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KUDELSKI GROUPANNUAL REPORT 2001KUDELSKI SAAll photographs in this document show Kudelski22, route de GenèveGroup employees. They are sometimes in a setting1033 Cheseauxthat evokes their company's activity sector.SwitzerlandTel. 41 21 732 01 01Fax 41 21 732 01 [email protected] GROUP ANNUAL REPORT 2001www.nagra.com

KUDELSKI GROUPANNUAL REPORT 2001KUDELSKI SAAll photographs in this document show Kudelski22, route de GenèveGroup employees. They are sometimes in a setting1033 Cheseauxthat evokes their company's activity sector.SwitzerlandTel. 41 21 732 01 01Fax 41 21 732 01 [email protected] GROUP ANNUAL REPORT 2001www.nagra.com


CONTENTS4 Message from the President6 Key figuresSMART CARDS58 Well-protected data8 Management and Board of Directors10 Kudelski Group companies13 Evolution of the Kudelski sharePHYSICAL ACCESS60 SkiData: world leader70 SportAccess Kudelski: new strategic objectivesTHE YEAR OF CONVERGENCE22 The jigsaw takes shape71 AccessArena: a convergence showcase72 Convergence: creating gateways74 TicketCorner: direct access to consumersMASTERING INTEGRATION24 New companies in the Group: why and how?FIFTY YEARS OF HISTORY76 The spirit of NagraCONSOLIDATION OF EXISTING ENTITIES78 Nagra Audio34 Better control of processes35 More efficient management toolsDIGITAL TELEVISION38 Present throughout the broadcasting process46 Holding all the trump cards50 Nagravision: good progress on the markets80 Directory

In a world in which consumers areconnecting up to value-added servicesand executing transactions on multipleplatforms, it is essential that contentand personal data are protected.The Kudelski Group is committed tosupplying the most advanced solutions,in order to ensure security and preserveprivacy in a simple and user-friendlyfashion.3

Throughout its history, the Kudelski Group has shapedANNUAL REPORT 20014KUDELSKI GROUPMESSAGE FROMTHE PRESIDENTits future through strategic decisions. In 1989 it turnedits attention to pay television systems, enabling itto return progressively to profitability following a difficultperiod. In 1995 the threshold of digital television wascrossed with the signing of a contract with EchoStar.This decisive step allowed the Kudelski Group to achieveThe Kudelski Group has thus chosen to participate inrecord growth in turnover, profits and balance sheet solidity.the EchoStar / DirecTV merger in order to enable its firstclient (EchoStar) to increase its market share in theEach strategic decision is the result of a very complexUnited States in a spectacular fashion. True to the philo-process in which a vision is given concrete form, turnssophy of the Group, the motivation was to ensure thatinto a plan and then becomes reality. The strength of theits clients and partners were able to increase their addedKudelski Group lies in its capacity to face challenges byvalue in terms both of quality and of quantity. The Kudelskitransforming them into stages which, once accomplished,Group has ultimately acted as a catalyst in one of theappear almost obvious.biggest mergers the television sector has ever seen, withthe reward being some extremely interesting spin-offs.Following in the line of previous challenges, the decisionof the Kudelski Group to support EchoStar’s offer to buyThe year 2001 was marked by a series of acquisitionsback Hughes and DirecTV was considered to be highlythat embodied the strategy of convergence. Afterrisky by some financial commentators. Nevertheless,SportAccess and Systems in 2000, SkiData, the undis-it certainly contributed to General Motors’ decision inputed leader in physical access solutions, and TicketCornerfavour of EchoStar’s offer.(ticketing) joined the Group in 2001. Parallel to thefield of digital television, the Kudelski Group has thusestablished a second pillar anchored in the sector ofphysical access to public places. This area should makeup about one third of the Group’s earnings in 2002.

