Annual Report 2016 Connecting, Extending and Assuring the Cloud Contents
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Annual Report 2016 Connecting, Extending and Assuring the Cloud CONTENTS 1 WELCOME 3 SUPERVISORY BOARD Profile 5 Members 23 2016 Key Performance Indicators 5 Report of the Supervisory Board 23 Mission 5 ADVAntages 6 2016 Business Highlights 8 5 BUSINESS OVERVIEW 4 THE ADVA OPTICAL Mission 32 NETWORKING STOCK Technology 32 Market, Target Customers and Growth Drivers 33 2 MANAGEMENT BOARD Stock Information 27 Shareholder Structure 28 Products 36 Brian Protiva 17 Price Development 2016 in Comparison 29 Sales Regions and Marketing 39 Christoph Glingener 18 Investor Relations Review 29 DevOps 42 Ulrich Dopfer 19 Financial Analyst Coverage 30 Quality Management 44 Letter to the Shareholders 20 Investor Relations Contact 30 Compliance and Sustainability 45 2 ADVA ADVA Optical Optical Networking Networking - Annual – ReportAnnual 2016 Report 201 6 Risk Report 69 6 GROUP MANAGEMENT REPORT Outlook 78 Forward-Looking Statements 48 Basis of Preparation 48 Strategy and Control Design 49 7 IFRS CONSOLIDATED General Economic and Market Conditions 49 FINANCIAL STATEMENTS Business Development and Operational Performance 50 Net Assets and Financial Position 57 Consolidated Statement of Financial Position 82 Consolidated Income Statement 83 Events after the Balance Sheet Date 62 Consolidated Statement Restriction of Voting Rights of Comprehensive Income 84 and Share Transfers 62 Consolidated Cash Flow Statement 85 Appointment and Dismissal of Management Board Members 62 Consolidated Statement of Changes in Stockholders’ Equity 87 Changes to Articles of Association 63 Notes to the Consolidated Issuance and Buy-Back of Shares 63 Financial Statements 88 Takeover Bid-Driven Change Notes to the Consolidated Statement of Control Provisions 64 of Financial Position 108 Declaration on Corporate Governance Notes to the Consolidated 8 ADDITIONAL INFORMATION and Corporate Governance Report 64 Income Statement 123 Definition of Aims and Terms for the Rise of Other Disclosures 130 Quarterly Overview 2014 – 2015 153 the Women Portion in the Supervisory Board, the Management Board and in both Leadership Declaration of Compliance with the Multi-Year Overview 2005 – 2015 154 Levels below the Management Board 64 German Corporate Governance Code 150 Glossary 155 Remuneration of the Management Affirmative Declaration and the Supervisory Board 65 of the Legal Representatives 150 Corporate Information 160 Employees 67 Auditors’ Report 151 Financial Calendar 2016 161 ADVA Optical Networking – Annual Report 2016 | Contents 3 1 WELCOME Right across the globe, our team is unified by a shared vision, a shared passion. Our challenge each and every day is to help our customers achieve more. Karsten Geise, Business Development PROFILE ADVA Optical Networking is a company founded on innova- Together, we're building a truly connected and sustainable Welcome tion and driven to help our customers succeed. future. For over two decades, our technology has empowered net- works across the globe. We’re continually developing break- Management thr ough har dwar e and sof t war e that leads the net wor king in- Board dustry and creates new business opportunities. MISSION It’s these open connectivity solutions that enable our cus- ADVA Optical Networking enables next-generation networks. Supervisory tomers to deliver the cloud and mobile services that are vital The Group’s mission is to be the trusted partner for connec- Board to today’s society and for imagining new tomorrows. ting, extending and assuring the cloud. Stock 2016 KEY PERFORMANCE INDICATORS (in millions of EUR, except net promoter score) 60 566.7 Business Overview 51.2 441.9 30.0 48.9 40 41 41.6 41.7 23.4 Management 21.8 Report 330.1 339.2 29 310.7 25.5 21 9.5 Financial 8.6 Statements 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Additional Information Revenues Pro forma Net liquidity Net Promoter Score (%) operating income¹ (as of December 31) Financial PIs Non-financial PI ¹ Pro forma operating income is calculated prior to non-cash charges related to the stock compensation programs and amortization and impairment of goodwill and acquisition-related intangible assets. ² Net liquidity is calculated by subtracting current and non-current financial liabilities as well as current and non-current finance lease obligations from cash and cash equivalents. ³ The Net Promoter Score is obtained by asking customers a single question on a 0 to 10 rating scale: “How likely is it that you would recommend our company to a friend or colleague?” Based on their responses, customers are categorized into one of three groups: promoters (9–10 rating), passives (7–8 rating), and detrac- tors (0–6 rating). The percentage of detractors is