Chairman’s Letter

First Half 2016 Results
 

For the first half 2016, total revenues and other operating income increased by 11.6% to reach CHF 481.8 million, with operating income of CHF 33.4 million, which is 6.9% lower as compared to the first half 2015. Net income increased by 115.2% to CHF 21 million compared to the first half 2015.

The Kudelski Group was able to deliver solid performance during the first half 2016 as a result of previous strategic decisions and in spite of adverse market conditions in some countries. More specifically, the Group’s performance during the first half benefitted primarily from the following factors:

  • SKIDATA experienced strong revenue growth primarily in its non-European business, which reflects the solid execution of the company’s strategic expansion plan. The broader application of the percentage-of-completion accounting method (POC) at SKIDATA has also reduced the volatility of the company’s results, which allows us to better report the operational reality.
  • Robust performance of the integrated Digital TV division, in spite of adverse market conditions in South America and in some countries in Europe, demonstrates the division’s diversified customer footprint and product portfolio.
  • Efforts to optimize the Group’s cost structure continue, including through an evolution of the Group’s overall geographic location mix.

iDTV Business

During first half 2016, iDTV revenues were substantially stable compared to the same period in 2015 primarily due to the following factors:

  • Revenues from the Americas region were 20% lower than during first half 2015 due to difficult market conditions in South America. North American revenues were slightly lower than during first half 2015, driven by the volatility of intellectual property licensing revenues. In 2016, intellectual property licensing revenues will be stronger in the second half of the year, whereas in 2015, such revenues were stronger in the first half of the year.
  • Revenues from Europe were comparable to the first half 2015 following the strong performance seen during first half 2015. Despite challenging market conditions, we have been able to achieve solid results in this region.
  • Revenues in the Asia/Pacific and Africa region increased by 51.8%, primarily driven by growth in India, Taiwan, Singapore and South Africa. Our solid performance in this region is the consequence of an optimized product offering targeted for this region as well as the excellent performance of Conax. The growth rate achieved during first half 2016 is materially higher than the 15.6% growth seen in first half 2015.

Public Access

Following important strategic decisions taken in 2015, SKIDATA is realizing the benefits of its extra-European expansion strategy. With global revenues increasing by 51.3% compared to first half 2015, SKIDATA is well-positioned as the global market leader both in terms of market share and pace of growth.

Key customer wins in first half 2016 include the parking systems for the City of San Francisco and for MGM hotels in Las Vegas, Nevada.  These significant projects demonstrate the strong growth momentum seen at SKIDATA.

Kudelski IP & Innovation

Since 2012, the Kudelski IP team has worked to establish the Kudelski Group as an important player in the intellectual property domain. The primary objectives have been to protect the valuable intellectual property that the Kudelski Group develops as a result of our significant investment in R&D, enable opportunities to access relevant third party intellectual property and generate licensing revenues from third parties who use our intellectual property.

With new license agreements signed in 2016 with Verizon, Yahoo, Apple (2nd half 2016), RPX (2nd half 2016) and Hulu (2nd half 2016), Kudelski IP has shown efficiency in delivering concrete results with third parties.  Moreover, the size and stature of the companies licensing our intellectual property confirms the relevance of our portfolio and evidences the importance these companies place on securing appropriate rights from us for the future of their products and solutions.

Cybersecurity

Following the decision taken in 2015 to expand the footprint of Kudelski Security globally, the Group undertook major investments and actions, including :

  • establishing a Kudelski Security HQ. in Phoenix, Arizona to better address the US market;
  • acquiring Milestone, an important player in the US cyber security market, to accelerate our market entry. Milestone serves the cyber security needs of major US corporations;
  • appointing key executives to better address the global cyber security market; and
  • reinforcing the collaboration with technology partners in order to better address client needs.

With these moves, Kudelski Security confirms its position as a global player in the cyber security space, and we expect to continue to reinforce the positioning of Kudelski Security in this high potential sector.  In addition, an important focus will be to further develop the unique, next generation cyber security technologies that will serve as a key differentiator for the Group.

Outlook

During first half 2016, the Kudelski Group took bold decisions that further strengthen our foundation for future development, including:

  • Establishing a dual headquarters structure, with Cheseaux (Switzerland) and Phoenix (Arizona – USA) enabling the Group to be closer to its most important market and to benefit from the USA’s unparalleled potential for new business opportunities, while at the same time maintaining its Swiss and international roots.
  • Though the acquisition of NexGuard, expanding our Digital-TV security offering by adding watermarking technologies in order to better protect content security once it is delivered to the end user. This expansion confirms the positioning of the Group as the key player in global content security.
  • By expanding aggressively Kudelski Security, both in terms of market presence in the USA through the acquisition of Milestone and core expertise by further expanding its high performance executive team.

The Kudelski Group continues to execute its strategy by building the next generation of digital TV technologies, investing in the expansion of its Kudelski Security business, continuing its intellectual property initiatives and expanding the global footprint and revenues of SKIDATA.

For the full year 2016, total revenues and other operating income are expected to exceed CHF 1 billion, and operating income is expected to be between CHF 90 - 100 million.

We would like to take this opportunity to thank our clients, partners, employees and shareholders for their continued trust in this challenging environment, where important efforts are required to deliver sustainable results for the future.

 

Published in the 2016 Interim Report