the recognition of those revenues.

s)  Use of estimates

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.


2.  Segment information

a)  Business segment

NDS operates through a number of subsidiaries. There is a common management
structure across the Group, which ensures that the various subsidiary companies
operate in a co-ordinated and complementary manner. The business is managed as a
single operating unit or segment, being the supply of digital technology and
services enabling and supporting digital pay-TV platform operators and content
providers. The segment has associated with it a number of revenue streams.

The accounting policies of the segment are those described in Note 1. All
revenues, costs, cash flows, assets and liabilities relate to the continuing
operations of the Group. The MediaHighway acquisition (see Note 9a) generated
revenue of GBP 7,824,000, cost of sales of GBP 467,000, operating expenses of
GBP 14,321,000, plus GBP 2,641,000 of regular amortisation and GBP 6,510,000 of
goodwill impairment charge. The revenues and expenses contributed by Visionik
(see Note 9b) in the year ended 30 June 2002 (the year of acquisition) were not
material.

                                      F-10
<PAGE>

b)  Revenue by geographical destination

Turnover may be analysed by geographical destination as follows:
<TABLE>
<CAPTION>

                                                                  Year ended          Year ended          Year ended
                                                                30 June 2004        30 June 2003        30 June 2002
                                                                    GBP '000            GBP '000            GBP '000

<S>                                                                  <C>                 <C>                 <C>
    UK                                                               80,175              74,892              71,654
    Europe and the Middle East                                       36,451              17,463              20,981
    USA                                                              60,609             110,584              98,793
    Latin America                                                    19,706              14,538              24,521
    Asia-Pacific                                                     23,592              19,760              24,839
                                                             ----------------    ----------------    ----------------
                                                                    220,533             237,237             240,788
                                                             ----------------    ----------------    ----------------
</TABLE>

c)  Geographical origin

The Group's operations are situated in the UK, Europe, Israel, the US and
the Asia-Pacific region. Most of the Group's contracts with customers are
entered into with the Group's principal operating company, NDS Limited, a UK
subsidiary. Many of the costs of the overseas operations are recharged to UK
subsidiaries. The contribution of each region to the consolidated results and
net assets is as follows:
<TABLE>
<CAPTION>

    Year ended 30 June 2004
                                                 UK       Europe      Israel          USA    Asia-Pacific    Total
     Year ended 30 June 2004                GBP '000     GBP '000     GBP '000    GBP '000       GBP '000   GBP '000

<S>                                          <C>           <C>                     <C>                <C>    <C>
     Revenue                                 197,597       9,312             -     13,596             28     220,533
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Operating profit (loss)                  30,827     (11,448)        4,970        850            622      25,821
                                          ------------ ------------ ----------- ------------ ------------ -----------


     Fixed assets acquired as part of
     a business combination                   33,165      10,138             -          -              -      43,303
     Other capital expenditure                 2,749       1,906         2,871      2,513            533      10,572
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Total capital expenditure                35,914      12,044         2,871      2,513            533      53,875
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Depreciation and amortisation            16,436       6,440         3,305        607            459      27,247
                                          ------------ ------------ ----------- ------------ ------------ -----------

                                                 UK       Europe      Israel          USA    Asia-Pacific    Total
     As at 30 June 2004                     GBP '000     GBP '000     GBP '000    GBP '000      GBP '000    GBP '000

     Intangible fixed assets                  84,045        2,276            -           -            -       86,321
     Tangible fixed assets                     5,765        3,078        5,406       2,568          932       17,749
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Total long-lived assets                  89,810        5,354        5,406       2,568          932      104,070
     Other net assets (liabilities)           85,234      (16,683)      25,412       3,806        1,338       99,107
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Net assets (liabilities)                175,044      (11,329)      30,818       6,374        2,270      203,177
                                          ------------ ------------ ----------- ------------ ------------ -----------
</TABLE>

                                      F-11
<PAGE>

<TABLE>
<CAPTION>

    Year ended 30 June 2003
                                                 UK       Europe      Israel          USA    Asia-Pacific    Total
     Year ended 30 June 2003                GBP '000     GBP '000     GBP '000    GBP '000      GBP '000    GBP '000

<S>                                          <C>              <C>                   <C>              <C>     <C>
     Revenue                                 156,438          980            -      79,763           56      237,237
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Operating profit (loss)                  28,635         (375)       5,033       3,006          504       36,803
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Adjustment to fixed assets
     acquired as part of a business                -       (3,189)           -           -            -       (3,189)
     combination
     Other capital expenditure                 3,910           52        1,929         228          483        6,602
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Total capital expenditure                 3,910       (3,137)       1,929         228          483        3,413
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Depreciation and amortisation            13,309           20        3,504         853          130       17,816
                                          ------------ ------------ ----------- ------------ ------------ -----------

                                                 UK       Europe      Israel          USA    Asia-Pacific    Total
     As at 30 June 2003                     GBP '000     GBP '000     GBP '000    GBP '000      GBP '000    GBP '000

     Intangible fixed assets                  64,049            -            -           -            -       64,049
     Tangible fixed assets                     6,419           52        6,443         845          938       14,697
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Total long-lived assets                  70,468           52        6,443         845          938       78,746
     Other net assets                         80,064           70       22,481       3,834        1,076      107,525
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Net assets                              150,532          122       28,924       4,679        2,014      186,271
                                          ------------ ------------ ----------- ------------ ------------ -----------

    Year ended 30 June 2002
                                                 UK       Europe      Israel          USA    Asia-Pacific    Total
     Year ended 30 June 2002                GBP '000     GBP '000     GBP '000    GBP '000      GBP '000    GBP '000

     Revenue                                 182,612          107            -      58,069            -      240,788
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Operating profit (loss)                  34,644         (299)       6,360       1,597          393       42,695
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Fixed assets acquired as part of a
     business combination, including          13,497        3,260            -           -            -       16,757
     adjustments thereto
     Other capital expenditure                 3,521            -        3,570         406          239        7,736
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Total capital expenditure                17,018        3,260        3,570         406          239       24,493
                                          ------------ ------------ ----------- ------------ ------------ -----------

     Depreciation and amortisation            11,403           40        4,030       1,190          141       16,804
                                          ------------ ------------ ----------- ------------ ------------ -----------

                                                 UK       Europe      Israel          USA    Asia-Pacific    Total
     As at 30 June 2002                     GBP '000     GBP '000     GBP '000    GBP '000      GBP '000    GBP '000

     Investments                               2,337            -            -           -            -        2,337
     Intangible fixed assets                  73,312        3,180            -           -            -       76,492
     Tangible fixed assets                     6,835           40        8,613       1,560          646       17,694
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Total long-lived assets                  82,484        3,220        8,613       1,560          646       96,523
     Other net assets (liabilities)           50,948       (2,968)      17,497         739        1,069       67,285
                                          ------------ ------------ ----------- ------------ ------------ -----------
     Net assets                              133,432          252       26,110       2,299        1,715      163,808
                                          ------------ ------------ ----------- ------------ ------------ -----------
</TABLE>


d)  Principal customers

Substantial revenues are derived from businesses in which The News
Corporation Group has an equity interest. Revenue from related parties is
disclosed in Note 28a. There are two principal customers (defined as a customer
accounting for greater than 10% of total turnover), DIRECTV, which generated
revenue of GBP 40.6 million (2003: GBP 89.4 million; 2002: GBP 69.4 million;
2001: GBP 57.4 million) and BSkyB, which generated revenue of GBP 64.3 million
(2003: 59.1 million; 2002: GBP 50.6 million).

                                      F-12
<PAGE>


3.  Administrative expenses

a)  Trading expenses
<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                     GBP '000             GBP '000             GBP '000

<S>                                                                    <C>                 <C>                  <C>
    Sales and marketing                                                14,455              14,208               15,876
    Research and development                                           82,491              61,294               68,738
    General and administration                                         18,252              21,528               21,619
    Foreign exchange losses (gains)                                    (1,085)             (1,130)               1,403
    Losses on investments                                                 244                 465                    -
                                                               ----------------    ----------------     ----------------
                                                                      114,357              96,365              107,636
                                                               ----------------    ----------------     ----------------
</TABLE>

General and administrative expenses include costs incurred in connection
with the litigation referred to in Note 26c. In the year ended 30 June 2003,
such costs amounting to GBP 3,809,000 (2002: GBP 1,558,000) were previously
shown as exceptional costs. General and administrative costs for the year ended
30 June 2002 included a charge of GBP 2,268,000 in respect of a provision for
onerous leases, which was previously shown as an exceptional cost. The losses on
investments in the year ended 30 June 2003 were previously shown as exceptional.

b)  Amortisation of intangible fixed assets
<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000            GBP '000             GBP '000

<S>                                                                     <C>                 <C>                  <C>
    Amortisation of goodwill                                            7,854               7,845                7,109
    Amortisation of intellectual property rights                        4,587               1,891                  241
                                                               ----------------    ----------------     ----------------
                                                                       12,441               9,736                7,350
    Less amounts charged in cost of sales                                (189)               (134)                   -
                                                               ----------------    ----------------     ----------------
    Amortisation of intangible fixed assets acquired as
    part of a business combination                                     12,252               9,602                7,350
    Goodwill impairment charge                                          6,510                   -                    -
                                                               ----------------    ----------------     ----------------
                                                                       18,762               9,602                7,350
                                                               ----------------    ----------------     ----------------
</TABLE>

    The goodwill impairment charge is explained in Note 9a.

c)  Losses on investments
<TABLE>
<CAPTION>

                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000            GBP '000             GBP '000

<S>                                                                       <C>
    Profit on disposal of Fancy a Flutter Limited                         223                   -                    -
    Write-down of listed investments to market value                     (467)                  -                    -
    Write-off of fixed asset investments                                    -                (465)                   -
                                                               ----------------    ----------------     ----------------
                                                                         (244)               (465)                   -
                                                               ----------------    ----------------     ----------------
</TABLE>

On 5 April 2004, NDS sold its 80% interest in Fancy a Flutter Limited to
Yoomedia plc. Fancy a Flutter Limited was incorporated in Great Britain and its
business was the provision of technical services to support a games and gaming
channel on the BSkyB platform. The consideration was in the form of shares in
Yoomedia plc. The transaction yielded a profit of GBP 223,000. Subsequent to the
transaction, the share price of Yoomedia plc has declined and a charge of GBP
467,000 has been recorded to write the value of the investment down to its year
end market price, as the Directors consider this to be a permanent (other than
temporary) diminution in value. The results and liabilities of Fancy a Flutter
Limited were not material to the Group.

During the year ended 30 June 2003 and following discussions with the fund
manager, it became apparent that there was little prospect of realising value in
the foreseeable future from an investment in a venture capital fund. Accordingly
the investment was written-off. The charge was previously shown as an
exceptional item.

                                      F-13
<PAGE>

d)  Total administrative expenses
<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000            GBP '000            GBP '000

<S>                                                                    <C>                 <C>                  <C>
    Sales and marketing                                                14,455              14,208               15,876
    Research and development                                           82,491              61,294               68,738
    General and administration                                         36,173              30,465               30,372
                                                               ----------------    ----------------     ----------------
    Total administrative expenses                                     133,119             105,967              114,986
                                                               ----------------    ----------------     ----------------

</TABLE>

4.  Associate

a)  Share of associate's operating profit
<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000            GBP '000            GBP '000

<S>                                                                                          <C>                   <C>
    Share of operating profit (loss)                                        -                (220)                 141
    Amortisation of goodwill                                                -                   -                 (120)
                                                               ----------------    ----------------     ----------------
                                                                            -                (220)                  21
                                                               ----------------    ----------------     ----------------
</TABLE>

b)  Loss on disposal of associate

A subsidiary of the Company owned 40% of the share capital of ADSR Limited
("ADSR"), a company incorporated in Great Britain whose business was the
provision of services connected with electronic chip design and security. The
Directors considered that NDS exercised significant influence over, but not
control of, the management of ADSR and accordingly regarded ADSR as an
associated undertaking. During the year ended 30 June 2003, the arrangements
with ADSR were terminated. NDS purchased certain specialist equipment and
facilities from ADSR and received repayment of loan finance advanced to ADSR.
The shares were then sold for a nominal sum, realising a loss of GBP 60,000.


5. Net interest income
<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000            GBP '000             GBP '000

<S>                                                                                                               <C>
    Interest payable on Series A Loan Notes                                 -                   -                 (529)
    Bank interest income                                                3,826               2,923                3,047
    Other interest receivable                                             416                   7                    -
    Other interest payable                                                (28)                (43)                  (7)
                                                               ----------------    ----------------     ----------------
                                                                        4,214               2,887                2,511
    Share of associate's interest income                                    -                   -                    2
                                                               ----------------    ----------------     ----------------
                                                                        4,214               2,887                2,513
                                                               ----------------    ----------------
                                                                                                        ----------------

    Total interest receivable                                           4,242               2,930                3,049
    Total interest payable                                                (28)                (43)                (536)
                                                               ----------------    ----------------     ----------------
                                                                        4,214               2,887                2,513
                                                               ----------------    ----------------     ----------------
</TABLE>

The Series A Loan Notes ("the Notes") were issued by the Company in
connection with the acquisition of Orbis. Interest was payable on the Notes on
15 December and 15 June each year. The Notes bore interest at a rate of 52.5
basis points below the quoted London Interbank rate for each six-month period,
which the Directors considered to be a market rate for similar types of debt.
The Notes were repaid in full on 15 June 2002. The effective annual rate of
interest applied during the year ended 30 June 2002 was 3.797%.

                                      F-14
<PAGE>


6.  Profit on ordinary activities before taxation

a)  Elements of operating expenses

The profit on ordinary activities before taxation is stated after charging
(crediting):
<TABLE>
<CAPTION>

                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                     GBP '000             GBP '000            GBP '000

<S>                                                                     <C>                 <C>                  <C>
    Depreciation of tangible fixed assets                               8,296               8,080                9,454
    Regular amortisation of goodwill                                    7,854               7,845                7,109
    Goodwill impairment charge                                          6,510                   -                    -
    Amortisation of intellectual property rights                        4,587               1,891                  241
    Foreign exchange losses (gains)                                    (1,085)             (1,130)               1,403
    Primary auditors' remuneration:
             - Audit services                                             250                 200                  186
             - Non-audit services                                          58                   4                    -
    Secondary auditors' remuneration:
             - Audit services                                              17                  19                   29
             - Non-audit services                                          32                  32                   39
    Release of deferred capital government grants                        (562)               (644)                (879)
    Operating lease costs in respect of buildings                       8,389               6,882                6,547
                                                               ----------------    ----------------     ----------------
</TABLE>

Ernst & Young LLP have been the primary auditors since 23 April 2002; prior
to that date, the primary auditors were Arthur Andersen. In the year ended 30
June 2002, audit fees of GBP 81,000 and non-audit fees of GBP 178,000 (mainly
related to taxation matters) were paid to Arthur Andersen and charged to the
profit and loss account for services provided up to the date of their
resignation as auditors. In the year ended 30 June 2002, additional fees of GBP
48,000 were paid to Arthur Andersen in connection with the acquisition of
Visionik and have been included as part of the cost of the investment.

b)  Staff costs

The average monthly number of employees (including directors) was as
follows:
<TABLE>
<CAPTION>

                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                        number              number               number

<S>                                                                       <C>                 <C>                  <C>
    Operations                                                            288                 253                  228
    Sales and marketing                                                    98                 133                   92
    Research and development                                            1,315                 879                  841
    General and administration                                             72                  63                   65
                                                               ----------------    ----------------     ----------------
                                                                        1,773               1,328                1,226
                                                               ----------------    ----------------     ----------------

    Their aggregate remuneration comprised:
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                     GBP '000            GBP '000             GBP '000

    Wages, salaries and benefits                                       77,487              65,943               70,545
    Social security costs                                               7,216               3,338                1,830
    Other pension costs                                                 2,069               1,560                1,829
    Share-based compensation                                              101                 361                  398
                                                               ----------------    ----------------     ----------------
                                                                       86,873              71,202               74,602
                                                               ----------------    ----------------     ----------------

c)  Pension costs
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                     GBP '000            GBP '000             GBP '000

    Defined contribution schemes                                        1,674               1,261                1,069
    US multi-employer defined benefit scheme                              161                 149                  129
    UK defined benefit scheme                                             234                 150                  631
                                                               ----------------    ----------------     ----------------
                                                                        2,069               1,560                1,829
                                                               ----------------    ----------------     ----------------
</TABLE>

                                      F-15
<PAGE>

Most UK employees are eligible for membership of the News International
Pension Plan, a defined contribution scheme operated for the benefit of certain
UK employees of The News Corporation Group. There were no pension contributions
to the defined contribution scheme which were unpaid or prepaid as at 30 June
2004 or 30 June 2003.

