Logicalis divisional report

Logicalis' strategy

Logicalis' strategy is to be the leading ICT services and solutions partner to customers in its key markets around the world.

Logicalis' operations
  • 10 000 customers globally
  • Operates in over 25 countries
  • Over 7 000 employees (permanent and contractors)
  • Strategic partnerships – Cisco, Microsoft, HPE, IBM, NetApp, Oracle, Service Now, Dell/EMC and VMware

Executive team

Bob Bailkoski

Chief Executive Officer

Stuart Radcliffe

Chief Financial Officer

Material risks

  • Impact of COVID-19 on performance
    Response: Focus on cash preservation activities to ensure it can withstand pressure from short-term delays to orders from customers or an inability to deliver and install. Long-term funding for both working capital and growth needs secured during the year – this committed facility will provide additional support to the division if necessary.
  • Customers moving to public cloud as part of hybrid cloud strategies
    Response: Build skills and capability in public cloud along as well as enhancing relationships with major providers.
  • Dependence on key market (Brazil) and impact of shift in market position or local economy
    Response: Conduct regular reviews of the performance of the Brazilian business. Monitor the Brazilian economy so that it can be proactive in its response to a long-term decline.
Performance highlights

Services mix remains strong at 41% of revenue (FY19: 38%)

EBITDA increased by 33% to US$123.9 million (FY19: US$93.4 million)

Operating profit margin of 4.3% continues to improve (FY19: 3.8%)

New US$155 million committed facility secured to support working capital and growth

Revenue by segment

Product revenue by vendor

Educational impact through business activities

Logicalis helped its customer National Cheng Kung University (“NCKU”) to build the first AI-enabled, cloud-based virtual learning platform, that would provide AI courses for primary and secondary school students.

The university needed a professional team that could not only establish a platform for high-performance computing in AI applications, but one that also possessed requisite knowledge and expertise in the basics and higher theories of AI and machine learning.

Logicalis designed and delivered an integrated high-performance computing infrastructure with a cloud virtual desktop infrastructure (“VDI”) and developed a tailor-made AI course providing NCKU with the practical know-how to inspire students to pursue advanced degrees and research opportunities in the AI field.

Corporate overview

Logicalis is an international multi-skilled IT services and solutions provider that supports its customers through the design, planning and execution of their digital transformation. With sector-leading experience and insight, its unique approach enables progress at pace and with purpose.

Logicalis' customers span industries and geographical regions. It operates in several vertical markets including financial services, telecommunications, education, healthcare, retail, government, manufacturing and professional services.

Logicalis applies the skills of its more than 7 000 employees to design, transform, deploy and operate companies' IT infrastructure through on-premise, cloud and hybrid solutions. Logicalis modernises its customers' data centres, offers security and network infrastructure expertise, workspace communications and collaboration capability, and designs and implements data and advanced telemetry projects.

Logicalis' people are considered to be “Architects of ChangeTM”, using their technology and markets expertise to support their clients through the challenges brought by transformation.

Logicalis acts as a customer advocate with some of the world’s leading technology companies including Cisco, IBM, Microsoft, Oracle, HPE, NetApp and VMware.

Logicalis has revenues of over US$1.7 billion and operates in Europe, North America, Latin America, Asia-Pacific and Africa.

Purpose

Logicalis exists to accelerate its customers' progress, keeping them relevant in the digital economy and directly contributing to their success. This vision is central to Logicalis' strategy which is executed while living its values. Logicalis maintains an environment of honesty, transparency, fairness and high-moral standards which encourages initiative and provides opportunity for its people. Change and creativity are embraced to deliver the best practical outcomes. Logicalis strives to exceed expectations and be the best while maintaining the highest level of quality. It relies on the strong relationships and alliances that it has built to achieve success for the long term.

How Logicalis creates value

Logicalis' go-to-market strategy is based on delivering the desired business outcomes of its customers through the implementation of a variety of technology solutions and services. Logicalis works with both IT and line-of-business stakeholders to align technology investments with business strategy, driving critical business objectives through the adoption and application of technology for competitive advantage.

Customers' business outcomes often revolve around the following areas:

  • Getting closer to their customers
  • Engaging their employees
  • Optimising their operations
  • Transforming their business and operating model

The solutions that Logicalis offers have been specifically designed to achieve these outcomes. These include technologies such as digital networking, cloud, modern data centre, communication and collaboration solutions, workforce mobility, automation, application modernisation and advanced telemetry in the IoT.