then subtracted from the percentage of promoters to obtain a Net Promoter Score. ADVA Optical Networking – Annual Report 2016 | Mission 5 ADVANTAGES FOCUS ON GROWTH MARKETS INNOVATIVE CONNECTIVITY SOLUTIONS ∙ ADVA Optical Networking’s industry-leading engineering ∙ ADVA Optical Networking focuses on growth markets in force is exclusively focused on innovative connectivity the telecom space that have one thing in common: a strong solutions for cloud and mobile services, outperforming the and sustainable demand for innovative connectivity engineering departments of other vendors in this space. solutions. ∙ Focus on innovation drives market success and has made ∙ These markets are driven by the global megatrends “cloud” ADVA Optical Networking the global leader for data center and “mobility” demanding more and better connectivity in interconnect solutions for private enterprises with a mar- all areas of the network. ket share of greater than 27%⁵ and … ∙ The total addressable market for ADVA Optical Network- ∙ … the global market leader for metro data center intercon- ing was estimated to be USD 12.6 billion in 2016 and will, nect solutions for internet content providers and carrier according to industry analysts, grow to USD 16.8 billion neutral providers with a market share of greater than by 2021.4 20%.⁵ 4 Industry analyst estimates for metro and long-haul WDM equipment (“Optical”) and access switching & routing (“Ethernet”) relevant to ADVA Optical Networking. Sources: Ovum, Optical Networks Forecast 2016-2021 and service provider switching and routing forecast 2016-2022, published January 2017 5 Source: Ovum, market share report 3Q16 for data center interconnect, published December 2016 6 ADVA Optical Networking – Annual Report 2016 Welcome Management ADVA Board Supervisory Board Stock Business Overview Management Report TRUSTED PARTNER ∙ ADVA Optical Networking’s unique combination of innova- tion and speed has seen the Group build close partner- Financial SPEED FOR CUSTOMERS ships with customers, resulting in repeat purchases and Statements ∙ ADVA Optical Networking has a strong track record of be- strong cross-selling opportunities for its innovative net- ing first to market with new functionality that adds value working solutions. for customers. Additional ∙ As a trusted partner for two decades, ADVA Optical Net- Information ∙ A responsive team serves customers around the globe, working provides high-quality solutions with lowest cost with 49.3% of ADVA Optical Networking’s 2016 revenues of ownership and best user experience. generated in the Americas, 44.4% in EMEA (Europe, Mid- ∙ ADVA Optical Networking is led by a dynamic, international, dle East and Africa) and 6.3% in Asia-Pacific. experienced and highly-motivated management team with ∙ ADVA Optical Networking’s innovative networking solu- many years of senior management background, making it tions have been deployed by several hundred service pro- a dependable partner when it comes to building long-term viders and thousands of enterprises around the globe. business relationships. ADVA Optical Networking – Annual Report 2016 | ADVAntages 7 2016 BUSINESS HIGHLIGHTS Substantial revenue growth and new customer wins Significant market share gains in relevant categories Several major industry awards highlighting innovation leadership CUSTOMER ACHIEVEMENTS 2016 was a year of major customer success. ADVA Optical Networking’s solutions brought new efficiencies and revenue -op portunities to enterprises in all industries. The Company’s scalable, highly efficient technology was also deployed in mis- sion-critical service provider networks across every continent. And, with the Company’s intrinsic understanding of how to help customers succeed, ADVA Optical Networking was able to exceed many expectations. Here are a few of the highlights from the last 12 months: January 26 City of Cape Town uses ADVA FSP 3000 CloudConnect™ for 400G metro network trial Advanced connectivity links townships and paves way for local community development February 10 Telia Eesti deploys ADVA 100G core throughout national backbone network Simplicity of ADVA Optical Networking’s technology key to selection February 11 Oscilloquartz synchronizes Mobile TeleSystems’ network Innovative PTP frequency and phase synchronization solution addresses growing demand for next-generation LTE services February 19 Accessbolaget uses ADVA FSP 150 to deliver Carrier Ethernet services throughout Sweden Intelligent, scalable Ethernet access solution key to new provider’s service offering 8 ADVA Optical Networking – Annual Report 2016 Welcome Management Board February 23 Supervisory Board DartPoints deploys ADVA Ensemble for pure-play NFV ADVA Optical Networking’s high-performance virtualization solution creates new revenue streams Stock March