Transcript ADVA AG Optical Networking Annual Press & Analyst Conference
ADVA AG Optical Networking
2001 Extraordinary Shareholders Meeting
Brian L. Protiva, Chief Strategy Officer Andreas G. Rutsch, Chief Financial Officer February 8, 2001, Meiningen
Company overview ADVA’s positioning in the market space
Leading global provider of metro area and enterprise optical networking solutions Leveraging core technology to address exploding market for metro Aggressive organic growth and acquisition strategy Clearly differentiated from competitors Technological expertise Broad product portfolio for enterprise and metro networks Blue-chip OEM partners and direct sales force State-of-art manufacturing capabilities Experienced management team
Optical networking market segments
Long Haul Metro Core CO CO CO Metro Access CP POP POP POP Enterprise CP CP CP CP
CP: Customer Premise, POP Point of Presence, CO: Central Office
CO POP CP
Optical networking growth trends
Global optical networking opportunity 100 80 60 40 20 0 1998 1999 2000 2001 2002 2003 DWDM and Optical Networking SONET/SDH
Source: RHK 1999
Growth in market segments from 2000 to 2004 (CAGR) 140 120 100 80 117% 129% 64% 70% 60 40 20 0 Lo ng ha ul Me tro c or e Me tro a cc es s
Source: Pioneer 2000
En te rpr is e
Broad product portfolio
Product portfolio CO CO CO CO POP POP POP POP CP CP CP CP CP CP
CELL-ACE DiskLink
CP: Customer Premise, POP Point of Presence, CO: Central Office
FSP 3000 FSP 500 FSP-II FSP-I FSP 500
Product pipeline
FSP 3000 enhancements FSP 1000 FSP 2000
Solution benefits Enterprises
enable storage networking across the MAN and WAN scale Gigabit and ATM applications in the MAN extend broadcast video over the WAN low total-cost-of ownership reduce expenditures on dark fiber infrastructure
Service providers
create new revenues with managed high speed LAN services to address high-growth opportunities expand metro network services to the WAN scale metro core network capacity cost effectively reduce expenditures on dark fiber infrastructure for enterprise services
Company strategy
Maintain and expand technology leadership in enterprise segment Leverage enterprise expertise to address metro market demand Facilitate growth through strategic relationships and acquisitions Expand sales and distribution channels Leverage expertise in manufacturing of optical networking systems
Expanding customer base
Enterprises Fortune 1000, banks, automobile manufacturers, insurance agencies, industrial and high tech companies Service providers End-user customers 600 450 300 150 0 1997 1998 1999 Nov 00 Europe Asia-Pacific Americas
Source: ADVA
Sales strategy
OEM partners VARS and distribution partners Direct Increasing direct ADVA sales force Key enterprise and service provider customers Business development team provides network consulting and RFQs/RFPs
Financial highlights
Sales Pro forma operating income* Pro forma net profit* Pro forma diluted earnings per share (EPS)* Number of employees Total assets Total shareholders' equity
Q3 2000
19,890 361 -475
Q3 1999
6,800 163 239
% growth
193% 122% -299%
9M 2000
47,370 1,148 1,146
9M 1999
15,116 770 59
% growth
213% 49.2% -0.01
378 242,253 214,980 0.01
118 35,729 31,809 578% 576% 0.03
378 242,253 214,980 0 118 35,729 31,809 578% 576% Thousands of Euro, except earnings per share and number of employees Unaudited, according to U.S. GAAP *Pro forma consolidated financial results are calculated excluding purchased in-process R&D, amortization of goodwill and depreciation of purchased intangible assets resulting from acquisitions, as well as non-cash charges related to the stock option program.
2000 operational highlights
OEM agreements with Cisco and Siemens 3-year contracts with Verizon, British Telecom, Swisscom and Torch Telecom Strategic marketing relationships with Brocade, Compaq and EMC Establishment of presence in Tokyo, China, Mexico and Chile 2000 Market Engineering Product Line Strategy Award from Frost & Sullivan Completion of R&D and production facility Aggressive acquisition and investment strategy • SAN Ltd.