A key element of the Logicalis value proposition is its extensive service portfolio. This offers a wide variety of services including product integration and associated professional services, lifecycle and managed services and cloud solutions, with a focus on embedding security across all technology offerings. Logicalis delivers consistent, digital global services using shared, best practice platforms.

In 2019, Logicalis was positioned as a leader in the IDC MarketScape: Worldwide Network Consulting Services Vendor Assessment. IDC noted that worldwide, buyers of network consulting services regard Logicalis as particularly strong in providing and building a faster and more secure on-ramp to the cloud, increased competitive advantage, and increased profitability for its customers.

Logicalis' goal is to be a strategic partner to the Chief Information Officer (“CIO”), enabling them to satisfy and operate all aspects of IT more effectively and supporting them as they contribute to the strategic development of their organisation. Every CIO’s goal is to improve the satisfaction of their organisation’s users by responding to the changing demands for technology-led business innovation across all areas: Logicalis supports them in delivering this goal.

LOGICALIS' VALUE CREATION BUSINESS MODEL

Logicalis creates and maintains relevance for both customers and stakeholders through its agility from local business innovation and management to execute its strategy, which is leveraged globally via a collaborative culture and exchange of skills and knowledge.

WHAT MAKES LOGICALIS DIFFERENT
  • Empowering its people to be innovative
  • Dedicated business focused on specific needs of global customers
  • Consistent service delivery and quality across geographies
  • Focused on longer-term, more strategic relationships with customers
  • Driving customers' success by bringing together their vision with Logicalis' industry knowledge and deep technological expertise to design and deliver its customers' digital transformation
KEY RESOURCES

Financial

Other receivables and prepayments – US$178 million
Net debt – US$157 million

Human

7 339 employees
Employees' time, skills and knowledge

Social and relationship

Vendor relationships
Customer relationships
Stakeholder relationships

Intellectual

Technical expertise
Sector experience
Strategic partnerships

Natural

Carbon energy management
Energy management
Recycling initiatives

Manufactured

Data centres

KEY PARTNERS AND RELATIONSHIPS

Key partners

Cisco
Microsoft
IBM

Key relationships

Customers
Employees
Vendors
Communities

KEY REVENUE SEGMENTS

Categories

Direct product sales
Annuity services

Vendors

Cisco
IBM
Microsoft

Geographic

Latin America

KEY REVENUE DRIVERS
  • Volumes
  • Exchange rates, particularly in Latin America
  • Multinational deals
OUR ACTIVITIES
  • Green IT solutions
  • Extensive service portfolio
  • On-premise, cloud and hybrid solutions
  • Security expertise
  • Network infrastructure expertise
  • Workspace communications
  • Collaboration capability
  • IoT, data analytics and AI expertise
  • Acquisition activities
HOW LOGICALIS CREATES VALUE

As “Architects of ChangeTM” Logicalis adds value by delivering complex IT solutions and services to achieve business transformation for its clients and society.

Logicalis provides a single source to navigate the intricacies of global business.

Logicalis is continually expanding its partnership ecosystem with vendors and core partners and building long-term relationships.

WHAT IMPACTS LOGICALIs' ABILITY TO CREATE VALUE
  • Fluctuating exchange rates
  • Global macroeconomic uncertainty
KEY OUTCOMES FOR STAKEHOLDERS

Shareholders

33% EBITDA growth
Increased operating profitability
Increased services and annuity revenue

Financial institutions and providers of financing

US$26 million in interest to providers of financing

Employees

Recognition of employees through performance rewards
Investment in business and technical expertise for employees

Customers

A dedicated, committed partnership and superior customer experience

Vendors (suppliers)

Recognition by vendors through partner awards and joint investment
Committed and strategic long-term profitable vendor relationships

Corporate social responsibility beneficiaries

Improved quality of life for local communities
More inclusive and diverse workplace

Governments and regulators

Compliance with regulatory requirements
US$22 million in taxes

Environment

Energy savings and reduced carbon footprint
Environmental certifications

Performance

Logicalis accounted for 40% of the Group’s revenues (FY19: 40%).

