NDS Group plc Delivers 65% Revenue and 165% Operating Income Growth for 3rd Quarter FY 2000
HEATHROW, United Kingdom--(BUSINESS WIRE)--May 2, 2000--
45% Growth of Digital TV Subscriber Base,
Increasing Income From New Technologies.
Enhanced Operating Margins.
NDS Group plc (NASDAQ/EASDAQ: NNDS), a News Corporation (NYSE:NWS) company, the leading provider of conditional access systems and interactive applications for digital pay TV, today announced its unaudited results for the third quarter of its fiscal year 2000 (FY00).
For the quarter ended 31 March, 2000, NDS saw strong revenue growth of 65% to (pound)41.7 million ($66.3 million) compared to the same period last year. This was driven both by increases in sales of conditional access systems to digital TV operators, who are continuing to see surging subscriber demand for digital TV, and by strong growth in software and services. In particular new technologies revenue showed excellent progress in the quarter with four pilot data broadcasting systems being delivered.
For the quarter, NDS's operating income increased 165% to (pound)7.2 million ($11.4 million) compared to the same period last year. Operating margin expanded from 10.7% to 17.1% for the quarter compared to prior year, benefiting from the strong growth in revenues.
The subscriber base of NDS's pay TV customers has increased by 1.3 million to 16.8 million in the quarter, a 45% increase on the previous year, representing an annualised growth rate of 39%. NDS has also signed a contract with Stream to deliver its VideoGuard conditional access system for a satellite direct-to-home system in Italy.
NDS has also signed a number of significant strategic agreements in the quarter; first with Microsoft Corporation for the integration of NDS middleware technology into the Microsoft TV product family and the joint marketing of interactive applications for digital TV; second with In Flight Network LLC for the supply of software, services and technology for in-flight entertainment; and third with Picturevision Inc for the development and joint marketing of interactive photo applications.
Commenting on NDS's performance, Abe Peled, President and Chief Executive Officer said, "In this quarter we have seen continuing accelerated adoption of our technologies by consumers, as they embrace the wider choice and convenience of digital television, and are starting to experience the excitement that interactive television programs can offer. The new alliances that we have announced this quarter will further extend our reach and allow us to offer our customers better solutions."
Rick Medlock, Chief Financial Officer, commented, "We are very pleased to be able to report another excellent quarter with all our revenue streams showing good progress. Strong revenue growth, combined with healthy gross margins, has enabled us to continue to invest in our new technologies whilst at the same time, delivering outstanding earnings growth. The significant operating margin expansion demonstrates the increasing benefit of NDS's operating leverage."
Key Statistics
(pound)'000 3 months to 31 3 months to 31 %
March 1999 March 2000
---------------------- ----------------- ------------------ ---------
Revenues 25,269 41,726 65%
Operating Income 2,697 7,150 165%
Operating Margin % 10.7% 17.1% 6.4%
Net Income (4,115) 4,898 N/A
Fully Diluted EPS (9.8p) 8.9p N/A
US Dollars '000
----------------------
Revenues 40,135 66,273 65%
Operating Income 4,284 11,356 265%
Operating Margin % 10.7% 17.1% 6.4%
Net Income (6,536) 7,779 N/A
Fully Diluted EPS (15.6(cent)) 14.1(cent) N/A
Other Operating Statistics
----------------------------
Subscriber Additions 0.9 million 1.3 million
(Net)
Subscribers at end of 12.1 million 16.8 million
period
(pound)'000 9 months to 31 9 months to 31 %
March 1999 March 2000
---------------------- ----------------- ------------------ --------
Revenues 78,769 112,361 43%
Operating Income 8,037 15,358 91%
Operating Margin % 10.2% 13.7% 3.5%
Net Income (4,434) 12,701 N/A
Fully Diluted EPS (10.6p) 26.1p N/A
US Dollars '000
----------------------
Revenues 125,109 178,463 43%
Operating Income 12,765 24,393 91%
Operating Margin % 10.2% 13.7% 3.5%
Net Income (7,043) 20,173 N/A
Fully Diluted EPS (16.8(cent)) 41.5(cent) N/A
Other Operating Statistic
-------------------------
Subscriber Additions 2.9 million 3.8 million
(Net)
Subscribers at end of 12.1 million 16.8 million
period
1. For the convenience of the reader only, pounds sterling amounts
have been translated into US Dollar amounts at the exchange rate
of US $1.5883 = (pound)1.00, the closing rate of HSBC Bank PLC on
31 March 2000.
2. Figures for revenue, operating income and margin % refer to NDS's
continuing operations. Results for the digital broadcasting
business sold to Ordinto Investments in July 1999 have been
excluded from prior year comparatives. All figures are UK GAAP.
3. Figures for fully diluted earnings per share are calculated based
on profit from continuing operations before exceptional items and
a fully diluted weighted average number of potential shares
determined in accordance with UK GAAP.
4. An exceptional gain of (pound)5.2 million arose on the disposal
of the business and assets of the digital broadcasting business
to Ordinto Investments (a fellow subsidiary of News Corporation)
on July 1, 1999.
