NDS Group plc Announces Strong Results for the Fiscal Year Ended June 30, 2007

NDS Group plc Announces Strong Results for the Fiscal Year Ended June 30, 2007

HIGHLIGHTS

* Revenues for fiscal 2007 up 18% to $709.5 million.

* Operating income for fiscal 2007 up 23% to $160.4 million.

* Diluted net income per share up 34% to $2.33 per share.

* 75.4 million active digital TV smart cards.

* 61.8 million cumulative middleware clients deployed.

* 7.3 million cumulative DVR clients deployed.

NEW YORK and LONDON, Aug. 7 /PRNewswire-FirstCall/ -- NDS Group plc ("NDS" or the "Company") (NASDAQ:NNDS) , a majority-owned subsidiary of News Corporation that supplies open end-to-end digital technology and services to digital pay-television platform operations and content providers, announced today its results for the fiscal year ended June 30, 2007.

Commenting on NDS's performance, Dr. Abe Peled, Chairman and Chief Executive Officer of NDS said, "The transition to digital pay-television across the world is continuing to accelerate, changing the way people are entertained and informed worldwide. It is fueled by declining hardware prices for the underlying technologies and increasingly technology-literate and demanding consumers.

"NDS products and services that secure and enable the digital distribution of television are at the heart of this rapid change in the media landscape. We are pleased with our outstanding security record and with the adoption of our new technologies by our current customers, the most prominent being our DVR technology, now being shipped in 14 accounts across the world, with the fiscal 2007 number close to double the fiscal 2006 number. We are also gratified to see our investments in winning new platforms in Eastern Europe, China and India starting to translate into significant revenues and subscriber additions. Our middleware products have continued to gain acceptance in the marketplace and to outpace the competition. In addition, our Orbis subsidiary has performed very well, introducing new games and winning new customers.

"We have also made progress towards our vision of the convergence of broadcast and broadband delivery with the introduction of a number of pioneering new products, like VG DRM Key, as well as laid the foundation for integration in the home with the acquisition of Jungo. NDS continues to invest in better support for our customers, improving our current technologies and the development of new products and services that will enable our customers to benefit from the opportunities arising form the rapidly changing media distribution landscape."

Alex Gersh, Chief Financial Officer, commented, "2007 was another year of significant accomplishments for NDS. As we continue to invest additional

resources to support our customers and develop new products, we stay focused on achieving our financial goals."

   KEY FINANCIAL MEASURES                                                   Fiscal year ended June 30,                                                     2007             2006    Revenue (in thousands)                         $709,492         $600,123   Operating income (in thousands)                $160,356         $130,729   Operating margin                                   22.6%            21.8%   Net income (in thousands)                      $135,727         $100,950   Diluted net income per share                      $2.33            $1.74      KEY NON-FINANCIAL MEASURES                                                    Fiscal year ended June 30,                                                      2007             2006   Smart card deliveries (in millions)   Quantity delivered in period                       26.3             24.4    Authorized cards (in millions)   Net additions                                      10.4              8.3   At end of period                                   75.4             65.0    Middleware clients deployed (in millions)   Middleware clients deployed in period              18.2             21.2    Acquisitions (1)                                   2.0                -   Cumulative deployments, end of period              61.8             41.6    DVR clients deployed (in millions)   DVR clients deployed in period                      3.8              2.1   Cumulative deployments, end of period               7.3              3.5    Employees   Full-time equivalents, end of period              3,572(2)         2,989     (1)  Acquisitions relates to OpenRG residential gateway middleware        devices, which were developed and deployed by Jungo and that were        recognized at the time of the acquisition of Jungo.    (2)  Includes 136 employees of Jungo, acquired on December 31, 2006.      KEY DEVELOPMENTS IN THE FOURTH QUARTER   * NDS and KT, a leading telecommunications company in Korea, announced     that NDS has been selected by KT as the provider of content protection     solutions for KT's "Mega TV on Demand" television service via broadband.     The new Mega TV service will offer a multitude of video-on-demand     programming services and a range of interactive TV services, including     an electronic program guide developed by NDS.    * NDS announced that it signed a contract with Inteleca, a triple-play     operator in Siberia, Russia, to provide a VideoGuard Express(TM) system     for the planned launch of Inteleca's digital cable television services     in the region.    * Orbis, an NDS company and a leading provider of interactive gaming and     betting solutions, signed an agreement with Sportech, the owner of     Littlewoods Gaming, for Sportech to use Orbis' OpenBet(TM) platform and     Orbis' games content.  Orbis also migrated Australian-based Centrebet     onto the OpenBet platform.    FINANCIAL REVIEW  

Total revenue for the fiscal year ended June 30, 2007 was $709.5 million, an increase of 18% compared to the previous fiscal year.