US$ million February
2020
  February
2019
%
movement
 
Revenue 
1 700.4    1 741.1  (2)  
Gross profit 
441.2    410.1  8   
Gross margin % 25.9%    23.6%     
Operating costs (317.3)   (316.7) 0   
Operating profit before interest, tax, depreciation and amortisation (“EBITDA”)
123.9    93.4  33   
EBITDA margin %
7.3%   5.4%     
Operating profit
72.3    65.9  10   
Net finance costs
(14.1)   (16.8) (16)  
Profit before taxation 58.7    49.6  18   
Net debt 
(156.7)   (109.2) 43   

Argentina continued as a hyperinflation economy during FY20 although the impact on the Group results was not material.

Logicalis continues to have a contingent liability in respect of a possible tax liability at its subsidiary in Brazil.

** Certain information presented in these results constitutes pro forma financial information. The responsibility for preparing and presenting the pro forma financial information and for the completeness and accuracy of the pro forma financial information is that of the Datatec directors. This is presented for illustrative purposes only. Because of its nature, the pro forma financial information may not fairly present the Group’s financial position, changes in equity, and results of operations or cash flows. The Group has included pro forma IFRS 16 Leases, financial information that represents the results and statement of financial position showing the impact on FY20 as if IFRS 16 had not been applied.
*** Pro forma financial information is included for the Group’s revenue for the current reporting period, had it been translated at the average foreign currency exchange rates of the prior reporting period (“constant currency financial information”). The pro forma IFRS 16 and constant currency financial information contained in this Integrated Report has been reported on by the Group’s external auditors. The Group’s auditors Deloitte & Touche, have issued two unmodified reasonable assurance reports (in terms of ISAE 3420: Assurance Engagements to Report on the Compilation of Pro Forma Financial Information included in the Prospectus), a copy of which is available for inspection at the Company’s registered office.

Strategic overview

Logicalis' strategic aim is to drive its customers' success by using its technological expertise, industry knowledge and innovation to ensure their transformation outpaces the momentum of change in their sector.

Logicalis' success is based on several key factors:

  • The ability to serve customers globally with solutions that are relevant to their market
  • Building intimate business relationships with its customers
  • A sharp focus on our partner ecosystem
  • Knowledge and insight in advanced and emerging technologies

Logicalis has a strong customer base across Europe, North America, Latin America, Asia-Pacific and Africa and remains committed to the maximisation of growth in profit and value. It will achieve this by delivering on the key success factors as mentioned previously. These will enable the business to gain scale, capability and market share in its main markets.

Logicalis' key aims include the following:

  • Focus on customer success at both the CIO and line-of-business levels to deliver business improvement outcomes
  • Invest in processes, people and systems that provide its customers with industry best-in-class service
  • Leverage knowledge and best practice processes across all territories
  • Attract and retain high-calibre employees
  • Deliver revenue growth which is balanced between organic and acquired growth
  • Maintain leadership in innovation for its solutions and service offerings
  • Increase recurring services sales

To achieve these key aims, Logicalis continues to:

  • focus on business improvement outcomes and the value delivered to customers;
  • engage with customers at all levels and across stakeholder communities, building long-term relationships;
  • renew its focus on key vendor relationships;
  • position itself as a trusted and capable partner for technology and service excellence; and
  • expand its portfolio of products, solutions and services through investment in resources, expertise, partnerships and acquisitions.

Progress against strategic objectives

         
             
FY20 strategic objectives FY20 execution of objectives         FY21 strategic priorities
             
Continue to focus on improving the services and annuity revenue mix
Services mix has improved from 38% to 41%  
   
Ensure that Logicalis successfully navigates the COVID-19 pandemic
             
Seek further acquisitions to boost existing territories' market share and to leverage Logicalis' footprint in emerging technologies
The acquisitions of Cilnet and Orange Networks have expanded Logicalis' presence in the Iberian region and in cloud technologies. The acquisition of Mars Technologies has strengthened and expanded its managed services  
   
Continued focus on operating cost optimisation activities
             
Focus on cost reduction activities in heritage areas of the business and increasing order intake
Order intake grew during the year by 4%. A leader for customer experience was appointed during the year (effective 1 March 2020) and will be responsible for building efficiencies into the heritage areas of the business  
   
