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PERFORMANCE
Revenue down 1% to US$1 533.8 million
Operating profit up 10% to US$74.2 million
Services revenues up 8%
Strong performance in Southern Cone Region
Acquisition of Ituma and Inforsacom in Europe
Corporate overview
Logicalis Group (“Logicalis”) is an international IT solutions and managed services provider with a breadth of knowledge and expertise in IT infrastructure and networking solutions, communications and collaboration, data centre and cloud solutions, and managed services. With its international headquarters in the UK, Logicalis employs over 4 000 people worldwide, including approximately 2 500 highly trained service specialists who design, specify, deploy and manage complex IT infrastructures and data centre solutions to meet the needs of over 6 500 corporate and public sector customers. Logicalis partners with Cisco, HP, IBM, Oracle, CA Technologies, NetApp, Microsoft, VMware and ServiceNow on an international basis and has specialised solutions for enterprise and medium-sized companies in vertical markets covering financial services, telecommunications, media and technology, education, healthcare, retail, government, manufacturing and professional services, as well as other sectors, helping customers achieve the required business outcomes from IT investments.
Logicalis has revenues of over US$1.5 billion from operations in Europe, North America, Latin America and the Asia-Pacific region and is a leading IT provider specialising in the areas of advanced technologies and services.
How Logicalis creates value
Logicalis’ go-to-market strategy is built around engaging with its customers through its core value propositions – data centre, networking, communications and collaboration solutions, mobility, data and information management, and its Optimal Service portfolio: integration and professional services, lifecycle and managed services and cloud solutions, with security being an important feature across all the technologies.
Logicalis works with both IT and line of business stakeholders in its customers to enable their technology investments to drive strategic business objectives and exploit technology for competitive advantage.
Logicalis demonstrates its value through its ability to service the changing demands of its customers’ employees, customers or citizens, whether to: support new user experiences from the latest technology or demands driven by increased use of consumer-driven mobility devices; transform communications and interactions through enterprise social media; or provide new and transformative business insights through the use of big data and business analytics.
Logicalis helps CIOs operate all aspects of IT more effectively, accelerating the adoption of automation across their core platforms and applications, investing in the systems and processes that drive agility into IT service delivery, and improving the satisfaction of users by responding to the changing demands for technology-led business innovation across all areas of their organisation.
Logicalis has an independent and therefore objective approach to how customers own, operate and consume core IT services which enables them to achieve their core business goals. This drives Logicalis’ revenue streams in systems integration, lifecycle and managed services, and provisioned cloud solutions. Logicalis seeks to help all stakeholders understand the value of technology investments, and choose the ownership, operational and consumption model that is right for their individual business circumstances.
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See www.logicalis.com
for more information
Logicalis’ strategy
Logicalis’ strategy is based on four key success factors:
- Technical excellence in advanced and emerging technologies;
- Business know-how and intrinsic understanding of its customers’ business challenges;
- The ability to define, package and deliver solutions and services that meet the business or technology demands of its customers; and
- The capability to support the changing operational and IT consumption demands of its customers.
The result of this strategy is a strong customer base across the Europe, North America, Latin America and Asia-Pacific regions.
Logicalis’ strategic goal remains the maximisation of growth in profit and value by gaining strength, capability and market share in its main markets and establishing Logicalis as the IT partner of choice for customers. Logicalis’ key aims include the following:
- Achieve above industry average EBITDA ratios and cash conversion;
- Continue with balanced growth – organic and through acquisition;
- Offer lifecycle IT solutions and services in all operating territories;
- Maintain leadership in innovation for its solutions and service offerings;
- Increase annuity (recurring services revenues) sales;
- Focus on customer business needs at both the CIO and line-of-business levels;
- Invest in processes, people and systems that provide its customers with consistent industry best-in-class service;
- Leverage knowledge and best-practice processes in all territories; and
- Attract and retain high-calibre employees.
To achieve these strategic objectives Logicalis continues to focus on building long-term relationships by:
- Engaging with customers at all levels and across stakeholder communities;
- Focusing on business outcomes and value;
- Positioning itself as a trusted and capable partner for technology and service excellence; and
- Expanding its portfolio of Logicalis products, solutions and services through investment in resources, expertise, partnerships and acquisitions.
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The market transition to cloud is now happening at a more controlled pace. While Logicalis’ customers are continuing to assess and invest in cloud services, particularly around cloud on-premises and hosted infrastructure services, Logicalis has been able to capitalise on this move, especially in the private cloud market opportunity. Logicalis continues to assess the rate of migration to public cloud and Software as a Service (“SaaS”), markets in which Logicalis can help customers manage the overall IT service but where the revenue opportunity is much lower. Logicalis is mitigating this risk by engaging with third-party market-leading public cloud providers to ensure that it can service its customers’ overall cloud, consumption demands through an increased number of relevant supply channels. Accelerated growth in cloud is likely to lead to a reduction in customers investing in on-site IT infrastructure and professional services.