The increase in conditional access revenues of 13% during the fiscal year ended June 30, 2007 as compared to the previous fiscal year was principally due to the increase in active subscribers and a higher volume of smart cards delivered to customers, especially to new customers in Europe, China and India. Integration, development and support revenues increased by 20% during the fiscal year ended June 30, 2007 as compared to the prior fiscal year, primarily because more projects in the fiscal year ended June 30, 2007 met our revenue recognition criteria as compared to the previous fiscal year. License fee and royalty revenues increased by 21% during the fiscal year ended June 30, 2007 as compared to the prior fiscal year, principally as a result of an increase in active subscribers due to an increase in the number of platform operators and services that deploy our technology. This increase was partially offset by a decrease in the number of middleware clients deployed during the fiscal year ended June 30, 2007 as compared to the fiscal year ended June 30, 2006. The volume of MediaHighway middleware clients deployed in the fiscal year ended June 30, 2006 was unusually high because DIRECTV commenced the initial download of our MediaHighway middleware and other of our related technologies to certain models of set-top boxes in use by their subscribers during that period. The increase in revenues from new technologies of 35% in the fiscal year ended June 30, 2007 compared to the prior fiscal year was principally due to higher revenues from DVR technologies and our advanced middleware, gaming applications and residential gateway devices. The former was largely a result of an increase in the cumulative number of DVR clients deployed in the fiscal year ended June 30, 2007.

In addition to the matters referred to above, comparisons of revenues for the fiscal year ended June 30, 2007 to the prior fiscal year were also affected by the relative weakness of the U.S. dollar over the periods. Approximately 50% of our revenues were denominated in currencies other than the U.S. dollar (principally pounds sterling and euros). We estimate that the weaker U.S. dollar has favorably impacted our total revenues for the fiscal year ended June 30, 2007 by approximately $26 million, or 4%, compared to the prior fiscal year.

Cost of goods and services sold increased by 11% during the fiscal year ended June 30, 2007 as compared to the prior fiscal year principally due to an increase in the number of our employees working on development, integration and support activities for our customers and, to a lesser extent, wage, salary and benefit increases during the period.

Our main operating expenses are employee costs (including the cost of equity-based awards), facilities costs, depreciation and travel costs. Our main operating expenses have increased primarily due to a higher number of employees and the related increase in payroll, employee travel and facilities costs. Employee costs were approximately 24% higher during the fiscal year ended June 30, 2007 as compared to the prior fiscal year. The increase in costs also reflects the full-year impact of investments made in new facilities and infrastructure during the latter part of the fiscal year ended June 30, 2006.

Research and development costs increased by 20% during the fiscal year ended June 30, 2007, compared to the prior fiscal year, principally as a result of a higher employee headcount due to more research and development being performed. Sales and marketing expenses increased by 35% in the fiscal year ended June 30, 2007 as compared to the prior fiscal year as a result of higher employee headcount and travel costs, increased attendance at trade shows and a higher level of corporate communications activities. General and administrative expenses increased by 30% in the fiscal year ended June 30, 2007, compared to the previous fiscal year, primarily due to increased facilities and infrastructure costs, legal expenses, equity compensation costs and business development costs.

In addition to the matters referred to above, comparisons of expenses for the fiscal year ended June 30, 2007 with the prior fiscal year were also affected by the relative weakness of the U.S. dollar. In the fiscal year ended June 30, 2007, approximately 72% of our total expenses were denominated in currencies other than the U.S. dollar (principally pounds sterling, Israeli shekels and euros). We estimate that the weaker U.S. dollar has increased our total expenses in the fiscal year ended June 30, 2007 by approximately $28 million, or 5%, compared to the prior fiscal year.

As a result of the factors outlined above, operating income was $160.4 million, or 22.6% of revenue, for the fiscal year ended June 30, 2007, compared to $130.7 million, or 21.7% of revenue, for the prior fiscal year. Net income for the fiscal year ended June 30, 2007 was $135.7 million, or $2.37 per share ($2.33 per share on a diluted basis), compared to $101.0 million, or $1.80 per share ($1.74 per share on a diluted basis), for the previous fiscal year. We estimate that the weaker U.S. dollar has reduced our operating income in the fiscal year ended June 30, 2007 by approximately $2 million compared to the fiscal year ended June 30, 2006 and that this has reduced our operating margin by approximately 1%.

