Letter to Shareholders

What are your key reflections about the Group’s performance in 2021?

Despite the challenging and volatile global environment, we set high expectations for 2021 in terms of growth, profitability improvement and strengthening of our balance sheet. I am pleased that our teams were able to deliver. The Group’s net debt has been reduced by more than 50% to USD 152 million.  Three of our four business units experienced year-over-year revenue growth, and Digital TV even exceeded our targets. While Public Access continued to suffer from COVID-related restrictions around the world, the measures we took to reduce operating expenses for this segment resulted in a marginally positive operating income for the year.

The ability of our Digital TV business to increase its revenues and further improve profitability reflects the positive impacts of our transformation efforts to make this business more proactive and agile.  Agility was also important for our Public Access business, which experienced significant delays by customers in launching new projects due to the pandemic.  However, the pandemic created some new opportunities, such as demand for touchless solutions and integration of digital COVID certificates, and our teams were able to pivot rapidly to seize upon those opportunities.

At the same time, the Group was able to continue investing in our two growth initiatives, Cybersecurity and IoT, which are areas that saw accelerated demand during the pandemic that we believe will continue.  For these businesses, the key to the Group’s success is our unique ability to leverage our deep experience and expertise in security-related technologies to develop innovative and market-leading solutions for our customers.  Overall, in spite of the difficult global economic conditions, the agility and resilience of our teams position the Group well for the future.


What are the important trends for 2022?

The COVID pandemic has been an extraordinary catalyst for structural change in our society. In particular, two rapidly developing trends emerged during the pandemic that present important growth opportunities for the Group: increased video consumption and work-from-anywhere. Our Digital TV business benefits from the increased appetite of consumers for video content across a variety of devices at home and on-the-go and the growing need of content owners to protect that content against new forms of piracy.  Cyber risks have grown exponentially as the number of IT functions available to employees remotely has suddenly increased. Distributed remote workforces and the resulting digital transformation across a broad swath of society have led to a dramatic expansion of the attack surface for cyber criminals that was simply not present when most employees have to work from dedicated office locations when executing operations requiring security.

Longer term, as the digital transformation of the world continues to gain speed, barriers between virtual and real worlds will become less important. As this happens, cyber threats will spread into new areas, such as IoT and Operational Technologies (OT), which are ill-prepared today to tackle these threats. The rapid adoption of blockchain technologies for a variety of different use cases, from payments to industrial uses, is another example of the digital frontier that is under attack from both traditional and cyber threats.

For the Kudelski Group, these trends present significant opportunities. For Digital TV,  comprehensive content protection, watermarking and anti-piracy technologies are gaining traction as an important means of fighting new forms of piracy. Kudelski Security and IoT are well positioned to protect the new hybrid world where virtual and real co-exist. In this new environment, SKIDATA will also play a key role as the bridge between the virtual and real worlds, offering technologies to support the digital infrastructure needs of real-world customers such as ski resorts, stadiums and airports.


How do you expect the Group to perform in 2022?

After the positive evolution seen in 2021, we expect the Group to continue its positive momentum in 2022, though the strength of our business activities will depend on the aftermath of the pandemic and the evolution of the Ukrainian crisis.

Overall, we expect a progression of the Group’s revenues in 2022, fueled by Kudelski Security and IoT. The challenge is to continue being flexible and adaptable in the face of an environment that will remain challenging and volatile.

The positive trends we are seeing, with a number of resulting business opportunities for the medium- and long-term, are encouraging. The key challenge is to find the right balance between our short-, medium- and long-term priorities. We must invest for the future, while continuing to deliver profitability in the short-term.


What is the status of the Group’s transformation efforts?

Over the last five years, we have made significant progress in our efforts to transform the Group. More recently, our efforts have focused on improving collaboration among our segments. Innovation both drives our business and brings our segments together.  By encouraging closer collaboration around innovation, we are enabling each of our businesses to move beyond their traditional client and technology base, opening up new market segments while also developing new solutions for existing clients. This also helps foster agility among our teams, better positioning the Group in a fast-changing market, and the diversity of opportunities is highly motivating for employees and prospective new talent. 

Our focus on cross-unit collaboration has already resulted in some significant successes. For example, in 2021, Kudelski Security deployed its cybersecurity solutions at Altice and Canal+, two of the Group’s longstanding Digital TV clients. Going forward, digitalization and innovation will create even more opportunities. With the structural transformation efforts we have made, we are well-prepared to benefit from these new opportunities across our business segments.


How did Public Access adapt to the impacts of COVID-related restrictions?