The significant profits Logicalis generates in Brazil and its market position there also present possible business risk. Slowdown in the Brazilian economy, resulting in a slowdown in the service provider market, could impact its future growth potential and profitability. However, progress is being made on gaining market share in the enterprise and public sector market.
Progress against objectives
| FY15 objectives | FY15 execution of objectives | FY16 priorities |
| Continue to focus on investing and innovating in main areas of growth – data centre, communications and
collaboration solutions, cloud services and managed services |
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| Increase operating profit percentage by continuing to focus on increasing the services and annuity revenue mix and managing the cost base effectively |
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| Achieve revenue growth in excess of the market rate |
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| Acquisition growth |
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Markets
The demand for IT infrastructure in the markets in which Logicalis operates was again mixed during the year. The market for networking technology products was generally flat and demand for servers and storage remained generally weak (as in FY14). Disappointingly, Logicalis was not able to grow revenues in the year. Demand from telecommunications operators and service providers in Latin America, an important customer segment for Logicalis in this region, was suppressed due to the economic slowdown.
For IT infrastructure the outlook for growth is relatively subdued. Analysts are predicting stronger growth in IT investment across the Latin America market in 2015 compared to 2014, especially in the demand for networking equipment driven by the ongoing investment by service providers. Elsewhere the outlook for general IT spending remains mixed. Growth at the market level is expected to be low in the more developed economies. Ongoing investment in communications networks, next-generation data centre virtualisation technologies, collaboration solutions, business mobility and cloud solutions are still expected to drive investment decisions.
Several trends are now driving the IT market: consolidation, virtualisation and automation of key IT platforms (data centre, network and security), personal device proliferation and user mobility, private cloud computing, modernisation and maturity of IT service management, big data and analytics, and new IT consumption and operational models for data centre infrastructure and enterprise software.
Logicalis is witnessing the acceleration of the move towards Internet of Things (“IoT”). While the growth and monetisation of “smarter resources” (people, offices, streets, cities, factories and universities) is still in its infancy, this opening up of the power of technology is already starting to drive demand for connectivity and capacity in a number of markets. Logicalis’ investment in Ituma, a provider of experiences to mobile users and the collection of spatial intelligence and analytics for the service operator is driving the first waves of upgrades to core IoT infrastructures such as Wi-Fi networks; to build networks able to provide location and motion intelligence rather than simple wireless access.
Logicalis sees a continuing desire among its CIO and line-of-business stakeholders to build true multi-source multi-service environments, bringing a single portfolio for the business from both internal IT services and the growing mix of IT as a Service (“ITaaS”) offerings.
Logicalis’ annual survey of CIO level contacts at customers in 24 countries found that 62% of CIOs believe their line-of-business colleagues will have more control of IT spending in the next three years, up from 44% in 2013. These trends continue to gradually shift the balance of strategy, product or service selection and ultimately budget spend from IT into the hands of functional business units, and this in turn is placing new demands on IT leadership to focus a greater part of its resources on business-outcome led engagements.
Market research also confirms that CIOs are looking to modernise their internal IT organisation, systems, processes and infrastructure, as well as build new frameworks for infrastructure, systems and service management.
CIOs are meeting this change in demand-side influence by building new strategies to provide their business colleagues more choice and agility, but under a service management and governance model that maintains business controls. Logicalis defines this as the Service Defined Enterprise.
This alignment is demanding that the CIO invests in next generation technologies and is also causing a shift in focus of the CIO from being a technology guardian to being their organisation’s service provider, with 76% of respondents in the annual CIO survey stating that their IT departments were now service and not technology focused.
Given the need to align business demand and agile technology supply, Logicalis is helping its customers explore and invest in the next generation of internal IT platforms such as private cloud and emerging software-defined networks (“SDNs”) and data centres (“SDDCs”).
Alongside these technology transitions, the market is now also demanding more consulting skills in best-practice IT operations and processes, connecting technology platforms to day-to-day internal IT service delivery, and enabling organisations to blend services internally, from partners, and from the cloud into a coherent whole. Logicalis continues to invest in these skills across its business, building on its acquisition in 2013 of one of Europe’s leading IT service management consulting and solutions providers, Logicalis SMC (Netherlands).
As Logicalis’ customers move to a model where they have a blend of internal and externally provided systems, solutions and services, Logicalis continues to invest in defining and bringing to market pre-packaged solutions and services, allowing customers to consume best-practice and agile IT solutions directly from Logicalis Managed Services or from its cloud platforms (currently located in 11 locations, across Asia-Pacific, Europe, Latin America and North America).
Performance
Logicalis’ management is focused on building a strong business through organic growth and acquisition and has delivered a good financial performance in the year under review in difficult trading conditions.
After a difficult start to the year with revenues in the important Brazil market impacted by the FIFA World Cup, revenue growth was much improved in the second half of the financial year. Revenues were down 7% year-on-year in the first half but up 5% year-on-year in the second half. The Latin America region had a much stronger second half with revenue up 40% on the first half (up 21% in the second half year-on-year). There was evidence of demand weakening in the Asia-Pacific region in the second half.