Enhance common platform for global service delivery
             
Seek to add to the capabilities of the common platform to ensure it remains a business enabler
Approved a plan to expand the common services platform to support AI and predictive capabilities  
   
Continue to focus on growing annuity services revenue streams
             
           
Ongoing innovation of services around cloud, software and security technologies
             
           
Successful employee engagement using the division’s “Pulse” platform

In executing its strategy, certain trade-offs are often required made. During FY20 Logicalis expanded its market share both by organic growth and by acquisition. Occasionally, Logicalis enters new territories or technologies without acquisition, which is often cheaper but can come at much higher risk. Decisions about trade-offs are made after careful consideration. During FY20, Logicalis entered Portugal with the acquisition of Cilnet and expanded its German technology offering with the acquisition of Orange Networks.

Markets

In a period of uncertain near-term market performance, revisions to previous expectations from respected industry analysts are commonplace. While it may be difficult to predict the immediate impact of the COVID-19 outbreak on the market, the demand for global technology solutions and services in the longer term remains healthy.

Digital transformation will drive growth across all Logicalis markets in the long term. COVID-19 has shown the essential need for organisations to have an effective response to the potential closing down of their physical routes to market, and the requirement to have a digital response available as a complementary, or replacement option, to enable them to trade.

In responding to COVID-19, many organisations found that they were able to act more effectively and with more urgency than they had perhaps thought was possible in relation to aspects of their digital transformation. This experience may be a catalyst for rapid acceleration in that arena.

Logicalis' annual global CIO report, which in 2019 surveyed almost 900 CIOs, identified significant changes in the role of CIOs across Europe, the Americas, the Far East and Australia. The role of the CIO is evolving with more of a focus on revenue and strategy. The study found that 61% of CIOs have spent more time on strategic planning in the last 12 months while 43% are now being measured on their contribution to revenue growth. Those in IT leadership positions will therefore almost certainly be driving the move towards digitisation.

The survey also reveals that although CIOs are becoming more strategic and accountable, they are under pressure with reduced budgets and higher security risks. Almost half of respondents (48%) say that their time spent on security defence has increased in the last year, with CIO’s spending 25% of their time on information and security compliance.

Logicalis' clients want secure, reliable networks supporting superior computing technology which generates intelligent insights on their business. Logicalis is well positioned to support this objective.

Outlook

Logicalis continues to seek enhancements in its long-term capabilities within cloud, IoT, software, security, data management and intelligent networks to promote longterm value and insight-led transformation to its customers.

While it is certain that technology will be even more firmly embedded in customers' operations following this pandemic, the exact impact of COVID-19 on Logicalis' short to medium-term trading is difficult to establish at this stage. Order intake for the first quarter for FY21 (“Q1 FY21”) is similar to the corresponding period last year, with revenues for Q1 FY21 slightly lower than Q1 FY20.

The foreign currency exchange effects have been exacerbated so far in Q1 FY21 with the Rand, Indonesian Rupiah and the Brazilian Real in particular depreciating dramatically against the US Dollar. Sustained emerging markets' currency weakness is expected for the near term.

Collections from customers during the first few months of FY21 have remained in line with historic norms. As intermediaries in the supply chain, Logicalis is working with vendors to provide support to customers experiencing adverse effects from the pandemic.

Regional leadership teams within Logicalis have prepared action plans to respond to different scenarios that they may encounter. At the same time, each region has put together compelling offers to customers and markets, including rapid remote deployment of essential solutions and services. These are designed to support customers in the areas that are most relevant to them right now, including secure remote working solutions, collaboration packages and improvements to IT resilience.

Logicalis remains confident about the long-term prospects for the industry and its positioning within it. Emerging markets currencies are expected to remain volatile over the short term.

AWARDS AND RECOGNITION

Partner and vendor relationships

Logicalis continues to build strong relationships and partnerships with key stakeholders, including employees, customers, vendors and service partners. Its strategy of building strong customer intimacy continues to enable Logicalis to grow its relationships and solutions and service engagements with existing clients.

Logicalis has a historic strong relationship with Cisco and has obtained Global Gold status, Cisco’s highest partner category. Beyond its core Cisco capabilities, Logicalis is building a reputation within Cisco for its innovation and focus on emerging technology. Several employees in the Logicalis Group are members of the elite DevNet500, a group of engineers who qualified early for Cisco’s innovation certification. In addition, Logicalis was also awarded Cisco’s Global IoT Industry Partner of the Year during FY20.

