Chairman’s Interview

"SHAPING THE FUTURE OF THE GROUP"

 

Interview with André Kudelski Chairman and Chief Executive Officer of the Kudelski Group

 

How would you characterize 2017 for the Kudelski Group?
In 2017, we have seen simultaneously growing demand for cybersecurity, IoT security and Public Access solutions and softer demand for digital TV solutions. The weaker demand in digital TV is both structural and the result of increased caution by customers concerning new investments.

The slowdown at Conax is a perfect illustration of this trend, in particular in emerging markets. They experienced new demand for Internet TV solutions, but not yet at a level that compensates fully for the weakness of the legacy digital TV market.

To address these market changes, the Group has taken a number of important actions to improve the profitability of its core business, while continuing to ramp up the investments required to seize the new opportunities in cybersecurity, IoT security and Internet TV. The extent of these required investments compounded by the transformation and restructuring constraints have had a negative impact on the Group’s profitability.

With that in mind, how do you foresee 2018?
Overall, 2018 will be a challenging year for the Kudelski Group, mainly due to the evolution of the legacy digital TV market. The transformation launched in the second half of 2017 will continue in 2018, with the primary objective of adjusting the Group’s structure to the new market reality.

The Group will continue to invest in cybersecurity, IoT security, public access and Internet TV and will simultaneously improve the efficiency of the integrated Digital TV business. The newly appointed DTV COO, Morten Solbakken, will drive the business excellence effort with a special focus on improving the cost structure of the iDTV business.

The Group accelerated the transformation of its iDTV business in 2017 - will it pay off in 2018?
The Group’s transformation will not yet realize its full effect in 2018. The process we have launched requires important investments in new high potential sectors together with the streamlining and restructuring of legacy businesses. The restructuring efforts are expected to impact 2018 profitability negatively, and we do not expect to fully realize the returns from new investments this year.

This transformation means building new teams to address new challenges and at the same time launching cost reduction measures, including the downsizing and active reduction of the total number of sites involved with our legacy business. New investments are being made in sectors that are expected to grow fast in future years.

What are the trends in digital TV?
It is well known that the Internet and digitalization are revolutionizing the world, including TV. What is less known is that television is also revolutionizing the Internet. With Internet technologies, the bottleneck of content distribution has disappeared. This means that the major broadcasters and TV operators no longer have the capability of controlling the distribution pipe. This evolution has enabled a number of new small and niche players to enter the market and offer alternative content.

Managing video content requires an in-depth knowledge that is the privilege of those who have worked in the video space for decades. Having this expertise is a clear asset for our Group, and we are positioning ourselves strongly to offer our know-how in this fast changing and challenging environment.

How is the cybersecurity business developing, especially with regards to innovation?
Since the early days of cybersecurity, the Kudelski Group has considered that it had a role to play in this sector; the expertise we gained over three decades in fighting piracy is a real competitive differentiator when fighting cyber hackers.

With Kudelski Security, the Group developed its cybersecurity business first in Switzerland and, since 2015, globally, with a special focus on the US. Today, Kudelski Security is not only an important player in the cybersecurity space, but uniquely positioned for growth in the future, with innovation as a differentiating factor.

The Kudelski Security business is now growing by double digits, both in the US and in Switzerland. We expect this trend to continue in 2018 and beyond. Kudelski Security’s recent innovation includes the advanced features in the Cyber Fusion Center, the security enclave solutions and the advanced secure blueprint solution. Kudelski Security’s investments in innovation are intended to improve the detection and remediation of cyber-attacks and to deliver secure-by-design solutions. Further innovations will be announced in the future.

In Internet of Things Security, what is the Group’ s offering and why is it unique?
The Internet of Things is one of the most promising sectors of the future. With the Internet interacting with the real world, security is critical to avoiding major disasters. The skill and experience required to address adequately IoT security issues are precisely the technologies that the Kudelski Group has developed over the past 20 years. We are investing heavily in the design and development of an advanced secure IoT platform with customization capabilities for specific client projects.

Today, more than 400 million of the Group’s secure devices are in operation around the world. Our expertise in very low power solutions from the Nagra Audio activities is an additional differentiator versus the competition. The strategy of the IoT Center of Excellence is to deliver end-to-end secure solutions, monitor threats and mitigate the consequences in case of communication disruptions and cyber-attacks.

How is Public Access evolving to ensure future growth?
Public Access has been extremely successful over the last decade in terms of revenue growth. This growth has been both organic and through acquisitions. Going forward, Public Access will focus on further organic growth as well as increased operational excellence for higher profitability and better cash generation. Innovation also plays a key role for Public Access, creating competitive differentiation and enabling the company to deliver a better value for its client base.

What are the new innovation opportunities for 2018?
The main focus of the Kudelski Group’s innovation is to further develop its technology portfolio in cybersecurity and IoT security. One of the research areas is the combination of advanced security technologies developed by the Group with blockchain technologies. We consider that this combination is a powerful approach to the future of Internet security.

What will be the distribution to shareholders for fiscal year 2017?
The Group’s dividend policy is based on caution and stability. The ongoing Group transformation will have a short-term negative effect on cash generation, mainly due to restructuring costs.

The Board of directors is proposing a reduced distribution through a return of capital of CHF 0.10 per bearer shares (CHF 0.01 per registered share).

 

Published in the 2017 Annual Report