Revenue, excluding sales to other Datatec companies, was down by 1.1% to US$1.5 billion (FY14: US$1.6 billion), including US$21.9 million of revenue from acquisitions made during the year.
Adjusting for the impact of acquisitions made in FY14 and FY15, organic revenue decreased by 3% (up 1% on a constant currency basis). The Latin America region was the best performing region with revenues up 1.1% year-on-year although the reported results are held back 10% by the further strengthening of the US Dollar against the Brazilian Real.
Gross margins were also up at 24.2% (FY14: 23.3%). Overall service margins were down slightly but product margins were up with better transaction margins being achieved. Gross profit was up 3.0% to US$371.6 million (FY14: US$360.9 million) and operating expenses increased by 1.4%. EBITDA increased 7.4% to US$97.0 million (FY14: US$90.3 million), resulting in an EBITDA margin of 6.3% (FY14: 5.8%).
After charges for depreciation and amortisation of intangible assets, operating profit was up 9.9% to US$74.2 million (FY14: US$67.5 million) which was again a strong performance given global macroeconomic conditions.
The increase in profitability for the year was driven primarily by a much improved performance in the Southern Cone region of Latin America. Profitability in both the Europe and North America regions were broadly flat year-on-year but Asia-Pacific was down, primarily due to the Australia operation. Despite the general market growth in demand for cloud solutions, Logicalis did not benefit from this market growth and the revenue segment is still a relatively small proportion of total revenues.
The days’ sales outstanding (“DSO”) for accounts receivable of 58 days at the year-end was higher than the exceptional 51 days achieved at 28 February 2014, and reflects a more normalised level. Changes in customer mix also influence this metric. Logicalis’ credit terms with its suppliers extended slightly over the period under review and the days’ payable outstanding (“DPO”) for accounts payable was 89 days (FY14: 83 days). Net cash was US$82.4 million, lower than the US$104.8 million at 28 February 2014. An operating cash conversion ratio for the year of around 50% of EBITDA was offset partly by acquisitions funded in the year, an increase in the ownership of the Latin America region, payments to shareholders, expenditure on fixed assets and corporate taxation payments.
On 2 January 2015, Logicalis acquired Inforsacom, a German ICT services and solutions provider. Inforsacom is a provider of database, storage and infrastructure solutions and services with operations across the major economic centres of Germany. The acquisition will significantly enhance Logicalis’ scale and capabilities in the German ICT market. Inforsacom has an annual turnover of approximately US$120 million and employs 160 staff.
On 1 September 2014, Logicalis acquired a 51% shareholding in Ituma, a speciality software developer based in Germany. Ituma is focused on Wi-Fi-enabled services such as in-location navigation, product and service offerings access, product promotions and analytics.
Partner and vendor relationships
Logicalis continues to build strong relationships and partnerships with key stakeholders in its business, customers and vendors and service partners.
Its strategy of building strong customer intimacy continues to enable Logicalis to grow its relationships and solution and service engagements with existing clients.
Its strong relationship with Cisco (Logicalis’ primary vendor partner) was maintained in FY15 with Logicalis named as one of Cisco’s top 10 partners in the world. At the Cisco Partner Summit in FY15, Logicalis was presented with a number of country and regional awards.
In FY15 IBM awarded Logicalis Spain “Best Partner in Security”.
Logicalis US was recognised as the HP PartnerOne Enterprise Group Growth Reseller of the Year at the 2015 HP Global Partner Conference.
Outlook
Logicalis’ operational priorities for the coming year are to continue to demonstrate the value of IT to its customers. Logicalis will continue to engage with clients through solutions and service-led sales engagements, and build out a common portfolio of solutions and services in geographies where it currently concentrates.
Logicalis will maintain its focus on investing and innovating in its main areas of growth – data centre, networking, communications and collaboration, cloud solutions and managed services. Emerging trends such as private cloud, mobility, business analytics, IT service management, big data, and cloud consumption are creating new opportunities to further differentiate Logicalis in the market and with customers.
General market conditions for IT products and services is forecast to improve in 2015 but trading conditions, particularly for product sales, are challenging. The strong growth in cloud-based solutions is disrupting the IT market. Logicalis will continue to closely manage operating costs and maximise the opportunities provided by its multinational customer base. In addition, Logicalis expects to benefit from the changes in customers’ consumption demands, and further benefit from the investments it has made in data centre and cloud-based services in order to grow its annuity-based managed services.
The two main financial goals for the coming year are the same as in prior years, namely to achieve a revenue growth rate in excess of the market and increase operating profits.
US Dollar strength will impact the FY16 reported results. Logicalis expects to continue investing in cloud and data centre services and is planning for revenue and profits to be similar to the revenues and profits in FY15 (excluding the impact of acquisitions). Logicalis will continue to seek to make further acquisitions that extend its scale and services businesses in established markets.