NDS Group plc Reports Fiscal Year 2008 Results

NDS Group plc Reports Fiscal Year 2008 Results

Earnings Release for the Fiscal Year Ended June 30, 2008

HIGHLIGHTS

- Revenues for fiscal 2008 up 20% to $850.1 million.

- Operating income for fiscal 2008 up 21.8% to $195.4 million.

- Diluted net income per share up 16.7% to $2.72 per share.

- 90.3 million active devices protected by NDS conditional access technology at end of period.

- 92.5 million middleware clients deployed at end of period.

- 13.1 million DVR clients deployed at end of period.

NEW YORK and LONDON, Aug. 5 /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, 2008.

Commenting on NDS's performance, Dr. Abe Peled, Chairman and Chief Executive Officer of NDS, said, "NDS has completed another year with strong results on all our key metrics, subscriber growth, middleware and DVR shipments, and strong performance of our Orbis subsidiary. Our fiscal 2008 performance has benefited from continued strong execution and key new customer wins. Of particular note are our successful penetration of the German cable and satellite market, and our wins in India and Malaysia. We also extended the terms of our CA contracts with our largest customers. Our reported performance benefited overall from the continued weakness of the U.S. dollar. Unfortunately, as we look into fiscal 2009, the continuing strength of the Israeli shekel will make fiscal 2009 a very challenging year. We plan to invest in our business in order to continue to provide first rate technology and support to our customers in their current business, as well as to prepare for the challenges and opportunities presented by the rapid penetration of broadband and the changing viewing patterns it makes possible."

   KEY FINANCIAL MEASURES                                                  Fiscal years ended June 30,                                                     2008             2007    Revenue (in thousands)                        $850,148         $709,492   Operating income (in thousands)               $195,384         $160,356   Operating margin                                  23.0%            22.6%   Net income (in thousands)                     $160,095         $135,727   Diluted net income per share                     $2.72            $2.33     KEY NON-FINANCIAL MEASURES                                                  Fiscal years ended June 30,                                                     2008             2007    Smart card deliveries (in millions)   Quantity delivered in period                      37.3             26.3    Number of devices protected by NDS    conditional access (in millions)   Net additions                                     14.9             10.4   At end of period                                  90.3             75.4    Middleware clients deployed (in millions)   Middleware clients deployed in period             30.7             18.2    Acquisitions(1)                                     -              2.0   Deployments, end of period                        92.5             61.8    DVR clients deployed (in millions)   DVR clients deployed in period                     5.8              3.8   Deployments, end of period                        13.1              7.3    Employees   Full-time equivalents, end of period             3,961            3,572(2)    

(1) Represents 2.0 million OpenRG(TM) residential gateway middleware devices developed and deployed by Jungo that were recognized at the time of the acquisition of Jungo on December 31, 2006.

   (2) Includes 136 employees of Jungo, acquired on December 31, 2006.      KEY DEVELOPMENTS IN THE FOURTH QUARTER  

-- Our Board of Directors announced the receipt of a proposal from News Corporation and two newly incorporated companies formed by funds advised by Permira Advisers LLP (the Permira Newcos). The proposed transaction, if consummated, would result in NDS ceasing to be a public company and the Permira Newcos and News Corporation owning 51% and 49% NDS's outstanding equity, respectively, subject to dilution by management equity and employee options. There can be no assurance that any extraordinary transaction involving us will be approved or completed.

-- We opened sales and support offices in Munich, Germany and New Delhi, India, strengthening our ability to serve customers and to develop new business opportunities in these markets.

-- Russian media giant Sistema Mass Media chose NDS's VideoGuard Mobile(TM) to secure its mobile TV service, available to all Russian mobile subscribers irrespective of network provider, and the NDS Unified Headend(TM) to manage and secure delivery over mobile and IP networks to set-top boxes, PCs and handsets, resulting in a truly convergent service for the Russian market.

