Kudelski 2008 Results and New Client Wins

CHESEAUX, Switzerland — The Kudelski Group (SWX:KUD.VX), the world’s leading provider of media content protection and value-added service technology, announces today its 2008 annual results.

Digital TV grows by 26.6%

Digital TV progressed well in the second half, generating a 46.1% net revenue growth compared to the first half. For the full year Digital TV achieved a 15.3% growth rate, 26.6% in constant currency.

Digital TV has remarkably performed in Europe during the second half despite the overall economical environment, with net revenues increasing by 44.5% compared to the first half. On a full year basis, European revenues were 18.2% higher, 24.8% in constant currency. Among the Digital TV reference customers, Portugal Telecom deployed in 2008 the full Nagra solution suite, including conditional access, Quative´s Service Delivery Platform, and NagraGuide Electronic Programming Guide based on OpenTV STB middleware. Nagra acted as the end to end solution integrator. Portugal Telecom provided the largest growth contribution of the Group´s European customers in 2008.

In the Americas, net revenues almost doubled compared to the first half, with the EchoStar card replacement and migration to the service mode as the main driver of this growth. The American Digital TV customer portfolio continues to broaden, with an ongoing inflow of new customers. As an example, TVAzteca, a new customer, was the highest growth contributor of our Latin American Digital TV business in 2008.

Asian Digital TV sales were roughly at the same level as in the first half. While local currency sales did not grow compared to the previous year, the consolidation took place at a high absolute level, following the 56.5% growth rate achieved in 2007.

2008 operating income for the Digital TV segment was over initial expectations at CHF 7.3 million, posting a recovery in the second half.

Within Digital TV, new business areas continued to grow on an aggregate basis compared to the previous year, but still generated a single digit million operating loss.

Impact of the migration to the service model

In early 2008, the Group stated the intention to push for the migration of the majority of its installed base of cards to the service model. The Group is successfully delivering on this plan, having completed the migration of over 25 million cards to the service model in 2008, in addition to the natural growth of its “service mode” installed base by more than 7 million units.

The massive migration from the sales to the service mode during 2008 includes EchoStar, Bell Express-VU and Digital+.

In 2008, the Group also replaced 10 million new generation smart cards for other operators accounted for in the service model.

The aggregate P&L impact, without migration costs, R&D costs and impairments, of the service model migration and service model card replacements in 2008 totaled CHF 92 million.

Middleware and Advertising in line with expectations

At Group’s level, the Middleware and Advertising top line was affected by the USD weakness, with a slight 1.6% decrease of nominal revenues.

On the positive side, the aggregate Asian and African revenue base has been nominally growing at 11.5%, 23.9% in constant currency, notably benefitting from the strong development of the Indian market.

On the other hand, the European business was weak in 2008 reflecting a slow down affecting two large accounts. Exchange rate effects further accentuated the slow down, with European revenues down by 6% in constant currency and by 15.4% in Swiss Francs compared to the previous year.

At CHF 10.2 million, operating income for the Middleware and Advertising segment was positive for the first time, with the business notably succeeding in realizing initial quick wins envisaged upon the acquisition of a controlling stake in OpenTV.

OpenTV

The Kudelski Group has submitted today a non binding proposal to acquire the outstanding Class A ordinary shares of OpenTV at $1.35 per share in cash.

Client wins

During 2008, the Digital TV division has continued to win new contract in both traditional and new business areas. In addition to the already announced contracts, the following deals are communicated in this press release:

• China Network Systems (CNS)

  Nagravision, a Kudelski Group company, announces today that it was selected by China Network Systems Co., Ltd (CNS) one of Taiwan’s largest cable based television providers to protect the content rights and revenues of its new premium and high definition services and will start deploying Nagravision’s new generation smartcard in mid-2009. The Kudelski Group has expanded its already strong foothold in Taiwan, servicing all independent operators. By providing service to CNS, Nagravision will extend its presence in Taiwan to over 1 million subscribers of CNS. In addition to digital TV services CNS offers a full range of high-speed internet and telephony services making it one of the largest triple play providers in Taiwan.
   

• China Mobile Multimedia Broadcasting (CMMB)

  Nagravision and mobile TV operator China Satellite Mobile Broadcasting Corp. (CSMBC), have entered the second deployment phase for China’s national mobile TV service called China Mobile Multimedia Broadcasting (CMMB). A Nagravision conditional access system (CAS) solution now secures all CMMB services covering 150 cities in China. During phase two of the deployment, an additional 188 cities will be secured by the Nagravision CAS. Nagravision will also secure the full nationwide satellite coverage which extends the service to rural areas.

  CSM has recently announced that more than 120 companies have launched over 200 CMMB devices and Nagravision is on schedule to complete integration with more than 150 devices by the second quarter of 2009. Nagravision is integrating conditional access into devices such as mobile phones, pocket TVs, and PC dongles. The company will also provide integration for platforms, reference designs and application processors in order to increase the number of secure devices available and to accelerate the adoption of conditional access. In anticipation of continued service growth, Nagravision has received a firm order for four million secure chips to be delivered in the first half of 2009.
   

• TV Azteca

  TV Azteca has implemented the first commercial launch of DTT PayTV in Mexico, leveraging the operator’s own retail outlet (Elektra). This launch shows a huge growth potential, initially in Mexico city, Nationwide thereafter. TV Azteca has selected Nagravision to provide a comprehensive solution including CAS, various applications and a Set-Top-Box reference design (including industrial design).

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