Logicalis has a fast growing relationship with Microsoft and is building global capability and expertise in Microsoft’s infrastructure cloud, known as Azure, and Microsoft’s modern workplace cloud, known as Office 365. This was recognised in FY20 when Logicalis achieved Azure Expert Managed Service Provider status, one of only 65 organisations globally to have achieved this certification.

Beyond these Group-related certifications, Logicalis was recognised with several partner awards at the regional level. Those highlighting its strategic focus include the following awards:

North America
  • CRN – 2020 Managed Service Provider Elite 500 (announced February 2020)
  • Cisco – 2019 SLED Partner of the Year, North America (announced November 2019)
  • Compass Intelligence – IoT Innovator Award for Healthcare Solutions (announced November 2019)
  • CRN – 2019 IoT Innovator Award (announced October 2019)
  • Channel Partner Insight Magazine – MSP Innovation Best Project (announced June 2019)
  • Channel Futures – MSP 501 (announced June 2019)
  • NetApp – Central Partner of the Year (announced June 2019)
  • Veeam – Growth Partner of the Year, North America (announced March 2019)
Americas
  • Citrix – 2019 Americas Fastest Growing CSP – Logicalis (announced in January 2020)
Latin America
  • Cisco – Top Partner of the Year – Chile, CoasinLogicalis (announced in January 2020)
  • Cisco – Architectural Excellence: Enterprise Networks, Chile – CoasinLogicalis (announced in January 2020)
  • Citrix – 2019 LAC Deal of the Year — Bradesco – Logicalis (announced in January 2020)
  • Cisco – 2019 Partner of the Year, MCO (announced November 2019)
  • Cisco – 2019 Ecosystem Partner of the Year, Peru – Coasin Logicalis (announced November 2019)
  • Cisco – 2019 Architectural Excellence Service Provider Partner of the Year, Argentina (announced November 2019)
  • Cisco – 2019 Architectural Excellence Security Partner of the Year, Brazil (announced November 2019)
  • Cisco – 2019 Architectural Excellence Digital Transformation Partner of the Year, Brazil (announced November 2019)
  • Cisco – 2019 Architectural Excellence Datacentre Partner of the Year Award, Mexico (announced November 2019)
  • Cisco – 2019 Architectural Excellence Enterprise Networking Partner of the Year Award, Argentina (announced November 2019)
  • Cisco – 2019 Customer Experience Partner of the Year Award, Brazil (announced November 2019)
  • Cisco – 2019 Customer Experience Partner of the Year Award, Latin America (announced November 2019)
  • Cisco – 2019 Customer Experience Partner of the Year, MCO (announced November 2019)
  • Cisco – 2019 Enterprise Partner of the Year, Latin America (announced November 2019)
  • Microsoft – Modern Desktop Partner of the Year, Latin America and Caribbean (announced November 2019)
  • Acquisition International Magazine – CFO of the Year Award, Cassio Moura CFO of Logicalis Latin America
EMEA
  • Cisco – 2019 Commercial Partner of the Year, Europe – Logicalis (announced November 2019)
  • Cisco – 2019 IoT/Industry Partner of the Year, Germany – Logicalis (announced November 2019)
  • Cisco – 2019 Commercial Partner of the Year, Germany – Logicalis (announced November 2019)
  • Cisco – 2019 Transformation/Innovation Partner of the Year Award, Portugal – Logicalis (announced November 2019)
  • NetApp – 2019 Flash Partner of the Year, EMEA – Logicalis (announced May 2019)
Asia-Pacific
  • ARN – 2019 Innovation Awards: Partner Value, Enterprise – Thomas Duryea Logicalis (announced September 2019)
  • ARN – 2019 Innovation Awards: Personal Innovation – Management Excellence: Awarded to Damian Zammit, Thomas Duryea Logicalis (announced September 2019)
  • NetApp Australia/New Zealand – Partner of the Year 2019: Gold – Thomas Duryea Logicalis (announced November 2019)
  • NetApp – Partner Awards, Partner of the Year and Global Star Partner 2019 – Thomas Duryea Logicalis (announced November 2019)