Two other acquisitions, Lysis and Livewire, were madeDespite extraordinary items reducing the profits byin the digital television sector. While Lysis allowed the16.3 million Francs, net earnings for the Group climbedproduct range offered by Nagravision to be roundedto 72 million Francs, a record figure considering thatoff with interactive systems and traffic & scheduling,the environment was less favourable than in the past.Livewire brought new expertise in decoder software intothe Group.In 2002, the difficulties encountered by some operatorswill have a certain impact on the Group, but optimismThe arrival in the Group of these new companies neces-remains high for the financial year as a whole. Whilesitated significant integration efforts. For the Nagravisionthe environment may be uncertain, we are convinced thatteams, the integration was a particularly laborious task,our approach is tailored to the new needs of the market.which led to a total restructuring of the existing organi-The quality of strategy is decisive in such a context andzation. Over and above these aspects, the processdetermines whether market share is gained or lost.enabled the Kudelski Group to set up a stronger salesand marketing structure which is particularly well adaptedFinally, we would like to thank our shareholders for theto the new demands of the market.confidence they have shown us in the difficult moments,especially when the financial markets became anxiousIn 2002, the Kudelski Group must improve its structuresdue to the uncertain short term development of somestill further in order to better respond to the expectationsdigital TV operators in Europe. In this unstable universeof its clients and those of the financial community.there is nevertheless great hope, which is that of seeingSignificant steps were taken in that direction in 2001,otherwise impossible options take on a concrete form.and these should lead to visible results in 2002.Once everything has settled down again, it will probablybe to the benefit of the Kudelski Group.At an operational level, 2001 was marked by a continuation in growth linked to new digital subscribers,Now more than ever, the effort will be sustained in thewhile income relating to complete systems servicescourse of the months to come. Vigilance remains the key.diminished. The new acquisitions have been an importantdriving force behind the increase in earnings. Grossprofit margins have risen strongly due to both externaland internal factors, such as the growth in high valueadded earnings.André Kudelski5

A good financial year 2001 in a volatile environmentThe Kudelski Group achieved total income of CHF 455.4 M( 26.7%), EBITDA of CHF 102.25 M and net incomeof CHF 72.1 M ( 8.2%), after exceptional items ofCHF -16.3 M.200120001999199819971996Total Income455 445359 527214 737112 323107 73966 913Gross Margin269 794178 316103 37172 28954 19033 862Operating Income82 97375 40540 38825 03817 1955 816Net Income72 08666 61835 42716 46810 1092 759EBITDA102 24786 69750 88535 25323 74310 084Equity incl. Min. Interests580 851693 156154 208111 46456 80845 825Net Cash364 114543 61158 66347 60910 3904 6371 173425239170141109Number of employeesFinancial data in kCHFEBITDA: earning before interest, tax, depreciation and amortizationANNUAL REPORT 20016KUDELSKI GROUPKEY FIGURES

Total IncomeGross Margin455 445450 000300 000269 794359 527300 000200 000178 316214 737150 000103 371100 000107 739 112 32372 28954 19066 91333 17Net IncomeOperating Income75 00090 00072 08682 97366 61875 40550 00060 00035 42740 38830 00025 00025 03816 46817 19510 1095 81619962 001Net Cash102 24790 000600 00086 697543 61160 000400 000364 11450 88535 25330 000200 00023 74310 08447 60958 6634 637 10 1

MANAGEMENT ANDBOARD OF DIRECTORS8Claude SmadjaAndré KudelskiPatrick FœtischLaurent DassaultStefan KudelskiGérard LimatNorbert Bucher

BOARD OF DIRECTORSGROUP MANAGEMENTAndré Kudelski (1960)André Kudelski(2)Chairman of the Board and Chief Executive OfficerPresident and Chief Executive Officer (CEO)Joined the Board in 1987Adrienne Corboud Fumagalli (1958)Claude Smadja (1945)(1,2)Corporate SecretaryDeputy Chairman of Board of Directors (since 1.4.2002)Joined the Board in 1999Charles Egli (1948)President of Smadja & Associates, Strategic AdvisoryChief Operating Officer (COO)Norbert Bucher (1931)Nicolas Gœtschmann (1960)(1)Joined the Board in 1992Chief Financial Officer (CFO)Former Senior Vice President of Jacobs Suchard SAJohn Markey (1956)Laurent Dassault (1953)Chief Marketing Officer (CMO)Joined the Board in 1995Manager of Dassault InvestissementsVICE PRESIDENTSJean-Jacques Duvoisin (1943) Finance & AdministrationPatrick Fœtisch (1933)(3)Joined the Board in 1992Jean-Philippe Plantevin (1965) SalesLawyerPhilippe Stransky (1959) R&D and Projects (CTO)Stefan Kudelski (1929)Joined the Board in 1968Michel Varonier (1960) OperationsFounder of Kudelski SA, former Chairmanof the Board and Chief Executive OfficerGérard Limat (1940)Claude Werner (1945) Production & Logistics(1,2,3)Joined the Board in 1995Director of Terramaris International SA, Dassault GroupThe members of the Board are elected for a periodof one year.Since 1.4.2002:(1)Audit Committee(2)Strategy Committee(3)Remuneration CommitteeCharles EgliAdrienne Corboud FumagalliJohn MarkeyNicolas Gœtschmann9