Most US employees are eligible for membership of the News America
Incorporated Employees' Pension and Retirement Plan which is operated for the
benefit of certain US employees of The News Corporation Group. As such, and so
far as it relates to NDS, it is a multi-employer defined benefit scheme. It is
not possible to determine the assets and liabilities of this scheme relating to
the obligations of NDS to current and former employees. Accordingly, the amounts
recorded in the profit and loss account are the contributions payable in the
year, as determined by third party actuaries. No contributions to this scheme
were unpaid or prepaid as at 30 June 2004 or 30 June 2003.

Further information about the UK defined benefit pension scheme is given in
Note 27.


7.  Taxation
a)  Analysis of tax charge
<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000            GBP '000             GBP '000

    Current tax
<S>                                                                    <C>                 <C>                  <C>
    UK Corporation tax on profits for the year                         11,370              12,595               13,882
    Adjustments in respect of prior periods                            (1,963)                200                  435
    Double tax relief                                                  (1,882)             (2,227)              (3,000)
                                                               ----------------    ----------------     ----------------
    UK current tax charge                                               7,525              10,568               11,317
    Overseas taxation on profits for the year                           3,411               3,437                4,234
    Adjustments to overseas taxation in respect of prior
    periods                                                                 -                (121)                   -
                                                               ----------------    ----------------     ----------------
    Group current tax charge                                           10,936              13,884               15,551
    Share of associate's tax charge (credit)                                -                 (75)                  68
                                                               ----------------    ----------------     ----------------
    Total current tax charge                                           10,936              13,809               15,619
                                                               ----------------    ----------------     ----------------

    Deferred tax
    Origination and reversal of timing differences                      1,907                (695)                (134)
    Adjustments in respect of prior periods                              (805)                358                 (934)
                                                               ----------------    ----------------     ----------------
    Group deferred tax charge (credit)                                  1,102                (337)              (1,068)
                                                               ----------------    ----------------     ----------------

    Total tax charge                                                   12,038              13,472               14,551
                                                               ----------------    ----------------     ----------------
</TABLE>

b)  Factors affecting tax charge

NDS is subject to taxation on the profits of its overseas subsidiaries.
Substantially all such profits arise on transactions with UK Group companies. It
is also subject to taxation on certain remittances from overseas customers, for
which UK double taxation relief is substantially available. The tax rate differs
from the statutory UK tax rate of 30% as a consequence of different overseas tax
rates. Additionally, there are material differences between profits recognised
in the financial statements of group companies and profits calculated for tax
purposes. Certain charges, primarily goodwill amortisation, are disallowable for
tax purposes, certain UK expenditure on research and development is eligible for
additional relief and transactions involving employee share options give rise to
deductible benefits. Other charges are recognised for tax purposes in periods
different from those in which they are recognised in the financial statements.
These latter timing differences give rise to deferred tax assets, the potential
benefit of which is recognised unless the asset is not expected to be recovered.

                                      F-16
<PAGE>


    A reconciliation of the tax charge is as follows:

<TABLE>
<CAPTION>
                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002
                                                                     GBP '000             GBP '000            GBP '000

<S>                                                                    <C>                 <C>                  <C>
     Profit on ordinary activities before taxation                     30,035              39,410               45,229
             UK statutory tax rate                                      30.0%               30.0%                30.0%
                                                               ----------------    ----------------     ----------------
     Prima facie tax charge at the UK statutory rate of
     30%                                                                9,011              11,823               13,569

     Effect of different tax rates on profits earned
     outside of the UK                                                   (977)             (1,300)                (966)
     Permanent differences:
     - Non-deductible goodwill                                          4,310               2,353                2,133
     - Other permanent differences                                        (75)               (258)                 256
     Losses for which no effective relief is available                  2,537                 417                    -
     Tax under- (over-) provided in prior years                        (2,768)                437                 (441)
                                                               ----------------    ----------------     ----------------
     Total tax charge                                                  12,038              13,472               14,551
                                                               ----------------    ----------------     ----------------

     Effective tax rate                                                  40.0%               34.2%                32.2%
                                                               ----------------    ----------------     ----------------

     Total tax charge, as above                                        12,038              13,472               14,551
     Add back:
     Adjustments in respect of prior periods:
             Benefit of losses not previously recognised                1,645                   -                    -
             Transfer to current tax                                     (840)               (358)                 934
     Origination and reversal of timing differences
             Fixed asset timing differences                               (24)                318                  329
             Timing differences relating to accrued
             expenses                                                  (1,647)                377                 (195)
             Use of losses                                               (236)                  -                    -
     Share of associate's tax credit (charge)                               -                  75                  (68)
                                                               ----------------    ----------------     ----------------
     Group current tax charge                                          10,936              13,884               15,551
                                                               ----------------    ----------------     ----------------
</TABLE>

As a consequence of the factors noted above, the future tax charge may
differ from the statutory UK tax rate of 30%.

c)  Deferred tax
    Deferred tax assets relate to:
<TABLE>
<CAPTION>
                                                                             30 June 2004          30 June 2003
                                                                                GBP '000              GBP '000

<S>                                                                                  <C>                 <C>
     Short-term timing differences on accrued expenses                               888                 2,972
     Long-term timing differences on fixed assets                                    851                 1,301
     Benefit of losses carried forward                                             1,342                     -
                                                                        ------------------    ------------------
                                                                                   3,081                 4,273
                                                                        ------------------    ------------------
</TABLE>

Substantially all of the deferred tax asset is expected to be recovered
after more than one year. There are no deferred tax liabilities.

There is an unrecognised deferred tax asset as at 30 June 2004 of
approximately GBP 2 million in respect of operating losses carried forward,
whose recoverability is not probable but which may be used against certain
future taxable profits without time limitation. As a result of a tax audit
during the year a deferred tax asset of GBP 1,645,000 was recognised for
operating losses existing at 30 June 2003 which had not previously been
recognised because their recoverability had not been considered to be probable.
These losses may be used against future taxable profits through to 2015.

                                      F-17
<PAGE>

The movement in deferred tax balances during the two years ended 30 June
2004 is as follows:
<TABLE>
<CAPTION>

                                                                               Year ended            Year ended
                                                                             30 June 2004          30 June 2003
                                                                                GBP '000              GBP '000

<S>                                                                                <C>                   <C>
    Beginning of year                                                              4,273                 3,951
    Adjustments in respect of prior periods:
             Benefit of losses not previously recognised                           1,645                     -
             Transfer to current tax                                                (840)                 (358)
    Origination and reversal of timing differences:
             Fixed asset timing differences                                          (24)                  318
             Timing differences relating to accrued expenses                      (1,647)                  377
             Use of losses                                                          (236)                    -
    Foreign exchange movements                                                       (90)                  (15)
                                                                        ------------------    ------------------
    End of year                                                                    3,081                 4,273
                                                                        ------------------    ------------------
</TABLE>


8.  Earnings per share
<TABLE>
<CAPTION>

                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002

<S>                                                                       <C>                 <C>                  <C>
    Basic earnings per share                                              34.1p               48.4p                57.5p
    Diluted earnings per share                                            33.1p               48.0p                56.1p

    Adjusted basic earnings per share                                     66.4p               65.2p                71.1p
    Adjusted diluted earnings per share                                   64.4p               64.7p                69.4p
                                                               ----------------    ----------------     ----------------
</TABLE>

Basic earnings per share is calculated as the profit attributable to equity
shareholders divided by the weighted average number of shares in issue. Equity
shareholders' interests may be diluted due to the existence of share options
granted to employees (see Note 19c). The dilutive effect of potential shares has
been calculated in the manner prescribed by FRS 14: "Earnings per share", and as
such, is a function of the average share price in each period. The weighted
average numbers of shares used in the calculations is as follows:
<TABLE>
<CAPTION>

                                                                    Year ended          Year ended           Year ended
                                                                  30 June 2004        30 June 2003         30 June 2002

<S>                                                                <C>                 <C>                  <C>
    Weighted average number of shares in issue                     54,093,083          53,856,141           53,347,593

    Diluted weighted average number of shares                      55,715,566          54,267,114           54,659,952
                                                               ----------------    ----------------     ----------------

    Average share price                                                $21.73                $9.52             $20.77
                                                               ----------------    ----------------     ----------------

</TABLE>

9.  Investments
a)  Acquisition of MediaHighway

On 16 December 2003, a subsidiary, NDS Limited, acquired the MediaHighway
middleware business from a subsidiary of Thomson SA and licensed certain related
patents from Thomson SA for a total consideration of EUR 60 million in cash. The
Directors commissioned an independent valuation of the separable intangible
fixed assets acquired, together with an assessment of their expected useful
lives.

                                      F-18
<PAGE>

As a result of this assessment and following agreement with Thomson SA on
the accounts of the acquired business as at completion, the following assets and
liabilities have been recognised in the consolidated balance sheet as at
acquisition:
<TABLE>
<CAPTION>

                                                                        Book values        Fair value      Fair value
                                                                           prior to       adjustments          to NDS
                                                                        acquisition
                                                                          GBP '000          GBP '000         GBP '000

<S>                                                                          <C>              <C>              <C>
    Separable intangible fixed assets, other than goodwill                   1,969            32,776           34,745
    Goodwill                                                                 5,339             1,171            6,510
    Tangible fixed assets                                                    2,048                 -            2,048
    Stock                                                                       31                 -               31
    Debtors and prepayments                                                  6,067            (1,433)           4,634
    Cash                                                                     5,882                 -            5,882
    Current liabilities                                                    (10,234)             (583)         (10,817)
                                                                     ---------------   ---------------  ----------------
    Net assets                                                              11,102            31,931           43,033
                                                                     ---------------   ---------------  ----------------

    Consideration, including costs, settled in cash                                                            43,033
                                                                                                        ----------------
</TABLE>

The fair value adjustments to intangible fixed assets, including goodwill,
represent the difference between the book values at historic cost as shown in
the accounts of the acquired business and the values at acquisition as
determined by NDS's independent valuers. The adjustment to debtors is to
re-state amounts at their realisable value. The adjustment to current
liabilities is in respect of contractual liabilities not recognised under the
accounting policies adopted by the acquired business.

The Directors have examined in detail the plans and projections of the
acquired business and the way in which it has been integrated into the rest of
the NDS organisation. As a result of this assessment the Directors have
concluded that the values attributed to the intellectual property rights and
products of the MediaHighway business are supported by the business plans and
cash flow projections. However, the projections of the incremental future cash
flows attributable to the acquired business do not support the value of the
goodwill acquired. Accordingly an impairment charge has been recorded to write
down the acquired goodwill from its cost of GBP 6,510,000 to nil.

The accounts of the acquired business for the period from 1 August 2003 to
16 December 2003 show revenue of GBP 9.1 million, operating loss of GBP 1.0
million, loss before tax of GBP 1.1 million, tax of GBP nil and loss after tax
of GBP 1.1 million. There were no recognised gains or losses other than the loss
for the period. The business did not exist as a separate entity prior to 1
August 2003 and accordingly it is not possible to present the results of the
business for its previous financial year. For the period from 16 December 2003
until 30 June 2004 the MediaHighway business contribution to the consolidated
results of the Group was revenue of GBP 7,824,000, cost of sales of GBP 467,000,
operating expenses of GBP 14,231,000, plus GBP 2,641,000 of regular amortisation
and GBP 6,510,000 of goodwill impairment charge.


b)  Acquisition of Visionik

During the year ended 30 June 2002, NDS entered into a series of agreements
with Visionik A/S ("Visionik"), and its principal direct and indirect
shareholders. These agreements culminated in NDS acquiring an economic interest
amounting to control over Visionik from 31 May 2002. Visionik is a company
incorporated in Denmark whose principal activity is the provision of interactive
television applications.

Under these agreements, NDS acquired all the intellectual property rights
of Visionik and subscribed for new shares equivalent to approximately 51% of the
enlarged equity capital of Visionik but having approximately 91% of the voting
power. The agreements provide for payment of specified dividends to the minority
shareholders and an obligation on NDS to procure the redemption of the minority
shareholders for a price calculated by reference to the revenues and
profitability of the business of Visionik for the two years ending 31 May 2004.
The Directors consider that the substance of these agreements means that NDS
acquired full ownership and control of Visionik with effect from 31 May 2002.
Accordingly no minority interest is shown in these consolidated financial
statements and a liability has been recognised for the expected fair value of
the total amount to be paid.

Following determination of the revenues and profitability of Visionik for
the year ended 31 May 2003 and consideration of the budgets for the period
ending 31 May 2004, the Directors concluded that it was unlikely that further
amounts would become payable. Accordingly, the estimated fair value of the
goodwill acquired was adjusted during the year ended 30 June 2003. No further
adjustments were necessary following the determination of the revenues and
profitability for the year ended 31 May 2004.