• • • • Cellware Broadband GmbH First Fibre Ltd. Siemens Norway Telecom R&D Team OptXCon Inc.
Human resources
ADVA employees worldwide 1997 - 2000 398 132 75 24 1997 1998 1999 2000 ADVA employees worldwide 2000 total - 398 50 12 151 71 15 99 Research and development Procurement and production Quality management Sales, service, marketing, product marketing Management, administration, finance, IT Apprentices
Investor relations
Euro 150 100 50 ADVA stock price performance March 1999 - February 2001 Mar. 29, 1999 200-day average ADVA Feb. 5, 2001
Stock information
Security code number Symbol Exchange
Number of shares outstanding (February 5, 2001)
Offering price (March 29, 1999)* Share price (February 5, 2001) Performance since IPO Market capitalization (February 5, 2001) Free float 510300 ADV Frankfurt Stock Exchange (Neuer Markt)
32,059,845
EUR 5.33
EUR 55.00
932% EUR 1.8 billion 32.6% *adjusted for capital increase (effective 1:5 stock split)
Investor relations
ADVA stock price performance vs. Neuer Markt peers during 2000 Aixtron 71% EM T.V.
-91% -69% Brokat Intershop -40% ADVA -100% 0%
Source: www.neuer-markt.de
100% 116% 200% ADVA stock price performance vs. optical networking peers during 2000 Sycamore Lucent Nortel Cisco ONI Ciena Corvis ADVA -100% 0% -64% -82% -36% -28% -52% -72%
Source: www.nasdaq.com
100% 116% 175% 200%
Overview of agenda items
TOP 1: TOP 2: TOP 3: TOP 4: TOP 5: TOP 6: Stock option program 2001 Stock option program UK Employee option bond program 2001 Supervisory Board convertible bonds 2001 Amendment of Articles of Association Convertible and option bonds
Employee participation
Close integration with rise in company valuation Intangible factors Adaptation and flexibility through growth phases
recruitment of top-quality talent involvement in opportunities and risks retaining through financial incentives minimization of cash outflow for personnel expenses open, dynamic company culture transparent, regular flow of information decentralized, flat organizational hierarchy consideration of employee structure and hierarchy further development/adjustment to actual company development orientation to international expectations supplementation of fixed and variable compensation packages
Program overview
prior to IPO Requirements/ goals Participants
Recruiting top quality leadership expertise Retaining liquidity Management
at the time of IPO
Recruiting technical and management expertise Motivating/ incentivizing employees All employees
after IPO
Recruiting technical and management expertise Motivating/ incentivizing employees Acquisitions Management/ leadership Employees Supervisory Board members
Existing shares Stock options Stock options/ option bonds/ convertible bonds
Program overview
Duration 1999 / 2000 stock option program
5 years
TOP 1 Stock option program 2001
4 years
TOP 2 Stock option program UK
4 years
TOP 3 Employee option bond program 2001
3 years
TOP 4 Supervisory Board convertible bonds 2001
3 years
Initial waiting period Exercise periods Performance hurdles
2 years 2 years 2 years 1 year 1 year 1/4 after years 2, 3, 4, 5 2, 3, 4 1/3 after years 2, 3, 4 1, 2, 3 1/3 after years 1, 2, 3 30%, 40%, 50%, 60% 10%, 20%, 30% 30%, 40%, 50% none 10%, 20%, 30%
Exercise price
10-day average trading price prior to granting of options 10-day average trading price prior to granting of options EUR 30.73 (10-day average trading price prior to granting of options) 10-day average trading price prior to granting of option bonds 10-day average trading price prior to granting of convertible bonds
Volume Participants
1,350,000 Executive officers, management, employees 1,380,000 40% executive officers, 3% management of subsidiaries, 42% employees of ADVA AG und 15% employees of subsidiary companies 469,500 1,600,000 27% management, 73% employees 75,000 Members of the Supervisory Board