DIGITAL TV AND BROADBAND INTERNETNagravision SANagravision is one of the world’s leading suppliersof integrated security solutions for digital televisionoperators and content providers. These advancedsolutions enable the deployment and operationof interactive applications on any digital platform.Livewire, Inc.Nagravision also supplies security solutions for theLivewire is an American company specializing indistribution of digital content over broadband networks.the development of software for digital decoders,particularly for the cable market.Additionally, Nagravision’s security technology is usedin electronic voting and cyber-administration solutionsNagra SAdesigned for governments and public administrations.Company equally owned with Canal (F).Nagra supplies security systems for analog payNagraCard SAtelevision.NagraCard develops security technology using smartcards for digital television and for all applicationsNagraStar LLCrequiring a high degree of security such as e-commerce,Company equally owned with EchoStar (USA).electronic voting and health cards. NagraCardNagraStar supplies conditional access and smart cardsalso develops solutions designed for universitiesused by EchoStar’s Dish Network American satelliteand corporations.television system and its affiliated companies.The company also offers these partners direct support,Lysis SAmaintenance, security, development and the imple-Lysis offers digital television operators, contentmentation of new solutions in response to the rapidproviders and broadcasters software solutions aimedevolution of the American satellite market.at creating and operating value-added televisionservices, such as pay-per-view, video-on-demand,MediaCrypt AGPersonal Video Recorder and interactive applications.Company equally owned with Ascom (CH). MediaCryptLysis is a leader in content management and rightsoffers fundamental encryption technology (based onmanagement solutions.Ascom’s IDEA algorithm) for secure digital televisionand broadband Internet transmissions as well as forcopyright protection in the media industry.ANNUAL REPORT 200110KUDELSKI GROUPKUDELSKI GROUPCOMPANIES

KUDELSKI SADigital TV and Broadband InternetPhysical Access and Data agra 50%SportAccess ssArenaLysisLysis UK41.25%International SupportNagravisionSpainMadridUnited Kingdom/Rep. IrelandSloughNorth AmericaEl Segundo, CABrazilSão PauloAsia/PacificSingaporeChinaShanghai, BeijingNorth AmericaNashville, TNFranceParisGermanyMunichUnited KingdomSt. AlbansEuropeAustria, France,Germany, Italy,Netherlands, a AudioItalyRomeSkiDataAsiaJapan11

SkiData AGKUDELSKI GROUPSkiData offers integrated access and managementsolutions for ski-lifts, car parks and installations suchas stadiums and exhibition or concert halls. SkiDatasystems include all aspects of managing flows of12people, extending from advance ticket sales to accessANNUAL REPORT 2001PHYSICAL ACCESS AND DATA ACCESScontrol via administrative back office applications.TicketCorner AGTicketCorner is the principal ticketing organization inSwitzerland, covering some 10 000 sporting and culturalevents every year. In addition to its 220 points of sale,TicketCorner boasts a highly efficient call center ande-prica SAoperates the most popular online purchasing siteCompany equally owned with Galenica (CH).in Switzerland. TicketCorner is one of the cornerstonese-prica supplies personalized health card solutionsof the convergence implemented by the Kudelski Group.allowing for the secure management and transmission ofdata in the health sector. These solutions guarantee theNagraID SAprotection of information and the privacy of the patient,NagraID develops and produces modules and smartwho alone is able to authorize access to his personalcards for contact and contactless identification systems.details.The company enjoys a high reputation for the qualityof its production and its original cold-inserting technique.AccessArena AGThe result of a joint venture between Kudelski, WeissePrécel SA Précision électroniqueArena and private investors, AccessArena suppliesPrécel is a company specializing in the manufacturingdestination management solutions comprising a globalof strategic sub-assemblies for the Kudelski Group.digital platform to which service suppliers within a touristMore than 50% of Précel’s work is for custo