                                      F-19
<PAGE>

The Directors undertook an impairment review and a re-appraisal of the fair
values of the assets acquired as at 30 June 2003 and, except for the adjustment
to goodwill referred to above, concluded that no further adjustments were
required.
<TABLE>
<CAPTION>

                                                                                            GBP '000

<S>                           <C>     <C>                                                      <C>
    Goodwill, as estimated at 30 June 2002                                                     3,218
    Adjustment to goodwill made during the year ended 30 June 2003                            (3,189)
                                                                                   -------------------
    Estimate of goodwill as at 30 June 2003                                                       29
                                                                                   -------------------
</TABLE>

The contribution of Visionik to the revenues, costs and cash flows in the
year ended 30 June 2002 was not material. The revenues, profits and assets of
Visionik for the period prior to acquisition equate to less than 10% of the
equivalent quantities of the pre-existing and enlarged NDS.

c)  Acquisition of Orbis

On 1 December 2000 the Company acquired the entire share capital of Orbis
Technology Limited ("Orbis"), a company incorporated in Great Britain whose
principal activity is the provision of software and services for use as betting
applications. The consideration payable was dependent on the revenues and
profitability of Orbis in the two years ended 31 March 2002 and certain other
factors and is payable in instalments. The amounts recognised as at 30 June 2001
were an estimate of the amounts expected to be paid, as adjusted after
determining the actual revenues and profitability for the year ended 31 March
2001. Following determination of the revenues and profitability of Orbis for the
year ended 31 March 2002, the Directors undertook an impairment review and a
re-appraisal of the fair values of the assets acquired and consideration given.
Accordingly, the following adjustment to the fair value of the goodwill acquired
was made during the year ended 30 June 2002.
<TABLE>
<CAPTION>

                                                                                            GBP '000

<S>                                                                                           <C>
    Goodwill, as originally estimated                                                         55,242
    Adjustment to goodwill                                                                     8,225
                                                                                    ------------------
    Total goodwill arising                                                                    63,467
                                                                                    ------------------
</TABLE>

The adjustment to goodwill was all payable by the issue of new Series A
ordinary shares and its fair value was determined by reference to the quoted
price of those shares as at the date of the original acquisition.

d)  Investments

Investments comprise shares listed on the Alternative Investment Market in
London, are stated at their market value as at 30 June 2004 and were acquired in
connection with the transaction referred to in Note 3c.


10.  Intangible fixed assets

The movement in intangible fixed assets in the year ended 30 June 2004 was
as follows:
<TABLE>
<CAPTION>

                                                                           Intellectual
                                                        Goodwill        property rights                 Total
                                                       GBP '000               GBP '000              GBP '000
    Cost
<S>                                                     <C>                      <C>                  <C>
    Beginning of year                                   91,045                   5,754                96,799
    Acquisition of MediaHighway                          6,510                  34,745                41,255
    Other additions                                          -                     104                   104
    Foreign exchange adjustment                              -                    (141)                 (141)
                                              -------------------     ------------------    ------------------
    End of year                                         97,555                  40,462               138,017
                                              -------------------     ------------------    ------------------

    Accumulated amortisation
    Beginning of year                                   30,618                   2,132                32,750
    Regular charge for the year                          7,854                   4,587                12,441
    Impairment charge                                    6,510                       -                 6,510
    Foreign exchange adjustment                              -                      (5)                   (5)
                                              -------------------     ------------------    ------------------
    End of year                                         44,982                   6,714                51,696
                                              -------------------     ------------------    ------------------

    Net book value
    Beginning of year                                   60,427                   3,622                64,049
                                              -------------------     ------------------    ------------------
    End of year                                         52,573                  33,748                86,321
                                              -------------------     ------------------    ------------------
</TABLE>

                                      F-20
<PAGE>

The movement in intangible fixed assets in the year ended 30 June 2003 was
as follows:
<TABLE>
<CAPTION>

                                                                           Intellectual
                                                        Goodwill        property rights                Total
                                                       GBP '000               GBP '000              GBP '000
    Cost
<S>                                                     <C>                      <C>                  <C>
    Beginning of year                                   94,234                   5,272                99,506
    Additions                                                -                     482                   482
    Adjustment to Visionik acquisition                  (3,189)                      -                (3,189)
                                              -------------------     ------------------    ------------------
    End of year                                         91,045                   5,754                96,799
                                              -------------------     ------------------    ------------------

    Accumulated amortisation
    Beginning of year                                   22,773                     241                23,014
    Charge for the year                                  7,845                   1,891                 9,736
                                              -------------------     ------------------    ------------------
    End of year                                         30,618                   2,132                32,750
                                              -------------------     ------------------    ------------------

    Net book value
    Beginning of year                                   71,461                   5,031                76,492
                                              -------------------     ------------------    ------------------
    End of year                                         60,427                   3,622                64,049
                                              -------------------     ------------------    ------------------

</TABLE>

11.  Tangible fixed assets

The movement in tangible fixed assets in the year ended 30 June 2004 was as
follows:
<TABLE>
<CAPTION>

                                              Leasehold             Equipment &
                                           improvements               furniture                 Total
                                               GBP '000                GBP '000              GBP '000
      Cost
<S>                                              <C>                     <C>                   <C>
      Beginning of year                          9,882                   49,319                59,201
      Acquisition of MediaHighway                    -                    2,048                 2,048
      Other additions                            1,880                    8,588                10,468
      Disposals                                    (87)                  (3,168)               (3,255)
      Foreign exchange adjustment                 (558)                  (3,260)               (3,818)
                                   --------------------     -------------------   -------------------
      End of year                                11,117                  53,527                64,644
                                   --------------------     -------------------   -------------------

      Depreciation
      Beginning of year                          6,400                   38,104                44,504
      Charge for the year                        1,580                    6,716                 8,296
      Disposals                                    (75)                  (2,958)               (3,033)
      Foreign exchange adjustment                 (457)                  (2,415)               (2,872)
                                   --------------------     -------------------   -------------------
      End of year                                7,448                   39,447                46,895
                                   --------------------     -------------------   -------------------

      Net Book Value
      Beginning of year                          3,482                   11,215                14,697
                                  --------------------      -------------------   -------------------
      End of year                                3,669                   14,080                17,749
                                  --------------------      -------------------   -------------------
</TABLE>

                                      F-21
<PAGE>


The movement in tangible fixed assets in the year ended 30 June 2003 was as
follows:

<TABLE>
<CAPTION>

                                              Leasehold            Equipment &
                                           improvements              furniture                 Total
                                              GBP '000                 GBP '000              GBP '000
      Cost
<S>                                              <C>                     <C>                   <C>
      Beginning of year                          9,406                   47,516                56,922
      Additions                                    970                    5,150                 6,120
      Disposals                                     (5)                    (551)                 (556)
      Foreign exchange adjustment                 (489)                  (2,796)               (3,285)
                                   --------------------     -------------------   -------------------
      End of year                                9,882                   49,319                59,201
                                   --------------------     -------------------   -------------------

      Depreciation
      Beginning of year                          5,242                   33,986                39,228
      Charge for the year                        1,560                    6,520                 8,080
      Disposals                                     (5)                    (485)                 (490)
      Foreign exchange adjustment                 (397)                  (1,917)               (2,314)
                                  --------------------      -------------------   -------------------
      End of year                                6,400                   38,104                44,504
                                  --------------------      -------------------   -------------------

      Net Book Value
      Beginning of year                          4,164                   13,530                17,694
                                  --------------------      -------------------   -------------------
      End of year                                3,482                   11,215                14,697
                                  --------------------      -------------------   -------------------

</TABLE>

12.  Stocks
<TABLE>
<CAPTION>

                                                                             30 June 2004          30 June 2003
                                                                                 GBP '000             GBP '000

<S>                                                                               <C>                    <C>
    Smart cards and their components                                              19,266                 6,308
    Contract work-in-progress                                                        416                 1,309
                                                                        ------------------    ------------------
                                                                                  19,682                 7,617
                                                                        ------------------    ------------------
</TABLE>

Smart cards and their components are considered to be in the state of
work-in-progress. There is no material difference between the balance sheet
value of stock and its replacement cost.


13.  Debtors
    Amounts falling due within one year:
<TABLE>
<CAPTION>
                                                                             30 June 2004          30 June 2003
                                                                                GBP '000              GBP '000

<S>                                                                               <C>                   <C>
    Trade debtors                                                                 46,121                26,765
    Accrued income                                                                11,952                 4,322
    Corporate tax recoverable                                                         69                   984
    Value Added Tax and similar taxes recoverable                                  1,909                   473
    Other debtors                                                                  1,172                   326
    Prepaid expenses                                                               8,668                 3,245
                                                                        ------------------    ------------------
                                                                                  69,891                36,115
                                                                        ------------------    ------------------
</TABLE>

Trade debtors are stated net of a provision for doubtful debts of GBP
1,653,000 (2003: GBP 5,561,000). Trade debtors include amounts due from related
parties arising out of trading transactions, as disclosed in Note 28a.

                                      F-22
<PAGE>


14.  Cash
<TABLE>
<CAPTION>
                                                                             30 June 2004          30 June 2003
                                                                                GBP '000              GBP '000

<S>                                                                               <C>                   <C>
    Short-term deposits                                                           91,523                88,103
    Freely available cash at bank and in hand                                     33,563                33,417
                                                                        ------------------    ------------------
                                                                                 125,086               121,520
                                                                        ------------------    ------------------
    Short-term deposits have maturities between 1 and 20 days.
</TABLE>


15.  Creditors - Amounts falling due within one year
<TABLE>
<CAPTION>

                                                                             30 June 2004          30 June 2003
                                                                                GBP '000              GBP '000

<S>                                                                                    <C>                 <C>
    Amounts due in respect of the acquisition of Visionik                              9                   390
    Trade creditors                                                               26,506                 6,357
    Due to The News Corporation Group                                              1,700                 1,579
    Corporate tax payable                                                          3,727                 7,745
    Payroll taxes and social security                                              3,444                 1,604
    Value Added Tax and similar taxes payable                                      2,204                 1,950
    Other creditors                                                                2,765                 3,091
    Customer deposits and deferred income                                         33,323                14,137
    Accrued expenses                                                              20,941                16,644
    Deferred government grants                                                       541                   584
                                                                        ------------------    ------------------
                                                                                  95,160                54,081
                                                                        ------------------    ------------------
</TABLE>


16.  Creditors - Amounts falling due after one year
<TABLE>
<CAPTION>

                                                                             30 June 2004          30 June 2003
                                                                                 GBP '000             GBP '000

<S>                                                                                                        <C>
    Loan finance                                                                       -                   366
    Deferred government grants                                                     1,083                 1,167
                                                                        ------------------    ------------------
                                                                                   1,083                 1,533
                                                                        ------------------    ------------------
</TABLE>

Interest-free loan finance was provided by the minority shareholder of
Fancy a Flutter Limited. The Group's interest in Fancy a Flutter Limited was
sold during the year ended 30 June 2004, as described in Note 3c.


17.  Provision for liabilities and charges

The movement in provisions for liabilities and charges during the two years
ended 30 June 2004 was as follows:
<TABLE>
<CAPTION>

                                                          Contingent    Changeover       Employee      Onerous     Total
                                                       consideration     provision   benefits and       leases
                                                                                            taxes
                                                         GBP '000         GBP '000       GBP '000     GBP '000     GBP '000

<S>       <C>    <C>                                        <C>             <C>             <C>          <C>      <C>
    As at 1 July 2002                                       2,895           16,900          1,993        1,903    23,691

    Adjustment to goodwill arising on acquisition
    of Visionik                                            (2,895)               -              -            -    (2,895)
    Charged (credited) to profit and loss account               -            3,810           (604)       1,831     5,037
    Used                                                        -          (17,790)          (217)      (1,409)  (19,416)
    Foreign exchange movements                                  -                -            (79)         (10)      (89)
                                                    ----------------------------------------------------------------------
    As at 30 June 2003                                          -            2,920          1,093        2,315     6,328

    Charged to profit and loss account                          -           13,825          1,324        3,340    18,489
    Used                                                        -             (770)          (268)        (877)   (1,915)
    Foreign exchange movements                                  -                -            (95)          (3)      (98)
                                                    ----------------------------------------------------------------------
    As at 30 June 2004                                          -           15,975          2,054        4,775    22,804
                                                    ----------------------------------------------------------------------
</TABLE>

                                      F-23
<PAGE>

The basis for the estimate of the changeover provision is set out in Note
1m under the discussion of subscriber fees. The provision is expected to be used
over the next four years. The provision for employee benefits and taxes relates
to severance pay (see Note 26d), National Insurance (see Note 1p and Note 26g)
and the UK defined benefit pension scheme (see Note 27). The provision for
onerous leases is in respect of leased properties which are surplus to the
Group's requirements. The maximum potential liability is approximately GBP 9.4
million and extends to June 2014. The provision is based on the net amount
expected to be paid by the Group after recoveries from third parties and is
expected to be used over the next four years.

18.  Minority interests

The movement in equity minority interests in Fancy a Flutter Limited is as
follows:
<TABLE>
<CAPTION>

                                                                             30 June 2004         30 June 2003
                                                                                GBP '000              GBP '000

<S>                                                                                   <C>
     Beginning of year                                                                58                     -
     Equity capital contributed by minority shareholder                                -                   160
     Share of losses attributable to minority shareholder                           (472)                 (102)
     Disposal                                                                        414                     -
                                                                        ------------------    ------------------
     End of year                                                                       -                    58
                                                                        ------------------    ------------------
</TABLE>


19.  Share capital and reserves
a)   Called-up equity share capital of the Company

<TABLE>
<CAPTION>
                                                               30 June 2004         30 June 2003        30 June 2002
                                                                    US$'000              US$'000             US$'000
    Authorised:

<S> <C>                                    <C>                          <C>                 <C>                  <C>
    48,000,000 Series A ordinary shares of $0.01 each                   480                 480                  480

    52,000,000 Series B ordinary shares of $0.01 each                   520                 520                  520
                                                            ----------------    -----------------    ----------------
                                                                      1,000               1,000                1,000
                                                            ----------------    -----------------    ----------------

                                                                   GBP '000            GBP '000             GBP '000
    Allotted, issued and fully paid:
    12,186,598 (2003: 11,983,681; 2002: 11,677,033)
    Series A ordinary shares of $0.01 each                               76                  75                   73

    42,001,000 Series B ordinary shares of $0.01 each                   264                 264                  264
                                                            ----------------    -----------------    ----------------
                                                                        340                 339                  337
                                                            ----------------    -----------------    ----------------
</TABLE>

During the year ended 30 June 2002, 69,878 Series A ordinary shares were
issued on the exercise of employee share options for cash consideration of GBP
525,000. A further 363,755 Series A ordinary shares were issued in connection
with the acquisition of Orbis at a fair value of GBP 17,000,000, being the fair
value of the shares as at the date of acquisition. During the year ended 30 June
2003, 306,648 Series A ordinary shares with a fair value of GBP 14,333,000 were
issued as the final instalment due in respect of the acquisition of Orbis.
During the year ended 30 June 2004, 202,917 Series A ordinary shares were issued
on the exercise of employee share options for cash consideration of GBP
1,249,000.

The two classes of ordinary shares entitle the holder to the same rights
except that the Series A and Series B ordinary shares are entitled to one vote
and ten votes per share, respectively. The Series B ordinary shares may be
converted by the shareholder into Series A ordinary shares, at the instigation
of the shareholder at any time. Automatic conversion will occur if any sale,
transfer or other disposal results in the cessation of the ultimate beneficial
ownership of the Series B ordinary shares being retained by entities controlled
by The News Corporation Group.

b)   Non-equity share capital

Non-equity share capital comprises 42,000,002 Deferred Shares of GBP 1
each, all authorised, issued and fully paid. The Deferred Shares do not entitle
the holders thereof to receive notice of, or attend or vote at, meetings of
shareholders of the Company, or to receive dividends. Upon liquidation of the
Company, the Deferred Shares entitle the holders to repayment of the capital
paid up on those shares, but only after each holder of ordinary shares has
received (i) the amount paid up on his shares and (ii) an additional sum of $1
million per share.