-- SkyLife, Korea's first and only digital satellite Pay TV operator, expanded its long-standing relationship with NDS by introducing NDS VideoGuard(R) conditional access and MediaHighway(R) middleware to secure and power its new live HD broadcast service.

-- Cox Communications, the third largest cable operator in the USA, chose NDS to develop a next-generation video user interface (UI) to enhance its Pay TV offering.

-- Australia's leading subscription television provider, FOXTEL, selected a next generation Electronic Program Guide (EPG) and XTV(TM) technology from NDS to power its new HD DVR

-- SKY Television New Zealand has selected NDS's next generation EPG and XTV(TM) DVR technology to power its new MY SKY HDi DVR. SKY expects to deploy over 80,000 MY SKY HDi DVRs in the next financial year.

-- Gateway Broadcast Services (GBS) selected NDS MediaHighway middleware and EPG to power its GTV Pay TV platform for Sub-Saharan Africa. In February 2007, GBS chose VideoGuard to secure its platform.

FINANCIAL REVIEW

Total revenue for the fiscal year ended June 30, 2008 was $850.1 million, an increase of 20% compared to the previous fiscal year.

Revenue from conditional access increased by 17% during the fiscal year ended June 30, 2008, as compared to the fiscal year ended June 30, 2007. The increase was principally due to recognition of a portion of security services revenue previously deferred as certain remaining revenue recognition criteria were satisfied during the fiscal year ended June 30, 2008. Additionally, conditional access revenue rose due to the growth of the subscriber base of our customers, offset in part by certain price reductions, as well as an increase in customers and a higher volume of smart cards delivered to customers. Integration, development and support revenues in the fiscal year ended June 30, 2008 was consistent with that recognized in the fiscal year ended June 30, 2007. The recognition of revenues from new customers and from the delivery of enhancements to several of our major customers is dependent on the timing of satisfaction of all of our revenue recognition criteria and, therefore, this component of our revenues tends to fluctuate from period to period; however, during the periods under review there was little change. License fee and royalty revenues increased by 12% during the fiscal year ended June 30, 2008, as compared to the fiscal year ended June 30, 2007, principally as a result of higher middleware royalty revenues as well as higher conditional access and EPG royalties. The increases in royalties were due to an increase in the number of platform operators and service providers that deploy our technology and by the growth in the number of new set-top boxes deployed or manufactured. Middleware royalties are driven by the number of middleware clients deployed, the number of which is disclosed in the table above. The increase in revenues from new technologies of 40% in the fiscal year ended June 30, 2008, compared to the fiscal year ended June 30, 2007, was principally due to higher revenues from our DVR technologies, advanced middleware, IPTV, gaming applications and residential gateway devices. Revenue from our DVR technologies and advanced middleware is driven by the number of DVR clients deployed (disclosed in the table above) and the level of integration and development revenue recognized.

Cost of goods and services sold increased by 19% during the fiscal year ended June 30, 2008, as compared to the fiscal year ended June 30, 2007, principally due to an increase in the number of our employees working on development, integration and support activities, as well as increased royalties paid to third parties for the use of their technologies and higher deliveries of smart cards during the periods. The increases were partially offset by lower smart card unit costs.

Our main operating expenses are employee costs (including the cost of equity-based awards), facilities costs, depreciation, travel costs and legal expenses. Our main operating expenses have increased primarily due to a higher number of employees, facilities expenses and legal costs. Employee costs were approximately 23% higher in U.S. dollar terms during the fiscal year ended June 30, 2008, as compared to the prior fiscal year.

Research and development costs increased by 14% during the fiscal year ended June 30, 2008, as compared to the fiscal year ended June 30, 2007, principally as a result of a higher number of employees working on an increased number of projects. Sales and marketing expenses increased by 18% in the fiscal year ended June 30, 2008, as compared to the fiscal year ended June 30, 2007, primarily 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 40% in the fiscal year ended June 30, 2008, as compared to the fiscal year ended June 30, 2007, primarily due to increased legal expenses, as well as equity compensation costs and facilities and infrastructure costs.

