NDS Group plc Business Review – Q4 FY06 Abe Peled, Chairman & CEO Alex Gersh, CFO.

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.


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


The Global Pay TV Market

2010276.6 million Digital Pay TV households

Today117 million Digital Pay TV Households

Source: iSupply Corporation April 2006


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


End to End Solutions


Key Product Lines

The world’s leading supplier of open end-to-end digital systems for the secure delivery of entertainment


Competitive Landscape


Conditional Access Customers


Interactive Customers

Selected Projects


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%


NDS Middleware Customers


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


DVR Customers


IP TV Customers


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


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


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



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



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


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


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


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


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.


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


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


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


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


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


Financial ReviewFinancial Review


Revenue Streams

Conditional Access

Integration, development and support

License fees and royalties

New technologies


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


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)


CA, PVR, Middleware & Interactive Customers


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%


FY06 Performance vs FY05

8% 6%-8%

42%

35%

-20%

0%

20%

40%

60%

Revenue GrossMargin

Opex OperatingIncome

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%

New Technologies 106.2 85.9 24%

Other 7.7 6.9 12%


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%


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%


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


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


Revenue Growth

050

100150200250300350400450500550600650700

2002 2003 2004 2005 2006 2007

$m

Guidance (mid point)


Operating Income Growth

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007

$ m

Guidance (mid point)


Guidance

FY 07Revenue$660m – $680m

Operating Income $150m to $160m


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


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

NDS Group plc Business Review – Q4 FY06 Abe Peled, Chairman & CEO Alex Gersh, CFO.

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