                                      F-24
<PAGE>

c)  Share options

The Company has three executive share option schemes: The NDS 1997
Executive Share Option Scheme ("the 1997 scheme"), The NDS 1999 Executive Share
Option Scheme ("the 1999 unapproved scheme") and The NDS UK Approved Share
Option Scheme ("the 1999 approved scheme"). The provisions of each scheme are
substantially the same, except that the 1999 approved scheme is approved by the
UK Inland Revenue for the purposes of granting UK employees options over shares
in the Company which are free from income tax in the hands of the employee under
certain circumstances. Following the creation of the 1999 unapproved scheme, no
further options will be granted under the 1997 scheme.

The schemes provide for the grant of options to purchase Series A ordinary
shares in NDS Group plc with a maximum term of 10 years. Options granted under
the schemes vest over a four-year period. The schemes authorise options to be
granted subject to a maximum of 10% of the ordinary shares of the Company in
issue at the date of grant. Options granted prior to the Initial Public Offering
were granted at the Directors' estimate of the market value of the Company, as
supported by independent advice. Vested options became exercisable following the
Initial Public Offering of the Series A ordinary shares on 22 November 1999.
With the exception of the matter referred to below, all options granted on, and
subsequent to, the Initial Public Offering have been granted at an exercise
price equal to the quoted closing price of the Series A ordinary shares on the
Nasdaq Exchange on the last trading day before the date of grant. On 5 September
2000, options over 10,000 shares were granted at an exercise price of $20 per
share. The intrinsic value of these options as at the date of grant was GBP
362,000 (determined using the exchange rate as of the date of grant). This
amount has been charged to the profit and loss account over the vesting period
of the options. A net compensation credit of GBP 32,000 has been recorded in the
year ended 30 June 2004 as a result of invested options lapsing (2003:
compensation cost of GBP 40,000; 2002: GBP 78,000). No charge for compensation
cost arises in respect of any other options granted under these schemes.

In addition, NDS operates employee share ownership schemes in UK, Israel
and the USA. These enable employees to enter into a fixed-term savings contract
with independent financial institutions linked to an option to subscribe for
Series A ordinary shares in the Company. The option price is set at a discount
of between 15% and 20% of the quoted closing price of the Series A ordinary
shares on the Nasdaq Exchange on the last trading day before the announcement of
the schemes. The UK scheme is approved as an SAYE scheme by the UK Inland
Revenue; the schemes available to Israeli and US employees have equivalent
terms. Accordingly, no charge for compensation costs arises in respect of
options granted under these schemes.

The option prices have been determined in US dollars because that is the
denomination of the market in which the shares are most easily traded. The
exchange rate as at 30 June 2004 was GBP 1=US$1.8277 and the Company's closing
share price was $24.500. The number and weighted average exercise prices of
options are as follows:
<TABLE>
<CAPTION>

                                                                             Number            Weighted average
                                                                                                 exercise price

<S>                      <C>    <C>                                      <C>                       <C>
    Options outstanding, 1 July 2001                                     3,752,943                 $26.550
    Granted                                                              1,021,638                 $21.734
    Forfeited                                                             (199,135)                $37.308
    Exercised                                                              (69,878)                $10.660
                                                                  ------------------
    Options outstanding, 30 June 2002                                    4,505,568                 $25.229
    Granted                                                                960,927                  $7.601
    Cancelled                                                             (951,815)                $56.919
    Forfeited                                                             (306,771                 $24.833
    Exercised                                                                    -                   -
                                                                  ------------------
    Options outstanding, 30 June 2003                                    4,207,909                 $14.065
    Granted                                                                863,616                 $17.120
    Forfeited                                                              (25,151)                $39.659
    Exercised                                                             (202,917)                $11.014
                                                                  ------------------
    Options outstanding, 30 June 2004                                    4,843,457                 $14.604
                                                                  ------------------

    Options vested, 30 June 2003                                         2,389,932                 $13.192
                                                                  ------------------

    Options vested, 30 June 2004                                         2,728,529                 $14.533
                                                                  ------------------

</TABLE>

                                      F-25
<PAGE>
<TABLE>
<CAPTION>

    Options outstanding as at 30 June 2004 expire as follows:
    Expiry date                                                              Number            Exercise price

<S> <C>       <C>                                                           <C>                    <C>
    31 August 2004                                                          17,278                 $8.600
    30 September 2004                                                      201,120                 $8.096
    30 October 2004                                                          3,001                $34.500
    30 April 2006                                                          290,618              GBP 5.280
    21 May 2007                                                            523,565                 $8.140
    5 April 2008                                                           406,113                 $8.140
    24 March 2009                                                          474,580                 $9.850
    4 May 2009                                                               4,000                 $9.850
    22 November 2009                                                       729,534                $20.000
    24 January 2010                                                         11,500                $43.000
    27 April 2010                                                           11,312                $56.875
    24 September 2010                                                        8,750                $20.000
    4 December 2010                                                         20,439                $60.000
    3 October 2011                                                         892,869                $21.900
    12 March 2012                                                           23,600                $16.950
    2 June 2012                                                              5,000                $11.400
    20 November 2012                                                       216,658                 $6.500
    8 January 2013                                                         152,450                 $7.530
    9 February 2013                                                          5,000                 $7.490
    4 November 2013                                                        846,070                $17.120

                                                                  ------------------
                                                                         4,843,457
                                                                  ------------------
</TABLE>


20.  Reserves

Movements in the Group's reserves for the three years in the period ended
30 June 2004 are as follows:
<TABLE>
<CAPTION>

                                         Share      Merger      Shares to         Capital      Profit and
                                         -----      ------      ---------         -------      ----------
                                        premium     reserve     be issued    contribution     loss account           Total
                                        -------     -------     ---------    ------------     ------------           -----
                                       GBP '000    GBP '000      GBP '000        GBP '000        GBP '000           GBP '000

<S>       <C>    <C>                    <C>          <C>           <C>            <C>            <C>                 <C>
    As at 1 July 2001                   127,049      18,485        22,336         133,265        (217,603)           83,532

    Profit for the financial year             -           -             -               -          30,678            30,678
    Issue of shares for cash                728           -             -               -            (204)              524
    Acquisition of Orbis                      -      17,000        (8,003)              -               -             8,997
    Share options                             -           -             -               -              78                78
    Foreign exchange movement                 -           -             -               -          (2,338)           (2,338)
                                    -----------------------------------------------------------------------------------------
    As at 30 June 2002                  127,777      35,485        14,333         133,265        (189,389)          121,471

    Profit for the financial year             -           -             -               -          26,040            26,040
    Acquisition of Orbis                      -      14,331       (14,333)              -               -                (2)
    Share options                             -           -             -               -              40                40
    Foreign exchange movement                 -           -             -               -          (3,617)           (3,617)
                                    -----------------------------------------------------------------------------------------
    As at 30 June 2003                  127,777      49,816             -         133,265        (166,926)          143,932

    Profit for the financial year             -           -             -               -          18,469            18,469
    Issue of shares for cash              1,248           -             -               -               -             1,248
    Share options                             -           -             -               -             (32)              (32)
    Foreign exchange movement                 -           -             -               -          (2,780)           (2,780)
                                    -----------------------------------------------------------------------------------------
    As at 30 June 2004                  129,025      49,816             -         133,265        (151,269)          160,837
                                    -----------------------------------------------------------------------------------------
</TABLE>

                                      F-26
<PAGE>


21.  Reconciliation of movements in shareholders' funds

A reconciliation of movements in shareholders' funds for the three years in
the period ended 30 June 2004 is as follows:
<TABLE>
<CAPTION>

                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                     GBP '000               GBP '000               GBP '000

<S>                                                                    <C>                    <C>                   <C>
     Profit for the financial year                                     18,469                 26,040                30,678
     Other recognised gains and losses relating to the year            (2,780)                (3,617)               (2,338)
                                                             ------------------     ------------------    ------------------
                                                                       15,689                 22,423                28,340
     Issue of shares for cash                                           1,249                      -                   525
     Acquisition of Orbis                                                   -                      -                 8,999
     Share options                                                        (32)                    40                    78
                                                             ------------------     ------------------    ------------------
                                                                       16,906                 22,463                37,942
    Opening shareholders' funds                                       186,271                163,808               125,866
                                                             ------------------     ------------------    ------------------
    Closing shareholders' funds                                       203,177                186,271               163,808
                                                             ------------------     ------------------    ------------------

</TABLE>

22.  Reconciliation of operating profit to operating cash flows

A reconciliation of operating profit to net cash flow from operating
activities is as follows:
<TABLE>
<CAPTION>

                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                     GBP '000               GBP '000              GBP '000

<S>                                                                    <C>                    <C>                   <C>
     Operating profit                                                  25,821                 36,803                42,695
     Depreciation                                                       8,296                  8,080                 9,454
     Amortisation of intangible fixed assets                           18,951                  9,736                 7,350
     Losses on investment                                                 244                    465                     -
     Share-based compensation                                             101                    361                   398
     Release of deferred capital government grants                       (562)                  (644)                 (879)
     Decrease (increase) in stocks                                    (12,035)                29,448               (14,592)
     Decrease (increase) in debtors                                   (29,688)                11,480                   478
     Increase (decrease) in creditors                                  34,746                (36,464)               15,622
     Increase (decrease) in provisions                                 16,574                (14,468)                7,390
                                                             ------------------     ----------------------------------------
     Net cash inflow from operating activities                         62,448                 44,797                67,916
                                                             ------------------     ----------------------------------------

</TABLE>

23.  Analysis of cash flows
a)  Returns on investments and servicing of finance
<TABLE>
<CAPTION>

                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                      GBP '000              GBP '000               GBP '000

<S>                                                                     <C>                    <C>                   <C>
    Interest received                                                   3,970                  2,930                 3,122
    Interest paid                                                         (28)                    (8)                 (557)
                                                             ------------------     ------------------ -- ------------------
    Net cash inflow                                                     3,942                  2,922                 2,565
                                                             ------------------     ------------------ -- ------------------

b)  Taxation
                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                     GBP '000               GBP '000              GBP '000

    UK tax paid                                                       (11,577)               (10,889)               (9,317)
    Overseas tax paid                                                  (2,526)                (3,702)               (3,758)
                                                             ------------------     ------------------ -- ------------------
    Net cash outflow                                                  (14,103)               (14,591)              (13,075)
                                                             ------------------     ------------------ -- ------------------
</TABLE>

                                      F-27
<PAGE>

c)  Capital expenditure and financial investment
<TABLE>
<CAPTION>
                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                      GBP '000               GBP '000              GBP '000

<S>                                                                   <C>                     <C>                   <C>
    Purchase of tangible fixed assets                                 (10,468)                (6,120)               (7,736)
    Purchase of intangible fixed assets                                  (104)                  (482)                    -
    Proceeds from sale of tangible fixed assets                           105                     66                    39
    Capital grants received                                               222                    861                 1,280
    Proceeds from sale of investments                                       -                    500                     -
                                                             ------------------     ------------------ -- ------------------
    Net cash outflow                                                  (10,245)                (5,175)               (6,417)
                                                             ------------------     ------------------ -- ------------------

d)  Acquisitions and disposals
                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                      GBP '000               GBP '000              GBP '000

    Cash payments in connection with acquisition of
    Visionik                                                             (385)                (4,856)                 (300)
    Cash balances acquired with Visionik                                    -                      -                   123
    Cash payments in connection with acquisition of
    MediaHighway                                                      (43,033)                     -                     -
    Cash balances acquired with MediaHighway                            5,882                      -                     -
    Cash of Fancy a Flutter Limited at disposal                          (476)                     -                     -
    Restricted cash taken off (placed on) deposit in
    connection with acquisitions                                            -                  4,860                (5,339)
    Loans repaid by (advanced to) associated undertaking                    -                  1,667                (1,045)
                                                             ------------------     ------------------ -- ------------------
    Net cash inflow (outflow)                                         (38,012)                 1,671                (6,561)
                                                             ------------------     ------------------ -- ------------------
</TABLE>

e)  Management of liquid resources

During the year ended 30 June 2004, a net amount of GBP 3,589,000 cash was
placed on short-term deposit with banks (2003: GBP 25,637,000; 2002: GBP
62,482,000). Notice periods for withdrawal are between 1 and 20 days.

f)  Financing
<TABLE>
<CAPTION>
                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                     GBP '000               GBP '000              GBP '000

<S>                                                                     <C>                                            <C>
    Proceeds from issue of shares                                       1,249                      -                   525
    Equity capital contributed by minority interests                        -                    160                     -
    Loan finance provided by minority interests                            24                    366                     -
    Restricted cash taken off deposit                                       -                      -                14,403
    Repayment of Series A Loan Notes                                        -                      -               (14,403)
                                                             ------------------     ------------------ -- ------------------
    Net cash inflow (outflow)                                           1,273                    526                   525
                                                             ------------------     ------------------ -- ------------------
</TABLE>

g)  Effect of acquisitions

In the year ended 30 June 2004, the MediaHighway business used net cash
from operating activities of GBP 4,262,000 and incurred capital expenditure cash
payments of GBP 1,651,000. In the year ended 30 June 2002, the contribution of
Visionik to the Group's consolidated cash flows was not material.

                                      F-28
<PAGE>


24.  Analysis and reconciliation of net funds
a)  Analysis of movements in net funds
<TABLE>
<CAPTION>

    Year ended 30 June 2004
                                          1 July      Cash flow             Foreign          Other       30 June
                                             2003                          exchange       non-cash          2004
                                                                          movements        changes
                                            GBP '000     GBP '000          GBP '000       GBP '000      GBP '000

<S>                                           <C>           <C>            <C>                            <C>
    Available cash                            33,417        1,714          (1,568)               -        33,563
    Short-term deposits                       88,103        3,589            (169)               -        91,523
                                         ------------ ------------- ---------------- --------------- -------------
    Net cash                                 121,520        5,303          (1,737)               -       125,086
    Loan finance                                (366)         (24)              -              390             -
    Due in respect of Visionik
    acquisition                                 (390)         385              (4)               -            (9)

                                         ------------ ------------- ---------------- --------------- -------------
    Net funds                                120,764        5,664          (1,741)             390       125,077
                                         ------------ ------------- ---------------- --------------- -------------

    Year ended 30 June 2003
                                          1 July      Cash flow             Foreign          Other       30 June
                                             2002                          exchange       non-cash          2003
                                                                          movements        changes
                                            GBP '000     GBP '000          GBP '000       GBP '000      GBP '000

    Available cash                            30,986        4,153          (2,082)               -        33,417
    Short-term deposits                       62,482       25,637             (16)               -        88,103
    Restricted cash                            5,034       (4,860)           (174)               -             -
                                         ------------ ------------- ---------------- --------------- -------------
    Net cash                                  98,502       25,290          (2,272)               -       121,520
    Loan finance                                   -         (366)              -                -          (366)
    Due in respect of Visionik
    acquisition                               (5,159)       4,856            (350)             263          (390)

                                         ------------ ------------- ---------------- --------------- -------------
    Net funds                                 93,343       29,780          (2,622)             263       120,764
                                         ------------ ------------- ---------------- --------------- -------------

    Year ended 30 June 2002
                                          1 July      Cash flow             Foreign          Other       30 June
                                             2001                          exchange       non-cash          2002
                                                                          movements        changes
                                        GBP '000         GBP '000          GBP '000       GBP '000      GBP '000

    Available cash                        50,934          (17,529)         (2,419)               -        30,986
    Short-term deposits                        -           62,482               -                -        62,482
    Restricted cash                       14,403           (9,064)           (305)                         5,034
                                         ------------ ------------- ---------------- --------------- -------------
    Net cash                              65,337           35,889          (2,724)               -        98,502
    Series A Loan Notes                  (14,403)          14,403               -                -             -
    Due in respect of Visionik
    acquisition                                -                -             162           (5,321)       (5,159)

                                         ------------ ------------- ---------------- --------------- -------------
    Net funds                             50,934           50,292          (2,562)          (5,321)       93,343
                                         ------------ ------------- ---------------- --------------- -------------

</TABLE>

                                      F-29
<PAGE>

b)  Reconciliation of net funds
<TABLE>
<CAPTION>
                                                                      Year ended            Year ended             Year ended
                                                                    30 June 2004          30 June 2003           30 June 2002
                                                                       GBP '000               GBP '000               GBP '000

<S>                                                                       <C>                   <C>                  <C>
    Increase (decrease) in cash in year                                   1,714                 4,513                (17,529)
    Cash placed on short-term deposit                                     3,589                25,637                 62,482
    Cash withdrawn from restricted deposit                                    -                (4,860)                (9,064)
    Loan finance received                                                   (24)                 (366)                     -
    Paid in respect of Visionik acquisition                                 385                 4,856                      -
    Repayment of Series A Loan Notes                                          -                     -                 14,403
                                                               ------------------    ------------------ --- ------------------
    Change in net cash resulting from cash flows                          5,664                29,780                 50,292
    Non-cash transactions                                                   390                   263                 (5,321)
    Foreign currency translation differences                             (1,741)               (2,622)                (2,562)
                                                               ------------------
                                                               ------------------    ------------------ --- ------------------
    Movement in net funds in year                                         4,313                27,421                 42,409
    Net funds, beginning of year                                        120,764                93,343                 50,934
                                                               ------------------    ------------------ --- ------------------
    Net funds, end of year                                              125,077               120,764                 93,343
                                                               ------------------    ------------------ --- ------------------
</TABLE>


25.  Non-cash transactions

The loan finance ceased to be a liability of the Group during the year on
the disposal of Fancy a Flutter Limited for non-cash consideration as described
in Note 3c. Adjustments in the year ended 30 June 2003 to the consideration
payable in respect of the acquisition of Visionik and the issue of shares in
respect of the Orbis acquisition are non-cash transactions.