We estimate that the weaker U.S. dollar increased our revenue by approximately $27 million and increased our operating income by approximately $12 million during the fiscal year ended June 30, 2008, compared to what would have been achieved had foreign exchange rates been consistent with those prevailing in the prior fiscal year. This is inclusive of a gain of approximately $17 million arising on currency purchased at favorable prices.

As a result of the factors outlined above, and, in particular, the increase in conditional access and new technologies revenue and the impact of foreign currency exchange rate movements, operating income was $195.4 million, or 23.0% of revenue, for the fiscal year ended June 30, 2008, compared to $160.4 million, or 22.6% of revenue, for the fiscal year ended June 30, 2007.

During the fiscal year ended June 30, 2008, we incurred other expenses of $2.5 million in legal and professional fees associated with the proposed transaction announced by News Corporation and Permira. Further costs associated with this transaction are expected to be incurred in the fiscal year ending June 30, 2009.

As of June 30, 2008, we had cash and cash equivalents totaling $735.0 million. During the fiscal year ended June 30, 2008, cash from operating activities was $141.9 million and we paid a net $10.5 million in respect of business acquisitions. We had a net inflow of cash and cash equivalents of $124.7 million in the fiscal year ended June 30, 2008, compared to $267.9 million in the fiscal year ended June 30, 2007. During the fiscal year ended June 30, 2007, short-term investments of $184.4 million matured and we did not reinvest such funds.

FOREIGN EXCHANGE RATES

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

                                                 Fiscal years ended June 30,                                                     2008             2007    U.K. Pounds Sterling/U.S. Dollar                0.4992           0.5178   Euro/U.S. Dollar                                0.6816           0.7664   Israeli Shekel/U.S. Dollar                      3.7962           4.1572   Indian Rupee/U.S. Dollar                       40.2190          44.0530     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.

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 5, 2008.

   Dial-in   U.S. toll free:         1 866 832 0732   U.K. freephone:         0800 073 8968   International dial-in:  +44 (0)1452 562 717    Replay (available for seven days)   U.S. toll free replay:  1 866 247 4222   U.K. freephone replay:  0800 953 1533   International replay:   +44 (0)1452 550 000   Replay passcode:        53530189#    

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 5, 2008. Please register for the event now by clicking on the "Fourth Quarter Results 2008" 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 7:00 a.m. New York time (12:00 noon London time) on August 6, 2008.