As of June 30, 2007, we had cash and cash equivalents totaling $592.8 million. Our accumulated cash 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. During the fiscal year ended June 30, 2007, we paid a net $83.2 million in respect of business acquisitions and had a decrease in short-term investments of $184.4 million, primarily as a result of the fact that our short-term investments matured and we did not reinvest such funds as longer-term deposits because the differential in interest rates between longer- and shorter-term deposits was negligible. We had a net inflow of cash and cash equivalents of $267.9 million during the fiscal year ended June 30, 2007, as compared to an outflow of $23.4 million during the prior fiscal year.

FOREIGN EXCHANGE RATES

Average foreign exchange rates used in the year-to-date results are as follows:

                                                   Fiscal year ended June 30,                                                      2007             2006    U.K. Pounds Sterling/U.S. Dollar                  $1.93            $1.78   Euro/U.S. Dollar                                  $1.30            $1.22   Israeli Shekel/U.S. Dollar                        $0.24            $0.22     ABOUT NDS  

NDS Group plc (NASDAQ:NNDS) , a majority-owned subsidiary of News Corporation, supplies open end-to-end digital technology and services to digital pay-television operators and content providers. See www.nds.com for more information about NDS.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This document may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from these expectations due to changes in global economic, business, competitive market, regulatory and other factors. More detailed information about these and other factors that could affect future results is contained in our filings with the U.S. Securities and Exchange Commission. Any "forward-looking statements" included in this document are made only as of the date of this document and we do not have any obligation, nor do we undertake, to publicly update any "forward-looking statements" to reflect subsequent events or circumstances, except as required by law.

   CONTACT   NDS Group plc         Shared Value           Breakaway Communications U.S.   Yael Fainaro          Noah Schwartz          Kelly Fitzgerald   (Investor Relations)  Tel: +44 20 7321 5032  Tel: +1 212 616 6006   Tel: +44 20 8476 8287    CONFERENCE CALL  

Dr. Abe Peled, Chairman and Chief Executive Officer, and Mr. Alex Gersh, Chief Financial Officer, will host a conference call to discuss this announcement and answer questions at 9.00 a.m. New York time (2.00 p.m. London time) on Tuesday, August 7, 2007.

   Dial-in   U.S. toll free:               1 866 832 0717   U.K. free phone:               0800 073 8967   International dial-in:        +44 (0)1452 562 716    Replay (available for seven days)    U.S. toll free replay:    1 866 247 4222   U.K. replay:              0845 245 5205   International replay:     +44 (0)1452 550 000   Replay passcode:           6437458#   

The live webcast and conference call will be available at: http://investor.shareholder.com/nds/webcasts.cfm starting at 9.00 a.m. New York time (2.00 p.m. London time) on Tuesday, August 7, 2007. Please register for the event now by clicking on the "Fourth Quarter Results 2007" link on that page. For those of you who are not able to attend this live broadcast online, the presentation will be recorded and available for viewing on the same page three hours following the original broadcast.

An audio replay will also be available on the NDS website (www.nds.com) from approximately 12.00 noon (London time) on August 8, 2007.