26.  Commitments and contingencies
a)  Financial commitments

Capital expenditure contracted for but not provided in the financial
statements amounted to GBP 0.3 million (2003: GBP 0.1 million; 2002: GBP 0.9
million).

b)  Lease commitments

The Company and certain subsidiary undertakings occupy buildings held on
short-term leases. The annual rentals paid on these leases during the year ended
30 June 2004 were GBP 8,389,000 (2003: GBP 6,882,000; 2002: GBP 6,547,000). The
rents payable under these leases are subject to renegotiation at various
intervals specified in the leases. Certain of the leases are held by companies
within The News Corporation Group. NDS has entered into indemnity agreements
whereby it will be liable for all amounts due relating to the leases. Minimum
annual commitments under operating leases are as follows:
<TABLE>
<CAPTION>

                                                                    30 June 2004          30 June 2003
                                                                       GBP '000               GBP '000
    Expiry date of lease:
<S>                                                                         <C>                   <C>
             - Within one year                                              862                   351
             - In two to five years inclusive                             3,055                 2,945
             - Over five years                                            4,110                 2,701
                                                               ------------------    ------------------
                                                                          8,027                 5,997
                                                               ------------------    ------------------
</TABLE>

The future minimum rental commitments as of 30 June 2004 fall due in the
following periods:
<TABLE>
<CAPTION>

    Year ending 30 June                                                    GBP '000

<S> <C>                                                                      <C>
    2005                                                                     8,027
    2006                                                                     7,740
    2007                                                                     7,115
    2008                                                                     6,591
    2009                                                                     5,852
    Thereafter                                                              28,089
                                                                  ------------------
                                                                            63,414
                                                                  ------------------
</TABLE>

GBP 4,775,000 of these amounts is included within the provision for onerous
leases shown in Note 17.

                                      F-30
<PAGE>

c)  Litigation

On 6 June 2003, Echostar Communications Corporation, Echostar Satellite
Corporation, Echostar Technologies Corporation and Nagrastar L.L.C.
(collectively, "Echostar") filed an action against NDS in the United States
District Court for the Central District of California. Echostar filed an amended
complaint on 8 October 2003. The amended complaint purported to allege claims
for violation of the Digital Millennium Copyright Act ("DMCA"), the
Communications Act of 1934 ("CA"), the Electronic Communications Privacy Act,
The Computer Fraud and Abuse Act, California's Unfair Competition statute and
the federal RICO statute. The complaint also purported to allege claims for
civil conspiracy, misappropriation of trade secrets and interference with
prospective business advantage. The complaint sought injunctive relief,
compensatory and exemplary damages and restitution. On 22 December 2003, all of
the claims were dismissed by the court, except for the DMCA, CA and unfair
competition claims, and the Court limited these claims to acts allegedly
occurring within three years of the filing of the complaint. Echostar filed a
second amended complaint. NDS filed a motion to dismiss the second amended
complaint on 31 March 2004. The motion was scheduled to be heard by the Court on
23 July 2004. On 21 July 2004, the Court issued an order granting a motion for a
more definite statement and gave Echostar 10 days in which to file a third
amended complaint that corrects the deficiencies noted in the court's order.
EchoStar filed a third amended complaint on 4 August 2004. NDS intends
vigorously to defend the action and has filed a motion to dismiss the third
amended complaint. A hearing has been set for 13 December 2004.

On 25 July 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital,
S.L., Spanish satellite broadcasters and customers of Canal+ Technologies SA
(together, "Sogecable"), filed an action against NDS in the United States
District Court for the Central District of California. Sogecable filed an
amended complaint on 9 October 2003. The amended complaint purported to allege
claims for violation of the DMCA and the federal RICO statute. The amended
complaint also purported to allege claims for interference with contract and
prospective business advantage. The complaint sought injunctive relief,
compensatory and exemplary damages and restitution. On 22 December 2003, all of
the claims were dismissed by the court. Sogecable filed a second amended
complaint. NDS intends vigorously to defend the action, and filed a motion to
dismiss the second amended complaint on 31 March 2004. On 4 August 2004, the
court issued an order dismissing the second amended complaint in its entirety.
Sogecable has indicated its intention to appeal the court's order.

In September 2002, NDS Group plc and two of its subsidiaries were named as
defendants in a lawsuit filed by DIRECTV, Inc. and certain of its affiliates in
the United States District Court for the Central District of California. At
DIRECTV's request, the action was filed under seal. On 21 October 2002, NDS
filed counterclaims against DIRECTV and a chip manufacturer. In late April 2003,
the parties agreed to stay proceedings pending efforts to resolve the disputes
through mediation. In August 2003, the parties agreed to stay the litigation
between them until the closing of The News Corporation Group's acquisition of a
34% interest in Hughes Electronics Corporation ("Hughes"), the parent company of
DIRECTV. The closing of the acquisition of the Hughes interest occurred on 22
December 2003, and on 30 December 2003 the litigation and all claims and
counterclaims alleged therein were dismissed with prejudice.

On 2 October 2002, NDS Americas, Inc. was served with subpoenas by the US
Attorney's office in San Diego, California, seeking documents apparently in
connection with an investigation related to claims made in early 2002 by Canal+
Technologies SA (these claims having been dismissed) and the Echostar claims
referred to below. NDS is co-operating with the investigation. NDS was advised
by the US Attorney's Office in San Diego that it was not currently considered
either a target or a subject in the investigation. Lead responsibility for the
investigation has been transferred to the US Attorney's office for the Central
District of California. On 3 February 2004, the US Attorney's office notified
NDS that it had completed its investigation and concluded that, based on
information and evidence gathered, the claims against NDS did not warrant
further investigation or action.

The costs of dealing with these matters have been expensed as incurred. Any
further costs incurred will be recorded in financial statements for future
periods.

d)  Severance pay

In certain countries in which NDS operates, it is required to make
severance payments to dismissed employees and employees leaving employment in
certain other circumstances, on the basis of the latest monthly salary for each
year of service. This liability is provided for by payments of premiums to
insurance companies under approved plans. Provision is made in the financial
statements for amounts payable to employees of NDS Technologies Israel Limited,
an Israeli subsidiary undertaking, that are not funded by insurance policies.

                                      F-31
<PAGE>

The gross liability and the amount funded by insurance policies are:
<TABLE>
<CAPTION>

                                                                             30 June 2004          30 June 2003
                                                                                 GBP '000                 GBP '000

<S>                                                                               <C>                    <C>
    Gross severance pay                                                           10,717                 9,985
    Amounts funded by insurance policies                                          (9,381)               (9,348)
                                                                        ------------------    ------------------
    Net provision                                                                  1,336                   637
                                                                        ------------------    ------------------
</TABLE>

Because the gross liability reflects the contracts of employment, it is
denominated in US dollars, whereas the amount funded by insurance policies is
regulated by the Israeli Government and is denominated in Israeli shekels.
Accordingly, the net provision is subject to fluctuations depending on the
relative values of the US dollar and Israeli shekel. The net provision above is
included within the provision for employee benefits and taxes in Note 17.

e)  Government grants

A subsidiary company, NDS Technologies Israel Limited, has received
government grants towards the cost of certain capital expenditure. If the
conditions of the grants are not complied with, the grants may be required to be
refunded, in whole or in part, with interest from the date of receipt. The major
conditions relating to a grant concern the maintenance of adequate
non-distributable reserves and retention of the associated assets for a set
period of time. The cumulative amount received and receivable to 30 June 2004
amounted to approximately GBP 6 million. It is not anticipated that any
repayment will be required. The fixed assets of NDS Technologies Israel Limited,
with a net book value of approximately GBP 5.4 million as at 30 June 2004, are
the subject of a floating charge to secure compliance with the terms of the
grants.

f)  Intellectual property rights

The nature of the Group's business is such that it is subject to claims by
third parties alleging infringements of various intellectual property rights.
NDS vigorously defends such claims. Where a liability arising from these claims
is probable, provision is made based on management's best estimate. It is not
considered that any resulting liability in excess of amounts provided for in
these financial statements would materially affect the financial position of
NDS.

g)  National Insurance on share options

The Company has granted options to certain UK employees under unapproved
share option schemes. UK law levies Employer's National Insurance contributions
on the gains made by employees upon exercise of certain options. Provision is
made over the vesting period of relevant options based on the prevailing
National Insurance rate and the difference between the market value of the
underlying shares at the balance sheet date (being $24.500 per share) and the
option exercise price. A similar liability to National Insurance arises on
undistributed, fully vested assets held by an employee benefits trust, which
will crystallise when the assets are distributed. The amount provided as at 30
June 2004 and included within provision for employee benefits and taxes in Note
17 is GBP 478,000 (2003: GBP 128,000; 2002: GBP 84,000). The provision is
expected to be utilised over the life of the options as set out in Note 19c. The
provision would have been GBP 147,000 higher had the share price been 10% higher
than that prevailing on 30 June 2004. The provision would have been GBP 151,000
higher if all relevant options extant at 30 June 2004 had been capable of being
exercised on that date.

h)  Guarantees

NDS has entered into various warranties and guarantees to support
performance bonds issued to customers to which it has supplied technology. The
nature of these commitments has been considered in determining the revenues and
costs recognised in these financial statements.

The Company and certain subsidiaries have entered into cross-guarantees
with HSBC Bank plc providing mutual guarantees with other companies within The
News Corporation Group for amounts owed to the bank.


27.  UK defined benefit pension obligations

NDS has certain liabilities to a small number of current and former
employees who are members of a UK defined benefit pension scheme. An actuarial
valuation using the projected unit method as at 30 June 2004 showed an excess of
liabilities over assets of approximately GBP 4 million, which equates to a
funding level of 54%. Under the Group's current accounting policy, the charge
for the year in respect of the defined benefit scheme was GBP 136,000 (2003: GBP
150,000; 2002: GBP 631,000). No contributions were unpaid or prepaid as at 30
June 2004 or 30 June 2003.

As at 30 June 2001, the scheme was a multi-employer plan and the previous
actuarial valuation and contribution rates were such that there was no material
difference between the contributions paid by NDS and the cumulative costs
charged to the profit and loss account. The scheme was split during the year
ended 30 June 2002 and as a result of the latest actuarial valuation the amount
charged to the profit and loss account currently exceeds the contribution rate.
As at 30 June 2004, provisions for employee benefits and taxes in Note 17
includes an amount of GBP 240,000 (2003: GBP 327,000; 2001: GBP 500,000) in
respect of the difference between cash payments and cumulative costs charged to
the profit and loss account. The scheme is closed and the age profile of the
active membership is rising significantly and therefore the current service cost
is likely to increase over the coming years. The trustees of the scheme, the
actuaries and the Directors have agreed to make additional lump sum payments
into the scheme and the contribution rates of employed members have been set
individually.

                                      F-32
<PAGE>

The actuarial valuation has been updated to 30 June 2004 using the
following assumptions:
<TABLE>
<CAPTION>

                                                                         As at                  As at                 As at
                                                                  30 June 2004           30 June 2003          30 June 2002

<S>                                                                      <C>                    <C>                   <C>
    Rate of increase in salaries                                         4.50%                  4.50%                 4.70%
    Rate of increase in pensions in payment                              3.00%                  3.20%                 3.20%
    Discount rate                                                        5.75%                  5.30%                 5.80%
    Inflation assumption                                                 3.00%                  2.50%                 2.70%
                                                             ------------------     ------------------    ------------------
</TABLE>

    The assets in the scheme and the expected rate of return were as follows:
<TABLE>
<CAPTION>

                                      Long-term                    Long-term                   Long-term        Value at
                                    rate of return                  rate of                  rate of return 30 June 2002
                                     expected at       Value at     return         Value at   expected at
                                     30 June 2004  30 June 2004   expected at  30 June 2003   30 June 2002
                                                                 30 June 2003
                                                       GBP '000                    GBP '000                     GBP '000
<S>                                     <C>               <C>        <C>              <C>        <C>               <C>
    Equities                            8.50%             2,814      6.50%            2,435      7.00%             3,259
    Bonds                               5.50%             1,802      4.90%            1,571      5.40%               741
    Other                               4.00%                61      4.00%               28      4.00%               191
                                                   --------------              --------------               --------------
    Total market value of assets                          4,677                       4,034                        4,191
    Present value of liabilities                         (8,719)                     (8,309)                      (7,144)
                                                   --------------              --------------               --------------
    Deficit in the scheme                                (4,042)                     (4,275)                      (2,953)
    Related deferred tax asset                            1,213                       1,283                          886
                                                   --------------              --------------               --------------
    Net pension liability                                (2,829)                     (2,992)                      (2,067)
                                                   --------------              --------------               --------------
</TABLE>

The amounts have not been recognised in these financial statements because
NDS has elected to provide only the disclosures required by FRS 17 until its
full adoption becomes mandatory. Had FRS 17 been adopted, the effect would have
been as follows:
<TABLE>
<CAPTION>

                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                      GBP '000               GBP '000             GBP '000
    Analysis of amount charged to operating profit
<S>                                                                        <C>                    <C>                  <C>
    Current service cost                                                   94                     90                   111
    Past service cost                                                       -                      -                     -
                                                             ------------------     ------------------    ------------------
    Total operating charge                                                 94                     90                   111
                                                             ------------------     ------------------    ------------------