The lockdowns, capacity limits and other COVID-related restrictions mandated around the world have been challenging for our Public Access business over the last two years.  Moreover, the lack of visibility into the future created by the extended pandemic exacerbates the difficulties our customers have in planning for new projects.  Notwithstanding these difficulties, the pandemic also presented some interesting opportunities. For example, demand for the advanced contactless and touchless solutions offered by SKIDATA increased, and quick integration of digital COVID passports into SKIDATA’s entry gates became a competitive advantage as stadiums, ski resorts and other event sites began to re-open. As we move into the post COVID-era, we believe demand for these types of solutions will continue, which positions us well for the future.


What are the prospects for Cybersecurity?

In a world where digitalization is accelerating and where real and virtual worlds are increasingly interconnected, cyber risks are increasing exponentially, and the consequences of cyber-attacks are becoming more serious. That means the need for effective and innovative cybersecurity solutions and services is more important than ever. Kudelski Security is well-prepared to face this demand. With our market-leading solutions and experienced teams, we are continually investing to stay ahead of the constantly evolving cyber threats. For the short-term, we expect continued growth in demand for incident response management services (securing operations after a cyber-attack) and for our comprehensive Managed Security Service offering.


What is the future of IoT?

We expect that our IoT segment will represent an important part of our revenues and our profitability in five years.  As we are in the early phase of IoT adoption, our IoT revenues remain modest, but our involvement in promising new projects and our strategic presence at the silicon level for secure-by-design applications represent a key differentiator for our products and solutions. Our strategy is to focus our growth efforts across three product categories: turnkey IoT solutions (e.g. RecovR), our secure IoT keySTREAM platform and our secure IP core directly embedded in chips (e.g. for IoT communications).  We believe this is the best approach to growing our business in a sustainable manner for the long-term.


What will be the main growth drivers for the Group in the future?

Two of our most promising growth drivers are IoT and Cybersecurity, both with double digit revenue growth potential. Not only are these markets promising, but the Kudelski Group is well-positioned to be a leading player that will help define the market.

Like many other early-stage markets, both IoT and Cybersecurity are extremely broad in their scope, and our goal is not to serve all possible industry verticals. Rather, our strategy is to offer secure integrated solutions in targeted verticals, including for customers in our traditional Digital TV and Public Access markets, while also developing key technologies as components or subsystems for our selected partners who are building secure-by-design solutions for horizontal markets.

This joint vertical and horizontal approach will benefit fundamentally from the positive synergies among the Group’s four business units. At the same time, this approach will also benefit our Digital TV and Public Access businesses, as they will be able to continue growing their respective market position.


How does the Kudelski Group approach human resources?

We are a company with a rich international heritage and strong family roots, and we promote diversity, equity, inclusion and non-exclusion as being fundamental to our success, while also respecting the geographic diversity of our offices around the world. From the very beginning of our company, one of our core values has been to offer fair opportunities to everyone.

As part of our corporate culture and Swiss heritage, we are very proud of our apprenticeship programs in Switzerland, Europe and the USA. These programs are not only an important way to give back to the communities in which we operate, but more importantly they are critical tools with which we are finding and training employees in a  number of areas facing employee shortages, including cybersecurity. Our apprenticeship programs have been recognized by local and national governments as an important means of opening new opportunities and providing new perspectives to the next generation of workers.


What will be the distribution to shareholders for fiscal year 2021?

Our Board of Directors considers that stability and continuity are important for our shareholders. Therefore, taking into account the Group’s 2021 results and profitability outlook, the Board of Directors is proposing a CHF 0.10 cash distribution per bearer share for approval at the 2022 Annual Shareholders’ Meeting, which is the same amount approved in 2021. It is proposed that CHF 0.05 of this cash distribution be treated as a return of capital.   


Do you have any closing thoughts?

The COVID crisis accelerated digitalization across many areas of our daily lives.   However, many of the trends we saw during the first year of the pandemic were actually more of an acceleration of trends that pre-dated the pandemic, such as virtual meetings and contactless payments. As the world emerges from the pandemic, we see many new opportunities to innovate in our digital world. This means new opportunities for the Group, especially where the virtual world meets the real world and where digital security meets technologies like blockchain and watermarking. The next few years will be a fascinating period, as innovation will flourish and growth opportunities abound. I look forward to the Kudelski Group being an important player in these areas, delivering innovative and market-defining products and solutions for our customers.

André Kudelski, Chairman and Chief Executive Officer

Published in the Kudelski Group 2021 Annual Report