NDS Group plcNDS Group plc
Business Review – Q4 FY06Business Review – Q4 FY06
Abe Peled, Chairman & CEOAbe Peled, Chairman & CEO
Alex Gersh, CFOAlex Gersh, CFO
Confidential ©NDS Ltd 2006. All rights reserved.
Cautionary Statement Concerning Forward-looking
Statements
This presentation contains 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 and regulatory factors. More detailed information about these and other factors that could affect future results is contained in our filings with the Securities and Exchange Commission. The “forward-looking statements” included in this document are made only as of the date of this document and we do not have any obligation to publicly update any “forward-looking statements” to reflect subsequent events or circumstances, except as required by law.
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NDS Today
NDS is the leading provider of conditional access to digital pay-TV operators worldwide
NDS is also a leader in the provision of end-to-end open software solutions including Middleware, Interactive TV applications as well as Personal Video Recording technology
NDS secures US$32 billion pay TV revenues, with:– 65 million active smart cards– 41.6 million cumulative middleware – 3.5 million cumulative DVRs – Over 40 TV platforms– In 25 countries and 15 languages– 3000 employees globally over 2,500 are technical
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The Global Pay TV Market
2010276.6 million Digital Pay TV households
Today117 million Digital Pay TV Households
Source: iSupply Corporation April 2006
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Digital Pay Television Households
0
50
100
150
200
250
300
350
400
2004 2005 2006 2007 2008 2009 2010
CAGR 18%
Millions
Source: iSupply Corporation April 2006
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End to End Solutions
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Key Product Lines
The world’s leading supplier of open end-to-end digital systems for the secure delivery of entertainment
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Competitive Landscape
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Conditional Access Customers
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Interactive Customers
Selected Projects
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CA Market Share
March 2006 Market Share by CA Vendor Based on Digital Households
Source – Digit June 2006
Others
8%Scientific
Atlanta
9%
NDS
33%Nagra
28%
Motorola
17%
Irdeto
5%
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NDS Middleware Customers
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Liberate
(SeaChange)
7%
NDS
32%
OpenTV
61%
Others
0%
Middleware Market Share
March 2006 Market Share by Middleware VendorBased on Active Digital STBs
Source – Dataix June 2006
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DVR Customers
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IP TV Customers
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Technology Leadership
Investing in R&D to maintain leadership• VideoGuard and VideoGuard DRM, Value@TV, XTV,
MediaHighway• Orbis OpenBet, Visionik Games• Synamedia, Secure Video Processing (SVP), Mobile DRM, XSpace
Business solutions for pay-TV operators to profit from digital TV
• Conditional Access, EPG, Broadcast Control, Middleware• Interactive applications, Games, Betting for fun or profit
Effective commercial distribution of television on broadband IP networks
• Synamedia solution for broadband IP networks• Hybrid Satellite/IP distribution • Service protection and Content protection
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NDS Strategy Summary
• Support Current Customers to Grow Subs
• Sell New Applications and Services to Current Customers
• Win New Pay-TV Customers
• Capitalize on Convergence of Digital Broadcasting and the Internet
• Strategic Alliances & Acquisitions to Gain Market Share and Expand Reach
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Key Actions and Status
Support Current Customers to Grow Subs• NDS authorized sub base reaches 65m, up 14.6% from last year• 24.4m smart cards shipped this year• Good growth on all platforms
Sell New Applications and Services to Current Customers • 21.2m middleware boxes shipped, 104% growth in total number of
deployed middleware STBs this year• 2.1 DVR boxes shipped to 11 customers, 150% growth in total
number of DVRs deployed• Sky Italia launched interactive sport and betting applications using
NDS technology• BSkyB became the first customer to use NDS RapiAD interactive
ad platform• Cartoon Networks launched a series of games using games from
NDS Denmark
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Key Actions and Status
Win New Pay-TV Customers• BOOM TV in Romania, Guangzhou Cable TV in China and Tata Sky in
India have all selected NDS end to end solution to launch their digital television service
• Serbia Broadband is the first customer to select VideoGuard Express solution
• CANAL DIGITAL deploys NDS MediaHighway in Belgium• Premiere of Germany have selected NDS MediaHighway solution for its
new hybrid boxes• Astro TV of Malaysia have also selected MediaHighway solution
Capitalize on Convergence of Digital Broadcasting and the Internet• SES Americom, Telekom Austria and TVB Pay Vision in Hong Kong have