    Analysis of amount charged to other finance income
    Expected return on pension scheme assets                              243                    285                   305
    Interest on pension scheme liabilities                               (442)                  (416)                 (382)
                                                             ------------------     ------------------    ------------------
    Net finance cost                                                     (199)                  (131)                  (77)
                                                             ------------------     ------------------    ------------------

</TABLE>


                                      F-33
<PAGE>
<TABLE>
<CAPTION>

                                                                    Year ended             Year ended            Year ended
                                                                  30 June 2004           30 June 2003          30 June 2002
                                                                      GBP '000               GBP '000              GBP '000
<S>                                                                       <C>                   <C>                  <C>
    Analysis of amount recognised in statement of total
    recognised gains and losses
    Actual return less expected return on pension scheme
    assets                                                                180                   (712)                (1,110)
    Experience gains arising on the scheme liabilities                      -                     50                    599
    Changes in assumptions underlying the present value of
    the scheme liabilities                                                105                   (747)                  (684)
                                                             ------------------     ------------------      ----------------
    Actuarial loss recognised in statement of total
    recognised gains and losses                                        (1,409)                (1,409)                (1,195)
                                                             ------------------     ------------------      ----------------

    Movement in deficit during the year
    Deficit in scheme, beginning of year                               (4,275)                (2,953)                (1,701)
    Movement in year:
             Current service cost                                         (94)                   (90)                  (111)
             Contributions                                                241                    308                    131
             Past service costs                                             -                      -                      -
             Other finance charges                                       (199)                  (131)                   (77)
             Actuarial gain (loss)                                        285                 (1,409)                (1,195)
                                                             ------------------     ------------------      ----------------
    Deficit in scheme, end of year                                     (4,042)                (4,275)                (2,953)
                                                             ------------------     ------------------      ----------------
</TABLE>
<TABLE>
<CAPTION>

                                                                                           Year ended            Year ended
                                                                                         30 June 2004          30 June 2003
<S>                       <C>                                                                    <C>                  <C>
    History of experience gains and losses
    Difference between expected and actual return on scheme assets
    -        Amount (GBP '000)                                                                   180                  (712)
    -        As a percentage of scheme assets                                                     4%                   -18%
                                                                                    ------------------    ------------------

    Experience gains and losses on scheme liabilities
    -        Amount (GBP '000)                                                                    -                     50
    -        As a percentage of scheme liabilities                                                0%                     1%
                                                                                    ------------------    ------------------

    Total amount recognised in statement of total recognised gains and losses
    -        Amount (GBP '000)                                                                  285                 (1,409)
    -        As a percentage of scheme liabilities                                                3%                   -17%
                                                                                    ------------------    ------------------


                                                                                               As at                   As at
                                                                                          30 June 2004           30 June 2003
                                                                                            GBP '000                GBP '000
    Balance sheet presentation
    Net assets as reported                                                                   203,177                 186,271
    Effect of SSAP 24, net of tax                                                                168                     229
                                                                                    -------------------     ------------------
    Net assets excluding pension deficit                                                     203,345                 186,500
    Pension deficit                                                                           (2,829)                 (2,992)
                                                                                    -------------------     ------------------
    Net assets including pension deficit                                                     200,516                 183,508
                                                                                    -------------------     ------------------

    Reserves note
    Profit and loss account as reported                                                     (151,269)               (166,926)
    Effect of SSAP 24, net of tax                                                                168                     229
                                                                                    -------------------     ------------------
    Profit and loss account excluding pension deficit                                       (151,101)               (166,697)
    Pension reserve                                                                           (2,829)                 (2,992)
                                                                                    -------------------     ------------------
    Profit and loss account                                                                 (153,930)               (169,689)
                                                                                    -------------------     ------------------

</TABLE>

                                      F-34
<PAGE>

28.  Related party transactions

NDS conducts business transactions with The News Corporation Group on
normal commercial terms. These entities are considered to be related parties.
Agreements covering these arrangements were entered into in the context of two
entities over which a third entity exercises significant influence or control.
There can be no assurance therefore, that each of the agreements, or the
transactions provided for therein, or any amendments thereof will be effected on
terms at least as favourable to NDS as could have been obtained from
unaffiliated third parties.

These transactions are of two main types, which are the provision by NDS of
technology and services for digital pay-TV systems and the receipt by NDS of
administrative services from The News Corporation Group.

a)  Provision of integrated broadcast systems

Technology and services for digital pay-TV systems are supplied to both
associated and subsidiary undertakings of The News Corporation Limited. The
principal related parties supplied by NDS are BSkyB, DIRECTV (from December
2003), DIRECTV Latin America (from December 2003), Sky Brasil, Sky Mexico, DTH
TechCo, Sky Colombia, Sky Chile, Sky Italia, STAR TV, FOXTEL and Sky Network
Television. For the year ended 30 June 2004, revenue included GBP 131 million
(2003: GBP 79 million; 2002: GBP 87 million) from such related parties. As at 30
June 2004, trade debtors included GBP 33 million (2003: GBP 13 million) from
such related parties for goods and services supplied. No bad debt provisions are
associated with such amounts.

b)  Administration and finance services

The News Corporation Group provides services under a Master Intercompany
Agreement which provides, among other things, for arrangements governing the
relationship between NDS and The News Corporation Group. The consideration for
each of the services and other arrangements set forth in the Master Intercompany
Agreement is mutually agreed and based upon allocated costs. All such
consideration and any material arrangements are subject to the approval of the
Audit Committee of NDS Group plc. The services covered by the Master
Intercompany Agreement include cash management and financing, services of Group
employees, facility arrangements, employee matters, including pensions and
certain other services. Amounts charged in respect of these services amounted to
GBP 132,000 (2003: GBP 124,000; 2002: GBP 119,000). As at 30 June 2004, GBP 1.7
million (2003: GBP 1.6 million) was owed to The News Corporation Group in
respect of administrative services and operating costs paid on behalf of NDS.

NDS has a short-term loan facility of GBP 30 million from The News
Corporation Group. The facility has no expiry date and no amounts were drawn
down as at 30 June 2004 or 30 June 2003. The facility is considered to be
adequate for the NDS's needs.

The Company and certain subsidiaries have entered into cross-guarantees
with HSBC Bank plc providing mutual guarantees with other companies within The
News Corporation Group for amounts owed to the bank.

c)  UK Corporation Tax

NDS Group plc entered into a Group Relief Agreement, with a UK member of
The News Corporation Group, which provides for the mutual surrender of losses
and other allowances by group relief. Subject to the terms of the agreement, the
party accepting such surrender shall pay or cause to be paid to the surrendering
party an amount equal to the amount of tax such accepting party would have paid
but for such surrender. The Group tax charge includes such amounts and part of
the corporate tax liability included in these financial statements may be
settled by payments to The News Corporation Group, rather than the Inland
Revenue.


29.  Derivatives and financial instruments

a)  Qualitative discussion on financial risks

NDS is exposed to financial risk factors in the normal course of business.
The disclosures in this note deal with financial assets and financial
liabilities as defined in FRS 13: "Derivatives and other financial instruments:
Disclosures". For this purpose non-equity shares issued by the Company are dealt
with in the disclosures in the same way as the Group's financial liabilities but
separately disclosed. Certain financial assets such as investments in subsidiary
and associated companies are also excluded from the scope of these disclosures.
As permitted by FRS 13, short-term debtors and creditors have been excluded from
the disclosures, other than the currency disclosures. The principal factors
identified by the Directors are as follows:

Foreign exchange

NDS operates in international markets and has operational presence in
several countries. Accordingly it has substantial transactions which are
denominated in US dollars and euros, as well as its main functional currency of
pounds sterling. All material contracts with customers in Latin America and the
Asia-Pacific region are denominated in US dollars. Operating costs are also
incurred in the currencies of the various countries in which he Group operates.


                                      F-35
<PAGE>

Gains or losses arising on the realisation or revaluation of monetary
assets and liabilities are included within administrative expenses, as explained
more fully in Note 1k. Movements in foreign exchange rates generated net foreign
exchange gains of approximately GBP nil (2003: gains of GBP 1.1 million; 2002:
losses of GBP 1.4 million) recognised in the profit and loss account.
Differences arising on the re-translation of the opening net assets and results
of overseas operations resulted in losses of GBP 2.8 million (2003: losses of
GBP 3.6 million; 2002: losses of GBP 2.3 million) being recognised as a movement
in consolidated reserves.

Inflation

Inflation has not had any significant impact on the results of operations
during either of the three years ended 30 June 2004.

Credit risk

NDS is exposed to the risk that a customer may default on payment of
amounts due under contracts. A substantial proportion of revenues is derived
from large corporations with substantial assets, but many customers are in the
early stages of their business cycle when they are investing heavily to build
their businesses which increases credit risk. Additionally, a number of
customers are located in countries subject to exchange control regulations,
which may restrict their ability to settle debts on a timely basis. The
Directors' policy is to reduce credit risk by close monitoring of trade
receivables and, if necessary, requiring payment of at least part of amounts due
under contracts in advance. Potential customers who are in early stages of
development are investigated before orders are accepted to ensure that their
business plans appear reasonable and that their investors are credible. During
the year, there was a net release of bad debt provisions of GBP 0.9 million,
primarily as a result of two customers emerging from bankruptcy protection and a
third customer resuming a payment plan, having previously defaulted. Bad debt
provisions at 30 June 2004 amounted to GBP 1,653,000 (2003: GBP 5,561,000).

Interest rate risk

NDS has entered into no fixed rate borrowings. As at 30 June 2004, NDS had
cash of GBP 125 million. Cash in excess of immediate requirements is placed on
short-term deposit, earning variable-rate interest. Accordingly NDS is not
currently exposed to fixed interest rate risk. Investments and provisions are
non-interest bearing.

Investment risk

NDS has a current asset equity investment in listed securities with a
market value of GBP 414,000. Accordingly it is exposed to investment risk on
this item.

b)  Liquidity and interest rate risks

As at 30 June 2004 the NDS Group had no net debt and cash balances of GBP
125 million. The average interest rate applied to cash balances during the year
was 3.9%.

NDS has a short-term loan facility of GBP 30 million from a subsidiary of
The News Corporation Limited, which is considered to be adequate for the Group's
needs. The facility has no expiry date and has not been used during the year.
The News Corporation Group operates collective sterling overdraft facilities
with its bankers which allows individual companies in that group to become
overdrawn subject to an agreed limit not being exceeded in aggregate. Interest
is paid by NDS on sterling overdrafts and is received on sterling cash balances.
NDS had no overdraft during the year.

The Company has non-equity capital in the form of deferred shares with a
book value of GBP 42 million as set out in Note 19b. Given the terms of the
deferred shares, their fair value is assumed to be zero.

c)  Currency risks

The Group's policy is to monitor currency risks associated with projected
cash flows and to consider using financial instruments to mitigate that risk.
During the year, NDS entered into a EUR -forward purchase contract to fix the
purchase price of the MediaHighway acquisition in the period between signing the
acquisition agreement and the completion of the transaction. The contract
yielded a gain of GBP 1.1 million on maturity, which has been recognised in the
profit and loss account. NDS has not entered into any other free-standing
derivative contracts during either of the three years ended 30 June 2004. All
monetary assets and liabilities as at 30 June 2004 have been stated in sterling
at their re-valued amounts using year end exchange rates.

The table below analyses the net monetary assets or liabilities as at 30
June 2004 that are denominated in currencies that are not the functional
currency of the operating unit concerned:

                                      F-36
<PAGE>
<TABLE>
<CAPTION>

    Net foreign currency assets (liabilities)              Functional currency of operating unit
                                                     --------------------------------------------------
                                                            Sterling             Euro        US dollar              Total
                                                            GBP '000          GBP '000        GBP '000           GBP '000

<S>                                                                                <C>          <C>                <C>
    Sterling                                                       -               (1)          21,385             21,384
    US dollar                                                 13,583              696                -             14,279
    Israeli shekel                                                 -                -            8,893              8,893
    Australian dollar                                           (400)               -                -               (400)
    Euro                                                      16,585                -              167             16,752
    Other                                                       (195)               -                -               (195)
                                                     ---------------- ---------------- ----------------     ---------------
                                                              29,573              695           30,445             60,713
                                                     ---------------- ---------------- ----------------     ---------------
</TABLE>

 The table below analyses the net monetary assets or liabilities as at 30
June 2003 that are denominated in currencies that are not the functional
currency of the operating unit concerned:
<TABLE>
<CAPTION>

    Net foreign currency assets (liabilities)              Functional currency of operating unit
                                                     --------------------------------------------------
                                                                  Sterling                US dollar               Total
                                                                  GBP '000                 GBP '000               GBP '000

<S>                                                                                           <C>                  <C>
    Sterling                                                            -                     15,133               15,133
    US dollar                                                      18,662                          -               18,662
    Israeli shekel                                                      -                      9,710                9,710
    Australian dollar                                                (321)                         -                 (321)
    Euro                                                            3,103                          -                3,103
    Other                                                            (385)                       (19)                (404)
                                                     -------------------------    ---------------------     ---------------
                                                                   21,059                     24,824               45,883
                                                     -------------------------    ---------------------     ---------------
</TABLE>

d)  Fair values of financial assets and liabilities

The Group's financial assets and liabilities comprise cash and short-term
deposits, investments, debtors, creditors and provisions, for which the fair
value is equal to the book value.


30.  Controlling party

Throughout the period covered by these financial statements, NDS Group plc
has been under the control of The News Corporation Limited, a company registered
in Australia. As at 30 June 2004, The News Corporation Limited owned
approximately 77.51% of the Company's equity share capital and 100% of the
Company's non-equity share capital; its interest in the overall voting capacity
of the Company's equity was approximately 97.18%. The News Corporation Limited's
interest in the Company's shares is held by its wholly owned subsidiary, News
Nominees Limited.

The accounts of the smallest group into which the accounts of the Company
are consolidated are contained herein. The largest group into which they are
consolidated is that headed by The News Corporation Limited. Copies of those
accounts are available from The News Corporation Limited, 2 Holt Street, Sydney,
New South Wales 2010, Australia.


31.  Summary of differences between UK and US GAAP

The accounting policies under which the consolidated financial statements
of the Group are prepared conform to accounting principles generally accepted in
the United Kingdom (``UK GAAP''). These differ from generally accepted
accounting principles in the United States (``US GAAP'') as regards the Group in
the following significant respects.

a) De-recognition of liability for card changeovers

Under UK GAAP, subscriber fees are recognised over the term of the contract
as the security services are performed. In some instances, the maintenance of
security requires NDS to replace a population of smart cards ("changeover
cards"). This is an integral part of the wider security maintenance activities
and the subscriber fees continue to be recognised as the services are performed.
Costs associated with such arrangements include, therefore, the production of
changeover cards to be provided. This liability is recognised by way of a
provision in the financial statements. The value of his liability at each
balance sheet date is calculated as the total expected cost of providing
changeover cards multiplied by the proportion of revenues recognised to date as
compared with total security fees expected over the duration of the maintenance
agreement.

Under US GAAP, the liability to provide changeover cards is not recognised.
The cost of providing changeover cards is recognised upon shipment of the smart
cards to the platform operator. A portion of the subscriber fee revenue is
deferred, equivalent to the estimated fair value of the cards, which has been
calculated based on an estimate of the revenue that NDS might expect to earn in
supplying an equivalent volume of cards in a stand-alone arrangement. This
revenue is recognised upon eventual shipment of the smart cards to the platform
operator.

