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FINANCIAL HIGHLIGHTS
The Logicalis Group ("Logicalis") is an international provider of integrated information and communication technology (ICT) solutions, delivering secure, converged computing and communications infrastructure and services.
Overview
Logicalis provides the architecture, deployment, integration and management of networks and systems to deliver leading edge solutions that create value for its customers by meeting their business needs now and into the future.
Headquartered in the UK, Logicalis has annual revenue in excess of $690 million, with operations in the United States (US), United Kingdom (UK), Germany and South America. The organisation currently employs around 1 400 people worldwide, including highly trained service specialists who design, specify, deploy and manage complex ICT infrastructures to meet the needs of over 5 000 corporate and public-sector customers. To achieve this, Logicalis maintains strong partnerships with technology leaders such as IBM, HP and Cisco.
Logicalis enjoys the following commanding market positions:
- Number 1 HP Enterprise reseller and number 3 IBM Business Partner in the USA.
- Top 3 Cisco Gold Partner in the UK (in the corporate mid-market segment).
- Number 1 IBM System i and z partner and number 2 IBM Business Partner in the UK.
- Number 1 Cisco Gold Partner in Argentina.
The year in review
For the past three years, Logicalis has implemented an acquisition growth strategy to complement its organic growth targets. The focus of this strategy has been on gaining scale in core geographies, technologies and service areas, and in strengthening and consolidating its US and UK businesses.
During the financial period under review, Logicalis completed three acquisitions:
- On 1 May 2006, Logicalis US acquired the consulting business of Alliance Consulting. With annualised revenue of $10 million the acquisition strengthened Logicalis' presence in the West coast and Southwest region and extended the capabilities of the Logicalis Contract Consulting Services Group ("CCSG"). CCSG provides customers with a single, independent consulting organisation that can support their hardware, software and IT services requirements.
- On 1 September 2006, Logicalis US acquired Computech Resources, Inc. ("CRI"). CRI is an IBM Premier Business Partner and a $35 million revenue solution provider of IBM products and services, based in Green Bay, Wisconsin. The acquisition strengthened Logicalis' Midwest presence by adding 65 professionals, bringing its number of employees to over 500 nationwide. The acquisition also extends Logicalis' capability to provide IBM-based solutions to the small and medium business environment.
- On 1 December 2006, Logicalis UK acquired CSF Solutions Ltd ("CSF"), an $80 million revenue enterprise IT solutions provider. CSF has built a strong reputation in the enterprise computing market, specifically the IBM mainframe market and business critical servers from HP with a long-standing customer base including a significant number of impressive blue chip enterprises. The acquisition increases the scale of the UK business significantly. As a result of the acquisition, Logicalis is now the UK's largest IBM Systems z partner and also one of the very few IBM channel partners that can support the entire IBM System z-, i-, p5- and x- server solutions portfolio on both sides of the Atlantic. As part of the agreement, Logicalis also agreed terms to acquire a Tier 3 data centre located in Bracknell, Berkshire.
- Logicalis also acquired an equity interest in a small German ICT services organisation called re:solution, and extended its presence in South America by opening offices in Chile and Peru.
Ian Cook was appointed CEO of Logicalis with effect from 1 March 2007. Since joining the Group in October 2004, Ian was head of Logicalis' European operations and he succeeds Jens Montanana who moves to the role of Chairman of the organisation.
Markets
The year under review saw trading conditions similar to the previous year for servers and storage systems but an increase in demand for networking equipment.
Year-on-year growth in demand for Cisco networking equipment was around 12% overall, with Cisco's advanced convergence and security products enjoying growth of around 20%. In the high-end enterprise storage and servers market, year-on year growth was typically middle to high single digits.