selected NDS Synamedia solution to secure their IPTV service• NDS announced Synamedia Metro, a fully integrated middleware
solution, which is attracting a lot of interest• Orbis new customers this year include Tote, CentreBet, Victor Chandler
and Heathorns• Orbis and NT Media launched the OpenBet Games and OpenBet Casino
platforms on Victor Chandler, PremierBet and Ladbrokes who introduced the new BACKGAMMON game
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Key Actions and Status
Strategic Alliances and Acquisitions to Gain Market Share and Expand Reach
• NDS XTV Ready initiative is gaining momentum with devices from Thomson, Archos, SanDisk, Maxian and Samsung
• NDS is working with partners like DiBcom, Sinao, ARM, Pantech and SanDisk to integrate the VideoGuard Mobile solution into end to end systems
• Working closely with the 30-plus members of the SVP Alliance, including IC and STB manufacturers, broadcasters, studios, and important industry associations, the SVP Licensing Authority has published clear and fair legal framework for licensing that will give SVP wide support in the industry
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Key Medium Term Trends
Multi Room Penetration• Low Cost Second Box Make Economics Positive for Operators • Second Box, US average moving from 2 to 3, Europe from 1 to 1.5
DVR Penetration• Expect major push on DVR, US 100% HH, Europe 50%
HD Penetration• HD boxes and HD DVR will drive major replacement cycle and new
NREHybrid Sat/IP Set-top-boxes
NDS Growth and Financial Performance Strongly Affected by Key Trends in our Major Customers
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NDS DVR Potential
NDS has managed to achieve excellent take up rate of its DVR technology among its existing CA and Mediahighway customers (including those using competitive CA technologies)
These customers present a potential of 46.5m DVR households over the medium-long term
This number is based on current number of households so excludes any growth in the number of subscribers on these platforms as well as the winning of new DVR customers by NDS
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NDS Technology Vision and Products
• Broadband distribution for mass media popular content will not be economically and practically cost-effective over the next >5yrs
• The winning solutions will be hybrid delivery systems that can offer both; the top popular mass media and the ever lengthening and expanding tail of niches
• Our pay-TV customers will evolve to embrace Broadband– By using Broadband as a complementary delivery, e.g. Viasat– By employing Hybrid Sat/IP set-top-boxes to offer VOD, access to
Web entertainment– By broadening their scope and becoming the “entertainment
source” for their customers on all distribution means, e.g. Sky by Satellite, Sky by Broadband, Sky by Mobile, Sky on the GO…
• NDS is developing the products and solutions to enable this vision – VideoGuard DRM, MediaHighway advanced middleware, XSpace
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NDS is focusing on Service and Content Protection
SERVICE• A broadcaster is providing
a service to his customers; this service needs protection
• Service is (among other things):– On going relationship with
the customer (recurring revenue)
– Added value to the subscriber (EPG, DVR, Interactive, etc.)
– Keep your customer (Reduce Churn)
CONTENT• A content provider wants
to sell content to many people; this content needs protection
• Content selling is:– No relationship with
specific customer – One-time revenue from
specific user for specific content
vs.
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Content Service Providers Devices
Devices:- TVs- Cable Set Top Box- DTH Set Top Box- IPTV Set Top box- Terrestrial Set Top Box- DVD Player/Recorder- Video Game Console- Digital Media Adapter- Audio Receivers- Computing Devices- Mobile Handsets- Removable media- Portable Media Player- Multi-function Devices- Auto Entertainment
SystemsMobile Devices
01010101011010101010
- Music- Ringtone/Tune- Mobile Games- Video Games- Video- Still Images- Proprietary Data
Computing Devices
TV & Audio CE Devices- Terrestrial Broadcast- Cable- Satellite- Telecom/IPTV- Wireless - Broadband - Fixed Media
NDS DRM Vision:Any Content, Any Network, Any
Device
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NDS VideoGuard DRM for PCs
• VideoGuard DRM Key supports broadcast/multicast:– TV experience on the PC
• EPG• DVR• PUSH content
• VideoGuard DRM Key supports VOD:– Any PC, Any place
• Kids can take it to their friends• Watch at work• Watch on the road
– Support IPPV on the PC
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VideoGuard DRM for Mobile
• Secure software embedded in mobile handsets• Optimized to secure chipsets such as
– ARM TrustZone– Intel WTP– TI M-Shield
• Optional SIM/USIM supports mobile TV:– 2.5G– 3G– DVB-H– DMB– WiFi– WiMAX– WiBRO
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WiFi / Ethernet / RF
Access to PVR EPG and stored contents
Nomad HDD device
synchronization
PVR
Broadband network
VODVODWeather
IP Messenger
HELLO…
Bluetooth mobile ecosystem
DVR the gateway to content
ASHI
•PC
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XSPACE
• Integrated satellite broadcast & broadband and IP STB
- Most cost effective solution
- Popular, HD, premium broadcast