                                      F-37
<PAGE>

In 2004, this had the effect on the profit and loss account of decreasing
revenue by GBP 16,134,000 (2003: increasing revenue by GBP 19,572,000; 2002:
reducing revenue by GBP 6,061,000) and of decreasing cost of sales by GBP
13,055,000 (2003: increasing cost of sales by GBP 13,980,000; 2002: reducing
cost of sales by GBP 4,329,000). On the balance sheet, this resulted in an
increase in deferred revenue of GBP 20,222,000 (2003: GBP 4,088,000) and a
reduction in provisions of GBP 15,975,000 (2003: GBP 2,920,000).

b) Non-amortisation of goodwill

Under UK GAAP, goodwill is amortised over the period over which benefits
are expected to accrue to the Group. Under US GAAP from 1 July 2002, goodwill
and identifiable intangible assets that have indefinite useful lives are not
amortised. However, such assets are tested for impairment at least annually
using guidance specifically provided in SFAS 142: "Goodwill and other intangible
assets". The Directors concluded that no impairment charge was required at 1
July 2002 or 30 June 2003.

In the profit and loss account, this has the effect of reducing goodwill
amortisation by GBP 7,854,000 (2003: GBP 7,845,000). The impairment charge of
GBP 6,510,000 recorded under UK GAAP in the year ended 30 June 2004 is the same
as would be applied under US GAAP. In the balance sheet, the effect of
presenting goodwill as a single line item is to decrease the cost of goodwill by
GBP 29,283,000 (2003: GBP 22,773,000) and accumulated amortisation of GBP
44,982,000 (2003: GBP 30,618,000) is eliminated.

c) Purchase accounting
(i) Orbis

Under the agreement for the acquisition of Orbis, NDS was required to make
additional payments in the form of Series A ordinary shares, with the number of
shares being determined by the revenues and profitability of Orbis for the two
years ended 31 March 2002. Payment was contingent on certain employees and
former shareholders of the acquired company remaining in employment up to a
specified date.

Under UK GAAP, NDS has accounted for an allocation of the additional share
payments as part of staff costs; the amount was determined by estimating the
value to the Company of the employment lock-in clauses for former shareholders
and amortising that amount over the relevant period. The remaining value of the
additional share payments was accounted for as contingent consideration and the
fair value of consideration payable in shares was determined by reference to the
market price of Series A ordinary shares at the time the transaction was
completed. To the extent that shares had not been issued as at 30 June 2002, the
estimated fair value of such shares was shown as a separate element of
shareholders' funds. All remaining shares due as a result of this acquisition
were issued during the year ended 30 June 2003.

Under US GAAP, the contractual terms relating to the additional share
payments cause all, rather than just part, of the additional share payments to
be treated as compensation cost for post-acquisition services, which is accrued
over the relevant service period. To the extent that the cumulative compensation
cost incurred as at the balance sheet date differed from the estimated fair
value of the shares issued, the difference was accounted for within
stockholders' equity. Where the number of shares to be issued was determinable
as at the acquisition date, the fair value of those shares was determined by
reference to the market price at the time of the acquisition. Where the number
of shares was not determinable as at the acquisition date, the fair value of
those shares was determined by reference to the market price when the
contingencies were resolved. To the extent that compensation cost payable in
shares was accrued in advance of the contingencies being resolved, the fair
value of those shares was estimated by reference to the market price as at the
balance sheet date.

This has the effect of increasing compensation costs in the profit and loss
account by GBP 977,000 (2003: GBP 1,601,000; 2002: GBP 3,794,000), reducing the
cost of goodwill by GBP 31,999,000 and reducing prepaid compensation on the
balance sheet by GBP nil (2003: GBP 134,000). In the year ended 30 June 2002,
this had the additional effect of reducing amortisation of goodwill by GBP
3,025,000.

(ii) Visionik

Under the agreement for the acquisition of Visionik, the total purchase
price was dependent on the revenues and profitability of the business for the
two years ending 31 May 2004 exceed certain thresholds.

Under UK GAAP, where the consideration paid for an acquisition includes a
contingent payment, the best estimate of the amount likely to be payable in
respect of such consideration is accrued within provisions for liabilities and
charges and included within goodwill from date of acquisition. During 2003, the
estimate was revised downwards. No further adjustments were required following
the final determination of the revenues and profitability of the business for
the two years ending 31 May 2004.

                                      F-38
<PAGE>

Under US GAAP, contingent consideration is only recognised when the
contingencies are resolved.

This has no effect in 2004 or 2003. The effect in 2002 was to decrease
amortisation of goodwill by GBP 34,000.

d) Stock-based compensation

Certain share options were issued to employees prior to 22 November 1999,
the date of the Company's Initial Public Offering and from which an open market
existed in the Company's shares. The options were granted at an estimate of the
market value as at the date of grant. Under UK GAAP, no compensation cost
arises. Additionally, no compensation cost arises in respect of options issued
to an employee share purchase plan, notwithstanding the fact that the options
were issued at a discount to market value, because the terms of the schemes
satisfy the criteria for exemption from recording a compensation cost under UK
GAAP. Further, options granted within six months of the cancellation of options
with less favourable terms do not give rise to a charge for compensation cost
under UK GAAP.

Under US GAAP, NDS has elected to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 ("APB 25"). Under APB
25, the measurement date was the date of the Initial Public Offering and a
compensation cost was charged to the profit and loss account equal to the
difference between the exercise price and the market price of the shares as set
by the Initial Public Offering. The compensation cost was charged over the
vesting period of the options. Options granted under employee share ownership
schemes fail to meet the US GAAP definition of non-compensatory plans and a
compensation cost is charged to the profit and loss account equal to the
difference between the option price and the market price of the shares on the
date the option was granted. The compensation cost is charged over the term of
the associated savings contract. Further, variable accounting is required for
certain options granted during 2003 which were deemed to be a re-pricing of
subsequently cancelled unrelated options.

These items have the effect of decreasing net income in the year ended 30
June 2004 by GBP 1,706,000 (2003: decrease by GBP 527,000; 2002: increase by GBP
86,000). The item has no effect on shareholders' equity.

e) National Insurance on share options

Under UK GAAP, the liability to pay UK employers' National Insurance on
gains made by employees on the exercise of certain share options granted is
accrued over the vesting period and is based on the market price of the
Company's shares at the balance sheet date. Under US GAAP, the recognition point
for liabilities for UK employers' National Insurance is when the relevant
options are exercised.

The effect is to increase operating income by GBP 350,000 (2003: increase
by GBP 44,000; 2002: decrease by GBP 430,000) and to reduce the provision in the
balance sheet by GBP 478,000 to nil (2003: from GBP 128,000 to GBP nil).

f) Fair valuation of currency derivatives

NDS has entered into certain contracts denominated in US dollars with
customers and suppliers located in Europe and the Middle East, Latin America and
the Asia-Pacific region. Under UK GAAP, no exchange gain or loss is recorded on
these contracts until they have been invoiced. Under US GAAP, the fact that
these contracts are denominated in US dollars cause them to be regarded as
containing embedded foreign currency derivatives. In line with SFAS 133, an
embedded foreign currency derivative should be bifurcated from the host contract
and recorded in the financial statements at fair value as at the balance sheet
date with any gain or loss being recorded as an element of net income. Once
invoiced, gains and losses on these contracts are recorded in line with SFAS 52
and so no further GAAP difference results.

The adjustment for the year ended 30 June 2004 decreases operating income
by GBP 274,000 (2003: GBP 338,000; 2002: 215,000), with an increase in current
assets of GBP 176,000 (2003: GBP nil) and an increase in current liabilities of
GBP 836,000 (2003: GBP 386,000).

                                      F-39
<PAGE>

g) Pension costs

Under UK GAAP, provision is made for the cost of retirement benefits
payable by the Group's UK defined benefit pension scheme as assessed by external
professional actuaries and is charged to the profit and loss account so as to
spread the cost over the period during which the employer derives benefit from
the employee's services.

Under US GAAP, the projected benefit obligation (pension liability) is
matched against the fair value of the pension plan's assets and adjusted to
reflect any unrecognised obligations or assets in determining the pension cost
or credit for the year. Recognition of an additional minimum liability is
required if an unfunded accumulated benefit obligation exists (i.e. the
accumulated benefit obligation exceeds the fair value of plan assets), and an
asset is recognised. The excess of any additional liability over any
unrecognised prior service cost is reported as a separate component within other
comprehensive income, net of tax benefits from timing differences.

The effect of these differences is to decrease operating income by GBP
70,000 (2003: decrease of GBP 12,000; 2002: increase of GBP 480,000), and to
generate other comprehensive income of GBP 1,096,000 (2003: other comprehensive
losses of GBP 1,658,000; 2002: other comprehensive losses of GBP 1,847,000).
Provisions increase by GBP 1,991,000 (2003: GBP 3,107,000).

h) Taxation
(i) Methodology

NDS has claimed certain tax deductions arising out of the exercise of
employee share options. Under UK GAAP, such benefits have been taken within the
overall tax charge shown in the profit and loss account. US GAAP requires that
if the employer's tax deduction exceeds the financial reporting expense, then
the incremental tax benefit is reflected as an increase in paid-in capital and a
reduction of income taxes payable. If the tax deduction is less than the
financial reporting deduction, the tax effect is recorded as a reduction of
paid-in capital to the extent of previous, similar capital increases from other
awards; otherwise, it is charged to income tax expense.

This results in a reduction in the tax charged to the profit and loss
account of GBP nil (2003: GBP nil; 2002: reduction of GBP 50,000).

(ii) Consequential adjustments

As a consequence of the adjustments under a), d), e), f) and g) above,
additional temporary differences arise which have the effect of decreasing the
tax charged in the profit and loss account by GBP 923,000 (2003: increase by GBP
1,585,000; 2002: decrease by GBP 568,000), generating an additional other
comprehensive losses of GBP 328,000 (2003: other comprehensive income of GBP
360,000; 2002: other comprehensive income of GBP 685,000) and increasing the
deferred tax asset by GBP 1,927,000 (2003: GBP 1,332,000).

i) Severance pay

Under UK GAAP, the provision for severance pay referred to in Note 26d is
shown net of the amount funded by insurance policies. Under US GAAP, the
liability and asset should be shown gross. The effect is to increase other
debtors due after one year and provisions by GBP 9,381,000 (2003: GBP
9,348,000). There is no affect on net income or shareholders' equity.

Net income under US GAAP

The following is a summary of the adjustments to profit attributable to
shareholders (net income) which would be required if US GAAP were to be applied
instead of UK GAAP:
<TABLE>
<CAPTION>

                                                                        Year ended            Year ended             Year ended
                                                                      30 June 2004          30 June 2003           30 June 2002
                                                                          GBP '000              GBP '000              GBP '000

<S>                                                                        <C>                   <C>                    <C>
    Profit for the year in accordance with UK GAAP                         18,469                26,040                 30,678
    Adjustments:
        a) De-recognition of liability for card changeovers                (3,079)                5,592                 (1,732)
        b) Non-amortisation of goodwill                                     7,854                 7,845                      -
        c) Purchase accounting
            (i) Orbis                                                        (977)               (1,601)                  (769)
            (ii) Visionik                                                       -                     -                     34
        d) Stock-based compensation                                        (1,706)                 (527)                    86
        e) National insurance on share options                                350                    44                   (430)
        f) Fair valuation of currency derivatives                            (274)                 (338)                  (215)
        g) Pension costs                                                      (70)                  (12)                   480
        h) Taxation
            (i)On above adjustments                                           923                (1,585)                   568
            (ii)      Methodology                                               -                     -                    (50)
                                                                 ------------------    ------------------ --- ------------------
    Net income as adjusted to accord with US GAAP                          21,490                35,458                 28,650
                                                                 ------------------    ------------------ --- ------------------

</TABLE>

                                      F-40
<PAGE>

A condensed income statement presented under US GAAP would be as follows:
<TABLE>
<CAPTION>

                                                                        Year ended            Year ended             Year ended
                                                                      30 June 2004          30 June 2003           30 June 2002
                                                                         GBP '000              GBP '000               GBP '000

<S>                                                                       <C>                   <C>                    <C>
    Revenues                                                              204,399               256,809                234,727
    Cost of goods sold                                                    (48,538)             (108,447)               (78,778)
    Selling, general and administrative expenses                         (127,942)             (100,556)              (115,800)
                                                                 ------------------    ------------------     ------------------
    Operating income                                                       27,919                47,806                 40,149

    Other income (expense)                                                      -                  (280)                    21
    Interest income                                                         4,214                 2,887                  2,513
                                                                 ------------------    ------------------     ------------------
    Income before income tax expense                                       32,133                50,413                 42,683

    Income tax expense                                                    (11,115)              (15,057)               (14,033)
                                                                 ------------------    ------------------     ------------------
    Income after taxation income tax expense                               21,018                35,356                 28,650

    Minority interests in losses of consolidated subsidiary                   472                   102                      -

                                                                 ------------------    ------------------ --- ------------------
    Net income                                                             21,490                35,458                 28,650
                                                                 ------------------    ------------------ --- ------------------
</TABLE>
<TABLE>
<CAPTION>

Net income per share
                                                                        Year ended            Year ended             Year ended
                                                                      30 June 2004          30 June 2003           30 June 2002

<S>                                                                         <C>                   <C>                    <C>
    Basic                                                                   39.7p                 65.8p                  53.7p
    Diluted                                                                 38.2p                 63.8p                  52.4p
                                                                 ------------------    ------------------     ------------------

      Weighted average number of shares in issue                      54,093,083            53,856,141             53,347,593
      Diluted weighted average number of shares                       56,237,610            55,566,086             54,640,510
                                                               -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Statement of comprehensive income
    Comprehensive income under US GAAP is as follows:
                                                                       Year ended             Year ended             Year ended
                                                                     30 June 2004          30 June 2003            30 June 2002
                                                                                           Restated (1)            Restated (1)
                                                                         GBP '000              GBP '000               GBP '000

<S>                                                                        <C>                   <C>                    <C>
    Net income as adjusted to accord with US GAAP                          21,490                35,458                 28,650

    Currency translation differences (nil tax effect)                      (2,780)               (3,617)                (2,337)
    Pension liability adjustment                                            1,096                (1,658)                (1,847)
    Tax effect of pension liability adjustment                               (328)                  360                    685
                                                                 ------------------    ------------------ --- ------------------
    Comprehensive income in accordance with US GAAP                        19,478                30,543                 25,151
                                                                 ------------------    ------------------     ------------------

(1)  Restated to reflect the minimum pension liability and related deferred tax
     asset.
</TABLE>

                                      F-41
<PAGE>


Movement in accumulated other comprehensive income (loss) under US GAAP is
as follows:
<TABLE>
<CAPTION>

                                                                                                                Minimum pension
                                                                                               Currency               liability
                                                                                            translation              adjustment
                                                                                            differences
                                                                                           GBP '000                   GBP '000

<S>       <C>    <C>                                                                              <C>
    As at 1 July 2001                                                                             1,870                      -
    Movement in the year (1)                                                                     (2,337)                (1,162)
                                                                                       ------------------     ------------------
    As at 30 June 2002 (1)                                                                         (467)                (1,162)
    Movement in the year (1)                                                                     (3,617)                (1,298)
                                                                                       ------------------     ------------------
    As at 30 June 2003 (1)                                                                       (4,084)                (2,460)
    Movement in the year                                                                         (2,780)                   768
                                                                                       ------------------     ------------------
    As at 30 June 2004                                                                           (6,864)                (1,692)
                                                                                       ------------------     ------------------

(1)  Restated to reflect the minimum pension liability and related deferred tax
     asset.