5. Fully diluted EPS is based on the fully diluted weighted average
number of shares in issue during the period. For the 3 months
ended 31 March 2000 there was a fully diluted weighted average of
54,859,839 shares in issue. At 31 March 2000, there were a total
of 52,436,015 shares in issue.
Operational Review
NDS has benefited in the current period from the continuing strong growth in demand for smart cards and set-top boxes for the BSkyB, DIRECTV and Latin American platforms. Other platforms have also experienced growth; the total number of NDS authorised smart cards (a key driver of NDS's growth) in use world-wide now exceeds 16.8 million, up from 13.0 million at June 1999 and 15.5 million at December 1999.
NDS is implementing new platforms in the United States, China, Israel and Italy, and in the quarter, Madritel in Spain achieved its commercial "go-live" ahead of schedule. The other systems on which we are working are expected to launch customer service during 2000. During the quarter, a new contract for a conditional access was signed with Stream, a satellite TV operator in the Italy. In addition, nine new contracts were signed for the NDS Director "shrink-wrapped" conditional access system.
The most widely used interactive TV application in the world, Sky Sports Active - developed by NDS - and successfully launched in the UK by Sky digital in August 1999, has been further extended to include Rugby and Cricket coverage. It has proved a highly popular attraction for sports fans and has begun to demonstrate to consumers, platform operators and channels the real potential of interactive television. Interactive TV is also expected to drive digital platform penetration and thus enhance the growth of NDS' core conditional access revenues.
NDS has commenced work on the development of interactive TV applications for QVC The Shopping Channel and the Discovery Channel, both on the BSkyB digital satellite platform. These are expected to go on air in the next two quarters.
In March, NDS announced a strategic alliance with Microsoft to licence NDS middleware and electronic program guide technology to Microsoft to be included in the Microsoft TV product family. Under the agreement, Microsoft and NDS will jointly market digital TV solutions and will have an ongoing engineering relationship to evolve the joint solution and develop enhanced TV applications and services.
NDS Data Broadcasting has had a very successful quarter with the securing of four pilot systems for major broadcasters around the world and the signing of an agreement with In Flight Network LLC (IFN), a joint venture between News Corporation and Rockwell Collins. IFN will provide live television, recorded video, audio, Internet and email services to airline passengers, both in-flight and on the ground around the world. NDS will provide various software solutions and will act as systems integrator for this project.
In February, NDS entered into an agreement with Picturevision Inc, a subsidiary of Eastman Kodak, to jointly develop and market applications that combine TV, digital photography and the Internet, called NDS Interactive Photo Applications.
In the quarter, NDS has continued to invest heavily in research and development, announcing new technology and products; in particular NDS has announced the launch of NDS Synamedia, an architecture for the secure distribution of digital TV and internet content over ADSL (asymmetric digital subscriber line) and other broadband networks. NDS has also significantly increased its manpower and resources to support the development of Value@TV(TM) interactive technology and XTV(TM). We have also announced the expansion of our R&D operations in China.
Financial Review
Revenues for the quarter to 31 March 2000 were (pound)41.7 million, an increase of 65% over the corresponding period in the previous financial year. For the nine months to 31 March 2000, revenues were (pound)112 million, an increase of 43% over the corresponding period in the prior year.
Operating profits showed an increase of 165% for the quarter to 31 March 2000 in comparison to the corresponding period in the previous financial year, rising to (pound)7.2 million. For the nine-month period, the increase over the corresponding period in the previous financial year was 91% to (pound)15.4 million.
All revenue streams showed growth in both the third quarter over the corresponding period in the previous financial year and, with the exception of other income, over the previous two quarters of the current year. Conditional access revenues continued to grow in line with the growth of platforms using NDS' technology.
Revenues from new technologies amounted to (pound)1.3 million in the quarter. This caption includes revenues from data broadcasting and interactive applications and will include in future periods revenues from other new technologies such as XTV.
Gross margin for the third quarter was 61%, as against 65% achieved in the corresponding period in the previous year due to a change in mix of revenue streams. For the nine-month period, the gross margin was 60% as against 61% in the previous year.
Operating costs increased by 34% in the third quarter over the corresponding period in the previous year and the year-on-year increase for the nine-month period was 31%. This reflects headcount increases over the past 18 months, mainly to bolster NDS's research and development and sales and marketing strength to support the increasing depth and breadth of NDS's product offerings. This was particularly the case for interactive applications and internet-related technologies, and for new markets which NDS is pursuing more aggressively, especially the United States.
Net interest charges for the quarter were (pound)0.2 million in the quarter to March 2000 as against (pound)3.3 million for the quarter to March 1999. This reduction in interest charges was due to the repayment of long-term debt in November 1999.
(pound)7.3m of cash was generated from operations in the quarter enabling indebtedness to News Corporation to be reduced further.
In the quarter, NDS made a commitment to invest up to $2 million in Netlaunch, a technology incubation fund in Israel.
newsalert.com |
