Transcript Cautionary Statement Concerning Forward

NDS Group plc
Business Review – Q4 FY06
Abe Peled, Chairman & CEO
Alex Gersh, CFO
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.
Confidential ©NDS Ltd 2006. All rights reserved.
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-toend 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
Today
117 million Digital Pay
TV Households
2010
276.6 million Digital Pay
TV households
Source: iSupply Corporation April 2006
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Digital Pay Television Households
Millions
400
350
300
250
200
150
100
CAGR 18%
50
0
2004
2005
2006
Source: iSupply Corporation April 2006
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2007
2008
2009
2010
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
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NDS Middleware Customers
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Middleware Market Share
March 2006 Market Share by Middleware Vendor
Based 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
NDS Growth and Financial Performance Strongly Affected by
Key Trends in our Major Customers
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 NRE
Hybrid Sat/IP Set-top-boxes
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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
CONTENT
• A content provider wants to
sell content to many people;
this content needs
protection
• Service is (among other
things):
• Content selling is:
– On going relationship with the
customer (recurring revenue)
– Added value to the subscriber
(EPG, DVR, Interactive, etc.)
– Keep your customer (Reduce
Churn)
– No relationship with
specific customer
– One-time revenue from
specific user for specific
content
vs.
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NDS DRM Vision:
Any Content, Any Network, Any Device
Content
-
Music
Ringtone/Tune
Mobile Games
Video Games
Video
Still Images
Proprietary Data
Service Providers
-
Terrestrial Broadcast
Cable
Satellite
Telecom/IPTV
Wireless
Broadband
Fixed Media
Devices
TV & Audio CE Devices
Computing Devices
Mobile Devices
0101010101
1010101010
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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 Systems
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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DVR the gateway to content
IP Messenger
Bluetooth mobile
ecosystem
ASHI
HELLO…
Weather
VOD
VOD
PVR
WiFi /
Ethernet / RF
•PC
Nomad HDD device
Access to
PVR EPG and
stored contents
synchronization
Broadband network
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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 Review
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Revenue Streams
Conditional Access
Integration, development
and support
License fees and royalties
New technologies
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Revenue Model
Annual Revenues from a Typical Platform Customer
New Technologies
Licence Fees & Royalties
Conditional Access
Development, Integration & Support
1
2
3
4
5
6
Years after launch of Platform Customer's Digital Television Service
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7
8
Subscriber Growth
Subscribers
(Millions)
70
60
50
40
65
30
52
44
20
10
0
1
2
3
4
5
7
10
13
19
25
30
34
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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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
59.6%
60.6%
(1)%
Opex
226.8
337.4
(18.4)
Operating
Income
130.7
92.2
38.5
21.8%
16.6%
5.2%
GM%
Margin
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FY06 Performance vs FY05
60%
42%
35%
40%
20%
8%
6%
-8%
0%
-20%
Revenue
Gross
Margin
Opex
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Operating
Income
Diluted EPS
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%
106.2
85.9
24%
7.7
6.9
12%
New Technologies
Other
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Revenue Mix
N ew
T e c hno lo gi
es
15 %
O t he r
1%
FY06
Lic e ns e
F ees &
R o ya lt ie s
13 %
C o ndit io na l
A ccess
6 1%
P ro je c t ,
S ppt , 11%
FY05
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FY06 Operating Expenses
S&M
25.8 4.9
$30.7m up 19%
$285.3m up 19.5%
Operations and R&D
238.8
G&A
42.50.9
0
50
46.5
$42.5m down 2%
100
150
$m
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200
250
Balance Sheet at June 30
As of 30 June 2006
$'000
ASSETS
Current Assets
Cash and Cash Equivalents
Investments (cash>3 months)
Accounts Receivable
Accrued Income
Inventories
Prepaid Expenses
Other Current Assets
As of 30 June 2005
$'000
320,636
184,401
97,716
37,050
39,340
17,031
5,061
339,791
0
73,588
25,391
41,508
15,795
3,595
701,235
499,668
46,239
43,299
66,917
31,925
7,506
33,962
48,537
64,236
20,374
5,121
897,121
671,898
26,966
45,492
26,647
26,245
19,039
16,762
18,336
47,175
25,069
21,097
4,070
13,498
Total current liabilities
161,151
129,245
Accrued Expenses
Deferred Income
33,747
134,529
28,547
87,353
329,427
245,145
Share capital
Additional Paid in Capital
Accumulated deficit and other comprehensive income
64,671
534,668
(31,645)
64,656
498,363
(136,266)
Total shareholders' equity
567,694
426,753
Total liabilities & stockholders' equity
897,121
671,898
Total current assets
Non-current assets
Plant, property & equipment
Intangibles
Goodwill
Severence pay assets
Deferred tax assets
Total Assets
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts Payable
Customer deposits, advanced receipts & deferred income
Accrued payroll costs
Accrued expenses
Income tax liabilities
Other current liabilities
Total liabilities
Stockholders' equity
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Cash-flow
FY06
$101
35.3
FY05
$74
32.6
Movement in working cap
Net cash from operating activity
Capex
Investments and acquisitions
Proceeds from share issuance
Deposits with >3 months term
Net Cash Generated
Balance b/fwd
FX Movement
27.6
163.9
(29.4)
(3.1)
29.6
(184.4)
(23.4)
339.8
4.3
11.1
117.7
(20.5)
0.2
13.3
Balance c/fwd
$320.6
$339.8
Net Income
Non cash items
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110.7
228.6
0.5
Revenue Growth
Guidance
(mid point)
700
650
600
550
500
450
400
$m 350
300
250
200
150
100
50
0
2002
2003
2004
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2005
2006
2007
Operating Income Growth
Guidance
(mid point)
160
140
120
100
$ m 80
60
40
20
0
2002
2003
2004
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2005
2006
2007
Guidance
FY 07
Revenue
$660m – $680m
Operating Income
$150m to $160m
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Customer Progression
New Technologies
Licence Fees & Royalties
Conditional Access
Development, Integration & Support
BSI
CJ CableNet
KDMC
Topway
Tata Sky
Romania DTH
Serbia Broadband
Guangzhou
1
Galaxy
China Cable
Networks
2
Viasat
Chongqing
Guizhou
Hathway
Foxtel
3
Auna
CNS
Versatel
Sichuan
HOT
YES-DBS
Cablevision
Sky Life
4
5
DIRECTV US
Innova DIRECTV LA
BSkyB
NetSat
Sky LA
Sky NZ
Sky Italia
6
Years after launch of Platform Customer's Digital Television Service
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7
8
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
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