</TABLE>
<TABLE>
<CAPTION>

Shareholders' equity under US GAAP

The following is a summary of the adjustments to shareholders' funds, which
would be required if US GAAP were to be applied instead of UK GAAP:


                                                                                      30 June 2004             30 June 2003
                                                                                                               Restated (1)
                                                                            Notes         GBP '000                 GBP '000

<S>                                                                                         <C>                   <C>
    Shareholders' funds in accordance with UK GAAP                                          203,177               186,271

    Adjustments:
    Intangible fixed assets:
                               Cost                                          b)             (29,283)              (22,773)
                               Cost                                          c)             (31,999)              (31,999)
                               Accumulated amortisation                      b)              44,982                30,618

    Current assets:
                               Prepayments                                   c)                   -                  (134)
                               Deferred tax                                  h)               1,927                 1,332
                               Other debtors due after one year              i)               9,381                 9,348
                               Other current assets                          f)                 176                     -

    Current liabilities:
                               Accrued expenses                              f)                (836)                 (386)
                               Deferred income                               a)             (20,222)               (4,088)

    Provisions for liabilities and charges:
                               Changeover                                    a)              15,975                 2,920
                               Employee benefits and taxes                   e)                 478                   128
                               Employee benefits and taxes                   g)              (1,991)               (3,107)
                               Employee benefits and taxes                   i)              (9,381)               (9,348)
                                                                                    ------------------    --------------------
    Shareholders' equity as adjusted in accordance with US GAAP                             182,384               158,872
                                                                                    ------------------    --------------------
</TABLE>

(1)  Restated to reflect the minimum pension liability and related deferred tax
     asset.

Cash flow statement under US GAAP

The consolidated statement of cash flows prepared in accordance with UK
GAAP presents substantially the same information as that required under US GAAP.
Under US GAAP however, there are certain differences from UK GAAP with regard to
classification of items within the cash flow statement and with regard to the
definition of cash and cash equivalents.

Under UK GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditure, acquisition or disposals, and financial investment. Under US GAAP
however, only three categories are reported, being operating activities,
investing activities and financing activities. Cash flows from taxation and
returns on investments and servicing of finance would be included as operating
activities under US GAAP.

                                      F-42
<PAGE>

Under UK GAAP, bank deposits which are not available within one day are
shown as a separate element of cash and the net movement of funds onto or off
deposit is shown as cash outflow or inflow before arriving at the net increase
or decrease in cash. Under US GAAP, cash and cash equivalents include bank
deposits with less than three months to maturity. Restricted cash deposits are
excluded from the definition of cash and cash equivalents under both UK GAAP and
US GAAP. Under US GAAP, cash and cash equivalents do not include bank overdrafts
repayable within three months from the date of advance. Under UK GAAP, cash
includes cash in hand and deposits repayable on demand less overdrafts repayable
on demand.

The presentation of cash flows in accordance with US GAAP would be as follows:
<TABLE>
<CAPTION>

                                                                         Year ended         Year ended          Year ended
                                                                       30 June 2004       30 June 2003        30 June 2002
                                                                           GBP '000           GBP '000            GBP '000

<S>                                                                          <C>                <C>                <C>
    Cash inflow from operating activities                                    52,287             33,128             57,406
    Cash outflow from investing activities                                  (48,257)            (3,504)           (12,978)
    Cash inflow from financing activities                                     1,273                526                525
                                                                      --------------     --------------     ---------------
    Increase in cash and cash equivalents                                     5,303             30,150             44,953
    Effect of exchange rate changes on cash and cash equivalents             (1,737)            (2,098)            (2,419)
    Cash and cash equivalents at beginning of year                          121,520             93,468             50,934
                                                                      --------------     --------------     ---------------
    Cash and cash equivalents at end of year                                125,086            121,520             93,468
                                                                      --------------     --------------     ---------------
</TABLE>

Additional disclosures

a) Stock options

Under US GAAP, NDS has elected to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 ("APB 25") and adopt
the disclosure only alternative provided under SFAS No. 123. For the year ended
30 June 2004, a compensation credit of GBP 32,000 (2003: compensation cost of
GBP 40,000; 2002: GBP 78,000) has been recorded under UK GAAP in respect of
options and an additional charge of GBP 1,706,000 (2003: GBP 527,000; 2002:
credit of GBP 86,000) is required to accord with US GAAP, such that the total
compensation cost in respect of options under APB 25 is GBP 1,674,000 (2003: GBP
567,000; 2002: credit of GBP 8,000).

The stock-based compensation for the year ended 30 June 2004, had it been
determined under SFAS No. 123, would have been GBP 5,477,000 (2003: credit of
GBP 776,000; 2001: charge of GBP 8,714,000).

The pro forma impact of the compensation cost, had it been recorded as
determined under SFAS No. 123 would have been as follows:
<TABLE>
<CAPTION>

                                                                     Year ended          Year ended           Year ended
                                                                   30 June 2004        30 June 2003         30 June 2002
                                                                      GBP '000             GBP '000            GBP '000
    Net income (US GAAP)
<S>                                                                    <C>                   <C>                  <C>
    As reported                                                        21,490                35,458               28,650
    Add back compensation cost (credit) under APB 25                    1,674                   567                   (8)
    Compensation (cost) credit under SFAS 123                          (5,355)                  776               (8,714)
                                                               ------------------    ----------------     ----------------
    Pro forma, as adjusted for SFAS 123                                17,809                36,801               19,928
                                                               ------------------    ----------------     ----------------

    Net income per share (US GAAP)
    As reported:
             - basic                                                      39.7p                 65.8p                53.7p
             - diluted                                                    38.2p                 65.3p                52.4p

    Pro forma, as adjusted for SFAS 123
             - basic                                                      32.9p                68.3p                37.4p
             - diluted                                                    31.7p                66.2p                36.5p
                                                               ------------------    ----------------     ----------------

</TABLE>

                                      F-43
<PAGE>
<TABLE>
<CAPTION>

The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:

                                                                    Year ended           Year ended          Year ended
                                                                  30 June 2004         30 June 2003        30 June 2002
                                                                      GBP '000             GBP '000            GBP '000

<S>                                                                     <C>                  <C>                 <C>
    Risk free interest rate                                             4.38%                3.15%               4.08%
    Dividend yield                                                         0%                   0%                  0%
    Expected volatility                                                   87%                  93%                 64%
    Expected life of options                                         5.0 years            3.8 years           2.5 years

    Weighted average fair value of options granted in year              $11.94                $5.14               $8.81
                                                               ----------------     ----------------    ----------------
</TABLE>

The exercise price for all outstanding options at 30 June 2004 ranged from
$6.50 to $60.00, with a weighted average exercise price of $14.604 and a
remaining contractual life of 5.8 years. The weighted average fair value of
those options granted during the year ended 30 June 2004 where the exercise
price equalled the market price was $11.94; their weighted average exercise
price was $17.12. No options were granted during the year ended 30 June 2004
where the exercise price was less than or greater than the market price.

The following table summarises information about the stock options
outstanding 30 June 2004:
<TABLE>
<CAPTION>

                                   Options outstanding as at 30 June 2004            Options exercisable as at 30 June 2004
                                   --------------------------------------            --------------------------------------
    Range of exercise         Number      Weighted average     Weighted average        Number      Weighted average exercise
    prices ($)                           exercise price ($)        remaining                               price ($)
                                                               contractual life

<S>       <C>                <C>                 <C>               <C>                  <C>                   <C>
    Up to $10.00             2,291,382           $8.294            3.9 years            1,491,905             $8.624
    $10.01 to $20.00         1,612,954          $18.418            7.5 years              752,584            $19.924
    $20.01 to $30.00           892,869          $21.900            7.3 years              444,630            $21.900
    $30.01 to $40.00             3,001          $34.500            0.3 years                3,001            $34.500
    $40.01 to $50.00            11,500          $43.000            5.8 years               11,500            $43.000
    $50.01 to $60.00            31,751          $58.887            6.2 years               24,909            $58.581

    All options              4,843,457          $14.604            5.8 years            2,728,529            $14.533
                           ------------- ------------------- ---------------------- -------------- ---------------------------

</TABLE>

b) Pensions

Information under US GAAP regarding the Group's defined benefit pension is
as follows:
<TABLE>
<CAPTION>

                                                                 Year ended           Year ended           Year ended
                                                                30 June 2004        30 June 2003         30 June 2002
                                                                    GBP '000            GBP '000             GBP '000

<S>                                                                      <C>                  <C>                 <C>
     Service cost                                                        94                   90                  131
     Interest cost                                                      439                  404                  231
     Expected return on assets                                         (310)                (346)                (210)
     Net amortisation of loss                                           256                  152                    -
                                                             -----------------    ----------------     ----------------
     Net periodic pension expenses                                      479                  300                  152
                                                             -----------------    ----------------     ----------------
</TABLE>

The following assumptions were used in accounting for the plan:
<TABLE>
<CAPTION>

                                                                   Year ended            Year ended           Year ended
                                                                 30 June 2004          30 June 2003         30 June 2002

<S>                                                                      <C>                  <C>                  <C>
     Assumed discount rate                                               5.75%                5.30%                6.00%
     Expected long-term rate of return on plan assets                    7.50%                7.50%                8.00%
     Rate of increase in pensions                                        3.00%                3.00%                3.00%
     Rate of compensation increase                                       4.50%                4.50%                4.75%
                                                             -----------------    ----------------     ----------------
</TABLE>

                                      F-44
<PAGE>

The funding of the Company's defined benefit pension plan is as follows:
<TABLE>
<CAPTION>

                                                                30 June 2004        30 June 2003         30 June 2002
                                                                    GBP '000             GBP '000            GBP '000

<S>                                                                    <C>                  <C>                 <C>
    Fair value of plan assets                                          4,677                4,034               4,191
    Projected benefit obligation                                      (8,719)              (8,251)             (6,703)
                                                             -----------------    ----------------     ----------------
    Projected benefit obligation in excess of plan assets             (4,042)              (4,217)             (2,512)
    Unrecognised net loss                                              4,247                4,660               2,947
    Recognition of additional minimum liability                       (2,436)              (3,788)             (2,282)
                                                             -----------------    ----------------     ----------------
    Net amount recognised in the balance sheet                        (2,231)              (3,345)             (1,847)
                                                             -----------------    ----------------     ----------------
</TABLE>

The following table is a reconciliation of projected benefit obligation (PBO):
<TABLE>
<CAPTION>

                                                                  Year ended          Year ended            Year ended
                                                                30 June 2004        30 June 2003          30 June 2002
                                                                    GBP '000            GBP '000              GBP '000

<S>                                                                   <C>                  <C>                  <C>
    PBO, beginning of year                                            8,251                6,703                6,164

    Interest on PBO:                                                    439                  404                  231
    Service cost:                                                        94                   90                  131
     Benefits paid:                                                     (98)                (119)                (121)
    Employee contributions:                                              77                   78                   52
    (Gains) losses:                                                     (44)               1,095                  246
                                                             -----------------    ----------------     ----------------
    PBO, end of year                                                  8,719                8,251                6,703
                                                             -----------------    ----------------     ----------------
</TABLE>

The following table is a reconciliation of the fair value of plan assets:
<TABLE>
<CAPTION>

                                                                  Year ended          Year ended           Year ended
                                                                30 June 2004        30 June 2003         30 June 2002
                                                                     GBP 000             GBP 000              GBP 000

<S>                                                                   <C>                  <C>                  <C>
     Plan assets at fair value, beginning of year                     4,034                4,191                4,463

     Employer contributions:                                            241                  308                  131
     Employee contributions:                                             77                   78                   52
     Benefits paid:                                                     (98)                (119)                (121)
     Return on assets:                                                  423                 (424)                (334)
                                                             -----------------    ----------------     ----------------
     Plan assets at fair value, end of year                           4,677                4,034                4,191
                                                             -----------------    ----------------     ----------------
</TABLE>
<TABLE>
<CAPTION>

The following table is the accumulated benefit obligation (ABO) at the end
of each period:
                                                             30 June 2004        30 June 2003         30 June 2002
                                                                  GBP 000             GBP 000              GBP 000

<S>                                                              <C>                  <C>                  <C>
     ABO, end of year                                            (6,908)              (7,379)              (6,038)
                                                             -----------------    ----------------     ----------------
</TABLE>

c) Valuation reserves

The movement in the valuation reserve against trade accounts receivable is as
follows:
<TABLE>
<CAPTION>

                                                            Year ended           Year ended           Year ended
                                                          30 June 2004         30 June 2003         30 June 2002
                                                               GBP 000              GBP 000              GBP 000

<S>                                                              <C>                  <C>                  <C>
     Balance, beginning of year                                  5,561                4,648                2,057
     Charged (released) during the year                           (926)               5,166                2,939
     Written off                                                (2,982)              (4,253)              (348)
                                                      -----------------    ----------------     ----------------
     Balance end of year                                         1,653                5,561                4,648
                                                      -----------------    ----------------     ----------------

</TABLE>

                                      F-45
<PAGE>
<TABLE>
<CAPTION>

d) Additional information required by US GAAP in respect of deferred taxation

                                                                              30 June 2004         30 June 2003
                                                                                   GBP 000              GBP 000
     Deferred tax liabilities                                                            -                    -
                                                                             --------------     ----------------

     Deferred tax assets:
<S>                                                                                     <C>                <C>
     Short term timing differences on accrued expenses                                  888                2,972
     Long term timing differences on fixed assets                                       851                1,301
     Other long-term timing differences                                               1,927                1,332
     Tax losses carried forward                                                       3,342                1,645
                                                                           ----------------      ----------------
                                                                                      7,008                7,250
                                                                           ----------------      ----------------
     Valuation allowance
     Valuation allowance in respect of tax losses                                   (2,000)              (1,645)
                                                                          ----------------       ----------------

     Net deferred tax asset                                                          5,008                5,605
                                                                          ----------------       ----------------

     Of which:
     Current                                                                            -                     -

     Non-current                                                                    5,008                 5,605
                                                                         ----------------       ----------------
                                                                                    5,008                 5,605
</TABLE>

e) Recent accounting pronouncements

UK law has mandated the use of International Financial Reporting Standards
("IFRS") for listed companies reporting within the European Union for financial
periods ending on or after 31 December 2005. NDS Group plc will be subject to
this requirement, commencing with the financial statements for the year ending
30 June 2006. IFRS differ in many respects from UK GAAP and there is a
prescribed methodology for first-time adoption. Not all the standards that will
be applicable on first-time adoption have yet been published in final form. We
have made an initial study of the key differences between UK GAAP and IFRS and
continue to monitor the evolving standards as they are published. We are not
able to ascertain at this time what the effect adoption of IFRS will have on our
reported financial results or financial position.

None of the recent US GAAP pronouncements is expected to have a significant
effect on reported income or net assets of NDS.

                                      F-46