- Niche, on-demand via IP
• DVR with broadband connection main entertainment gateway into the home
• Seamless integration of Broadcast and on-demand Web based entertainment
—Allows linking of live broadcast to Web content, e.g. MTV to MTV Overdrive
—Allows convenient access to premium Web content
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Financial ReviewFinancial Review
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Revenue Streams
Conditional Access
Integration, development and support
License fees and royalties
New technologies
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Revenue ModelAnnual Revenues from a Typical Platform
Customer
1 2 3 4 5 6 7 8
Years after launch of Platform Customer's Digital Television Service
New TechnologiesLicence Fees & RoyaltiesConditional AccessDevelopment, Integration & Support
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Subscriber Growth
1 2 3 4 5 7 10 1319
2530
34
44
52
65
0
10
20
30
40
50
60
70
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Subscribers(Millions)
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CA, PVR, Middleware & Interactive Customers
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FY 06 vs FY 05
$ million Actual Last Year Inc
Revenue 600.1 556.3 43.8
Gross Margin 357.5 337.4 20.1 GM% 59.6% 60.6% (1)%
Opex 226.8 337.4 (18.4)
Operating Income
130.7 92.2 38.5
Margin 21.8% 16.6% 5.2%
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FY06 Performance vs FY05
8% 6%-8%
42%
35%
-20%
0%
20%
40%
60%
Revenue GrossMargin
Opex OperatingIncome
Diluted EPS
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FY 06 Main Revenue Streams
$ million Act L/Y Inc
Conditional Access 350.7 339.4 3%
Integration, Dev’t 46.9 52.6 (11)%
Licence & Royalties 88.7 71.4 24%
New Technologies 106.2 85.9 24%
Other 7.7 6.9 12%
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Revenue Mix
FY05
FY06
Other1%New
Technologies15%
Project, Sppt, 11%
License Fees &
Royalties13%
Conditional Access
61%
Conditional Access
58%
License Fees &
Royalties15%
Project, Sppt, 11%
New Technologi
es18%
Other1%
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FY06 Operating Expenses
42.5
238.8
25.8
0.9
46.5
4.9
0 50 100 150 200 250
G&A
Operations and R&D
S & M
$ m
$30.7m up 19%
$285.3m up 19.5%
$42.5m down 2%
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Balance Sheet at June 30
As of 30 June 2006 As of 30 June 2005$'000 $'000
ASSETSCurrent Assets
Cash and Cash Equivalents 320,636 339,791 Investments (cash>3 months) 184,401 0 Accounts Receivable 97,716 73,588 Accrued Income 37,050 25,391 Inventories 39,340 41,508 Prepaid Expenses 17,031 15,795 Other Current Assets 5,061 3,595
Total current assets 701,235 499,668 Non-current assets
Plant, property & equipment 46,239 33,962 Intangibles 43,299 48,537 Goodwill 66,917 64,236 Severence pay assets 31,925 20,374 Deferred tax assets 7,506 5,121
Total Assets897,121 671,898
LIABILITIES & SHAREHOLDERS' EQUITYCurrent liabilities
Accounts Payable 26,966 18,336 Customer deposits, advanced receipts & deferred income 45,492 47,175 Accrued payroll costs 26,647 25,069 Accrued expenses 26,245 21,097 Income tax liabilities 19,039 4,070 Other current liabilities 16,762 13,498
Total current liabilities 161,151 129,245
Accrued Expenses 33,747 28,547 Deferred Income 134,529 87,353
Total liabilities 329,427 245,145 Stockholders' equity
Share capital 64,671 64,656 Additional Paid in Capital 534,668 498,363 Accumulated deficit and other comprehensive income (31,645) (136,266)
Total shareholders' equity 567,694 426,753
Total liabilities & stockholders' equity 897,121 671,898
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Cash-flow
FY06 FY05
Net Income $101 $74 Non cash items 35.3 32.6
Movement in working cap 27.6 11.1 Net cash from operating activity 163.9 117.7
Capex (29.4) (20.5)
Investments and acquisitions (3.1) 0.2 Proceeds from share issuance 29.6 13.3
Deposits with >3 months term (184.4)
Net Cash Generated (23.4) 110.7
Balance b/fwd 339.8 228.6
FX Movement 4.3 0.5
Balance c/fwd $320.6 $339.8
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Revenue Growth
050
100150200250300350400450500550600650700
2002 2003 2004 2005 2006 2007
$m
Guidance (mid point)
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Operating Income Growth
0
20
40
60
80
100
120
140
160
2002 2003 2004 2005 2006 2007
$ m
Guidance (mid point)
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Guidance
FY 07Revenue$660m – $680m
Operating Income $150m to $160m
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Customer Progression
1 2 3 4 5 6 7 8
Years after launch of Platform Customer's Digital Television Service
New TechnologiesLicence Fees & RoyaltiesConditional AccessDevelopment, Integration & Support
BSICJ CableNet
KDMCTopway
Tata SkyRomania DTH
Serbia BroadbandGuangzhou
ViasatChongqing
GuizhouHathway
Foxtel
AunaCNS
VersatelSichuan
HOTYES-DBS
CablevisionSky Life
Sky Italia
InnovaNetSatSky LASky NZ
DIRECTV US
DIRECTV LA
BSkyB
GalaxyChina Cable
Networks
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Business Plan
• High visibility - long term contracts & recurring revenues
• Growth profile based on market transition from analog to digital
• Well positioned to capitalize on the changes resulting from the evolving ubiquitous broadband world
• Scaleable operating model