An important trend affecting the ICT market is that buying decisions are increasingly being made by functional and business unit managers rather than IT functions. In addition, the boundaries separating communications, computing platforms and applications are becoming increasingly blurred and, therefore, complex. For this reason it is important for value-added resellers such as Logicalis to engage with customers on a business level to identify the issues for which solutions will be designed. Competition is also expected to remain fierce, exacerbated by industry consolidation. This financial year, Logicalis will focus on new sales and partnering models, developing and maintaining deep skills across a broad spectrum of technologies and applications, better marketing, leveraging vendor and distributor relationships as well as strong fi nancial and business management.
Strategy
Logicalis' solution-led and service-oriented go-to-market strategy is built around focused areas of expertise covering corporate networks, unified communications, security, enterprise infrastructure performance management, data management, application integration and enterprise computing. Consulting, lifecycle and managed services support these areas of expertise.
The organisation's strategy is based on leadership with key vendors in its chosen markets, technical excellence in advanced technologies, and the provision of high quality, innovative solutions and services to its customers. In addition, the organisation benefi ts from a strong customer base, a national presence and 24x7 managed service centres in the US and UK. Logicalis' strategic goal remains the maximisation of growth in profit and value by being a leading player in its chosen markets and with strength in scale, efficiency and quality of execution.
Logicalis will focus on building long-term corporate relationships by engaging with customers at all levels and selling on business value, not technology or price. This will be enhanced by expanding its portfolio of product, solution and service capability.
Further growth through acquisition is planned to add complementary value-enhancing businesses in its core markets, in order to drive service revenues or provide leverage through cost savings.
In terms of technology, Logicalis' focus remains on higher demand advanced technologies that deliver secure, converged computing and communications infrastructures. These include wireless, unified communications, storage and data management, intelligent networking, data management and security. To help deliver on these goals, Logicalis attained Gold Certifi ed Partner status with Microsoft in the UK in 2007. The status confirms Logicalis' expertise in the implementation and management of Microsoft's unifi ed communications solutions for businesses. This accreditation also complements the Microsoft accreditation already held by Logicalis in the US.
This strategy, combined with its established technical skills, has been recognised by key vendors during the year under review through important awards in all regions. Logicalis management is focused on building strong businesses that provide the core information and communication technologies that underpin the ICT infrastructures of its customers. In accordance with its strategy the acquisitions made since 2004 have been predominantly product-based businesses. In 2007, Logicalis will seek to make further acquisitions that extend its services business as well as its participation in other strategic geographic markets.
Financial performance
Revenue increased by 37% to $693 million (2006 restated: $505 million). This includes $43 million arising from acquisitions made during the year. Excluding the impact of acquisitions made during 2006 and 2007, revenue increased by 11% over the prior year on a like-for-like basis. IBM sales comprised 43% of Logicalis' revenue, Cisco 22%, HP 21%, EMC 3% and other 11%. North America made up 60% of Logicalis' revenue, Europe 34% and South America 6%.
Product sales growth of 38% year-on-year generated additional demand for consulting and technical services which increased by 34%. Managed services grew 35% year-on-year. Revenue from application integration and contract staffing increased 63% (15% excluding the impact of the Alliance acquisition).
Gross margin percentage for the year was 22,3% (2006 restated: 21,6%) with stronger rebates off-setting weaker transactional margins. The EBITDA for the year rose by 60% to $27 million (2006: $17 million). Operating profit increased by 63% to $19 million (2006: $12 million).
People
In a customer-led and services-based business, success is driven by the quality of its employees. In Logicalis, the focus on advanced technologies requires a high level of technical expertise and management works closely with its vendors to ensure that employees are trained appropriately. Management will maintain its focus in this area.
Future prospects
Investment in IT is expected to show steady growth over the next few years with a number of higher growth areas driven by convergence and unified communications, and virtualisation technologies. Strong growth in outsourced services is also forecast by industry analysts.
The two main goals for the coming year are to achieve a revenue growth rate in excess of the market growth and leverage the recent acquisitions. To achieve this management will continue to focus on driving sales volumes, by continuing to develop compelling propositions, growing the customer base and by selling more to existing customers.
Logicalis is now much stronger and is well placed to drive an improved and sustainable performance.
Ian Cook
Chief executive officer
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