                               NDS Group plc                   Consolidated Statements of Operations    (in thousands, except    For the three months ended  For the years ended    per share amounts)                   June 30,              June 30,                                      2008       2007       2008       2007    Revenue:   Conditional access              $98,905   $103,734   $463,409   $396,420   Integration, development    & support                       18,175     17,768     56,062     56,201   License fees & royalties         31,123     32,427    119,803    107,349   New technologies                 63,959     46,121    201,580    143,495   Other                             4,861      1,827      9,294      6,027    Total Revenue                   217,023    201,877    850,148    709,492    Cost of goods and    services sold                  (81,781)   (74,558)  (318,540)  (268,484)    Gross margin                    135,242    127,319    531,608    441,008    Operating expenses:   Research & development          (53,152)   (50,787)  (198,898)  (174,400)   Sales & marketing               (12,474)   (13,151)   (48,850)   (41,354)   General & administration        (21,985)   (17,579)   (75,183)   (53,551)   Amortization of intangibles      (3,347)    (3,218)   (13,293)   (11,347)    Total operating expenses        (90,958)   (84,735)  (336,224)  (280,652)    Operating income                 44,284     42,584    195,384    160,356    Interest income, net              5,645      6,618     27,103     25,296   Other expenses                   (2,498)         -     (2,498)         -    Income before income    tax expense                     47,431     49,202    219,989    185,652    Income tax expense              (10,292)    (8,078)   (59,894)   (49,925)    Net income                      $37,139    $41,124   $160,095   $135,727    Net income per share:       Basic net income        per share                    $0.64      $0.71      $2.76      $2.37       Diluted net income        per share                    $0.63      $0.70      $2.72      $2.33                                  NDS Group plc                        Consolidated Balance Sheets                                                            As of June 30,   (in thousands, except share amounts)                   2008         2007    ASSETS     Current Assets:     Cash and cash equivalents                        $734,992     $592,750     Accounts receivable, net                          126,131      134,624     Accrued income                                     46,948       40,605     Inventories, net                                   79,659       54,133     Prepaid expenses                                   24,904       19,415     Other current assets                                4,203        3,926    Total current assets                              1,016,837      845,453    Property, plant and equipment, net                   49,741       54,801   Goodwill                                            134,693      124,614   Other intangibles, net                               55,806       63,080   Deferred tax assets                                  17,370       11,600   Other non-current assets                            101,702       45,305    Total assets                                     $1,376,149   $1,144,853    LIABILITIES AND SHAREHOLDERS' EQUITY   Current Liabilities:     Accounts payable                                  $33,611      $22,110     Deferred income                                   128,318       75,777     Accrued expenses                                   87,115       68,659     Income tax liabilities                             24,513       17,693     Other current liabilities                          20,673       18,287    Total current liabilities                           294,230      202,526    Deferred income                                      79,100      157,517   Accrued expenses                                     67,713       42,883   Other non-current liabilities                         4,701        3,654    Total liabilities                                   445,744      406,580    Commitments and Contingencies:   Shareholders' Equity:     Series A ordinary shares, par value $0.01 per      share (16,250,058 and 15,718,904 shares      outstanding as of June 30, 2008 and 2007,      respectively)                                        162          157     Series B ordinary shares, par value $0.01 per      share (42,001,000 shares outstanding as of June      30, 2008 and 2007)                                   420          420     Deferred shares, par value 1 pound sterling      per share (42,000,002 shares outstanding      as of June 30, 2008 and 2007)                     64,103       64,103      Additional paid-in capital                        590,663      563,388     Retained earnings                                 216,201       56,106     Other comprehensive income                         58,856       54,099    Total shareholders' equity                          930,405      738,273    Total liabilities and shareholders' equity       $1,376,149   $1,144,853                                  NDS Group plc                   Consolidated Statements of Cash Flows                                                         For the years ended                                                              June 30,   (in thousands)                                         2008         2007    Operating activities:   Net income                                         $160,095     $135,727    Adjustments to reconcile net income to net    cash provided by operating activities:     Depreciation                                       22,368       19,240     Amortization of other intangibles                  13,293       11,347     Equity-based compensation                          17,128       10,175     Other                                                 654          795      Change in operating assets and      liabilities, net of acquisitions:       Inventories                                     (25,526)     (14,785)       Receivables and other assets                    (59,677)     (51,407)       Deferred income                                 (25,876)      51,504       Accounts payable and other liabilities           39,464       11,357    Net cash provided by operating activities           141,923      173,953    Investing activities:   Capital expenditure                                 (16,823)     (25,149)   Short-term investments (net)                              -      184,401   Business acquisitions, net of cash acquired         (10,466)     (83,215)    Net cash (used in) provided by investing    activities                                         (27,289)      76,037    Financing activities:   Issuance of shares                                   10,030       17,922    Net increase in cash and cash equivalents           124,664      267,912    Cash and cash equivalents, beginning of period      592,750      320,636   Currency exchange movements                          17,578        4,202    Cash and cash equivalents, end of period           $734,992     $592,750  

First Call Analyst:
FCMN Contact:

Source: NDS Group plc

CONTACT: Investor Relations: Yael Fainaro, NDS Group plc,
+44 20 8476 8287; or Kelly Fitzgerald, Breakaway Communications U.S.,
+1-212-616-6006

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

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