                               NDS Group plc                    Consolidated Statements of Operations    (in thousands, except per       For the three months       For the year    share amounts)                    ended June 30,         ended June 30,                                     2007       2006        2007       2006    Revenue:       Conditional access        $103,734    $90,445    $396,420   $350,667       Integration, development        and support                17,768     10,816      56,201     46,903       License fees & royalties    32,427     18,185     107,349     88,686       New technologies            46,121     33,094     143,495    106,193       Other                        1,827      1,681       6,027      7,674    Total revenue                  201,877    154,221     709,492    600,123    Cost of goods and services    sold (exclusive of items    shown separately below):       Smart card costs           (21,264)   (16,697)    (81,448)   (83,021)       Operations & support       (46,957)   (38,512)   (166,308)  (139,772)       Royalties                   (4,420)    (6,630)    (16,332)   (15,035)       Other                       (1,917)    (1,224)     (4,396)    (4,794)    Total cost of goods and    services sold                 (74,558)   (63,063)   (268,484)  (242,622)    Gross margin                   127,319     91,158     441,008    357,501    Operating expenses:       Research & development     (50,787)   (42,470)   (174,400)  (145,523)       Sales & marketing          (13,151)    (8,946)    (41,354)   (30,713)       General & administrative   (17,579)   (12,065)    (53,551)   (41,083)       Amortization of other        intangibles                (3,218)    (2,415)    (11,347)    (9,453)    Total operating expenses       (84,735)   (65,896)   (280,652)  (226,772)    Operating income                42,584     25,262     160,356    130,729    Interest income                  6,618      4,995      25,296     15,446    Income before income tax    expense                        49,202     30,257     185,652    146,175    Income tax expense              (8,078)   (10,511)    (49,925)   (45,225)    Net income                     $41,124    $19,746    $135,727   $100,950    Net income per share:       Basic net income per share   $0.71      $0.35       $2.37      $1.80       Diluted net income per        share                       $0.70      $0.34       $2.33      $1.74                                  NDS Group plc                        Consolidated Balance Sheets                                                  As of June 30,   (in thousands, except share amounts)         2007       2006    ASSETS   Current assets:    Cash and cash equivalents               $592,750    $320,636    Short-term investments                         .     184,401    Accounts receivable, net                 134,624      97,716    Accrued income                            40,605      37,050    Inventories, net                          54,133      39,340    Prepaid expenses                          19,415      17,031    Other current assets                       3,926       5,061    Total current assets                      845,453     701,235    Property, plant & equipment, net           54,801      46,239   Goodwill                                  124,614      66,917   Other intangibles, net                     63,080      43,299   Other non-current assets                   56,905      39,431   Total assets                           $1,144,853    $897,121    LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities:    Accounts payable                         $22,110     $26,966    Deferred income                           75,777      45,492    Accrued payroll costs                     31,186      26,647    Accrued expenses                          37,473      26,245    Income tax liabilities                    17,693      19,039    Other current liabilities                 18,287      16,762    Total current liabilities                 202,526     161,151    Deferred income                           157,517     134,529   Other non-current liabilities              46,537      33,747    Total liabilities                         406,580     329,427    Commitments and contingencies   Shareholders' equity:    Series A ordinary shares, par value     $0.01 per share, 15,718,904 and     14,873,262 shares outstanding as of     June 30, 2007 and 2006, respectively        157         148    Series B ordinary shares, par value     $0.01 per share, 42,001,000 shares     outstanding as of June 30, 2007 and     2006                                        420         420    Deferred shares, par value     GBP1 per share                           64,103      64,103    Additional paid-in capital               563,388     534,668    Retained earnings (deficit)               56,106     (79,621)    Other comprehensive income                54,099      47,976    Total shareholders' equity                738,273     567,694    Total liabilities and shareholders'    equity                                $1,144,853    $897,121                                  NDS Group plc                   Consolidated Statements of Cash Flows                                        For the year ended June 30,   (in thousands)                              2007        2006  Operating activities:   Net income                               $135,727    $100,950    Adjustments to reconcile    net income to net cash    provided by operating activities:     Depreciation                             19,240      17,058     Amortization of other intangibles        11,347       9,453     Equity based compensation                10,175       6,626     Other                                       795       2,206     Losses on investments                         -           -    Change in operating assets and    liabilities, net of acquisitions:     Inventories                             (14,785)      2,168     Receivables and other assets            (51,407)    (48,429)     Deferred income                          51,504      45,493     Accounts payable and other liabilities   11,357      28,383    Net cash provided by operating    activities                               173,953     163,908    Investing activities:   Capital expenditure                       (25,149)    (29,416)   Short-term investments (net)              184,401    (184,401)   Proceeds from sale of investments               -           -   Business acquisitions, net of cash    acquired                                 (83,215)     (3,118)    Net cash provided by (used in)    investing activities                      76,037    (216,935)   Financing activities:   Issuance of shares                         17,922      29,597    Net cash provided by financing    activities                                17,922      29,597    Net increase (decrease) in cash    and cash equivalents                     267,912     (23,430)    Cash and cash equivalents,    beginning of period                      320,636     339,791   Currency exchange movements                 4,202       4,275    Cash and cash equivalents, end    of period                               $592,750    $320,636  

First Call Analyst:
FCMN Contact:

Source: NDS Group plc

CONTACT: Yael Fainaro, Investor Relations, of NDS Group plc,
+44 20 8476 8287, or Noah Schwartz of Shared Value, +44 20 7321 5032, or Kelly
Fitzgerald of Breakaway Communications U.S., +1-212-616-6006

Web site: http://www.nds.com/

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