Annual Report 2009

CHAIRMAN'S LETTER

CHAIRMAN'S LETTER

Kudelski Group's business trends improved markedly in 2009. This outcome can be attributed to the success of the strategic initiatives that we began implementing at the end of 2007. For full-year 2009, the Group reported CHF 1.061billion in total revenues and other operating income, CHF 73.3 million in operating income and CHF 51.1million in net income.

In addition to further improving our financials, we completed a number of strategic projects that will have a significant medium- and long-term impact on the Group:

  • We entered into a new 10-year agreement with DISH Network and EchoStar that redefines our relationship with our most important partner of the last 15 years. This new agreement lays the economic foundations for a relationship based on the service mode and offers opportunities for further collaboration in new areas of business.
  • We successfully completed our public tender offer for the remaining shares in OpenTV, which will enable us to redefine our approach to interactive digital TV. This is an extremely dynamic sector, and the total alignment between our digital TV activities and OpenTV is fundamental to improving and accelerating our development programs in the area of interactivity.
  • We set up an R&D center in Beijing in the second half of 2009. This is a key step in our strategic approach to emerging markets. In addition to our natural edge in terms of revenues and costs in these new markets, we now have a center for innovation right at the heart of this fast growing region.
  • We restructured the management of our Digital Television Division in early 2009, significantly increasing this team's bandwidth. This has led us to adopt a more proactive approach to sales and marketing as well as to new strategic initiatives.

Besides the strategic projects listed above, 2009 was a watershed year for Kudelski Group. Over the past twelve months, we were able to position ourselves optimally in anticipation of future challenges. More concretely, several powerful trends have emerged in the digital TV market, and we are poised to fully benefit from opportunities that arise, thanks to the following factors:

  • Strengthened partnerships with our main clients: Historically, Kudelski Group served the needs of digital TV operators. Today, we are positioned as an active and privileged partner of these operators - our clients. The changeover to service mode further aligned the strategic interests of the Group with those of its main clients, and this has led to several innovations. Furthermore, our massive investments in R&D have equipped us with the innovative firepower we need to develop new, high value-added services for the benefit of operators. The numerous launches that we announced in recent months, including TV widgets, CI+ modules and set-top boxes with geo-control technology, are just a few examples of such initiatives.
  • Opportunities in emerging markets: Emerging-market countries will undeniably be one of the main growth drivers of the global economy in the coming years. The Kudelski Group focused its investments on developing marketing and technological solutions specifically for these markets. Concretely, we experienced strong growth in Asia and Latin America, thanks to our targeted approaches that were tailored to the economic reality of these regions.
  • New solutions: Innovation is another growth vector at the Kudelski Group. In addition to our traditional digital TV technologies, we invested massively in new technologies and new solutions. Examples include digital terrestrial TV (DTT), web-based TV, mobile TV, conditional access modules (CAMs), widgets, and display cards. Other technologies are also set to emerge from our pipeline. All these innovations meet new needs that are tied to or that modify consumer lifestyles.

One of our principal challenges lies in striking a balance between short-term profitability on one hand and sustainable margins and growth on the other. Although it was a difficult process, the transformation we made to our business model over the past two years has left us stronger than ever and prepared for the future. We have a foundation of stable, recurring revenues that reflect high value-added; an excellent position in emerging markets; and the innovative drive to ensure future growth in high value-added segments.Alongside the renewed momentum in our Digital Television Division, we continued to achieve volume growth in the Public Access Division. Despite this market's sensitivity to the economic cycle, this business line proved resilient. It is particularly well positioned for the future economic recovery, in large part because it continued to invest and innovate during this difficult period.

The Kudelski Group's 2009 results and positive outlook for 2010 and further out confirm its growth potential over the medium and long term. At the Kudelski SA shareholders' meeting, the Board of Directors will therefore propose a dividend of CHF 0.30 per bearer share and CHF 0.03 per registered share.

On behalf of the Board of Directors, I would like to thank our clients, our teams and you, our shareholders, for trusting in us. It is because of this trust that we were able to transform our business model over the past two years and begin to reap the rewards of our renewed impetus.

André Kudelski