Corporate | 24 March 2021 09:00
ADVA unveils path to higher profitability at 2021 capital markets day
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DGAP-News: ADVA Optical Networking SE
/ Key word(s): Capital Markets Day
ADVA unveils path to higher profitability at 2021 capital markets day ADVA is transforming its operating model and expects solid growth over the coming years with higher pro forma operating income targeting 10% of revenues
– New applications and growth verticals to contribute 40% of revenues by 2023 – Software and services to contribute 30% of revenues by 2023 – Verticalization with optical sub-module revenues to contribute 10% of revenues by 2023.
– New applications and growth in new verticals – Software and service revenue expansion – Verticalization opportunities
A fundamental change of business model
Increased growth in software and services will positively impact customer retention and further increase ADVA’s margins. “In recent years, we’ve been steadily increasing the share of software and services in our revenue to around 20%. In 2020, the contribution grew further to 23%,” stressed Brian Protiva, citing that 30% revenue contribution is a priority during the next three years. ADVA is going to leverage new tools and products in this area. State-of-the-art software licensing platforms, the ramp-up of new NOS (network operating systems) products and the expansion of partnership models for IT will be key to increase the software share. The company sees a higher attachment rate through software and new services, including AI-based risk mitigation and predictive maintenance. Control of crucial parts of the value chain is a key aspect in the telecommunication industry. This includes components and subsystems that either ensure additional differentiation on the product side and increase competitiveness or decisively improve the cost basis of ADVA’s own solutions. Brian Protiva emphasized the excellent network of partners in the field of electro-photonic components. “However, we’ve also launched our own activities in the field of photonic integration. With a key focus on optical transceivers, we launched a family of highly integrated multiplexers and will further expand this product line. These pluggable modules are required in large quantities in our own systems and provide increasing value for neighboring technology areas. With our activities around photonic integration, we are sustainably improving our cost base and opening new markets,” said Brian Protiva. The company aims for a revenue contribution from these modules to grow to 10% in the next three years and 15% in the next five years.
Cash flow generation and capital allocation for value creation
The company introduced a cost improvement program in 2019 with the clear goal to keep OPEX stable in 2020. In the financial year 2020, OPEX was EUR 165.2 million, even EUR 5.3 million below the EUR 170.6 million the company saw in 2019. “Our cost improvement measures showed the expected effects, but, like many other companies, we also saw cost savings from lower travel activities due to the ongoing pandemic. However, the new normalized cost base will contribute to higher margin levels going forward,” Uli Dopfer emphasized. The CFO reported that gross margins in 2020 already benefited from the investments made in recent years. The company improved its free cash flow from EUR 7 million to EUR 39 million in 2020 and reduced its debt from EUR 81 million to EUR 62.6 million year-over-year. “Without applying IFRS 16, which includes lease liabilities, ADVA is once again cash positive. With gross leverage of only 0.7x, we have a very solid balance sheet and investment-grade capital structure that gives us flexibility for strategic investments,” Uli Dopfer said. Higher volumes, the acceleration of ADVA’s transformation strategy, Covid-19 recovery and the OPEX improvement measures will set the path for new profitability levels and cash improvements. “Our clear goal is to reach a pro forma operating income of 10% of revenues by 2023,” Uli Dopfer stated.
ADVA has set clear priorities for capital allocation and driving shareholder value. “We will continue to translate our higher profitability into cash flow. Sustainability forms an integral part of our strategy, growth plans and management remuneration. Our solid balance sheet lets us think about strategic opportunities – but let’s do it step by step,” concluded Uli Dopfer as he finished the presentation.
Forward-looking statements
About ADVA
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24.03.2021 Dissemination of a Corporate News, transmitted by DGAP – a service of EQS Group AG.
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| Language: | English |
| Company: | ADVA Optical Networking SE |
| Märzenquelle 1-3 | |
| 98617 Meiningen-Dreissigacker | |
| Germany | |
| Phone: | +49 89 890 665 0 |
| Fax: | +49 89 890 665 199 |
| E-mail: | IRelation@advaoptical.com |
| Internet: | www.advaoptical.com |
| ISIN: | DE0005103006 |
| WKN: | 510300 |
| Indices: | SDAX |
| Listed: | Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Hanover, Munich, Stuttgart, Tradegate Exchange |
| EQS News ID: | 1177776 |
| End of News | DGAP News Service |