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Logicalis divisional reportDownloads
OVERVIEW Specialising in the areas of advanced technologies the group's integrated services portfolio comprises the architecture, deployment, integration and management of customers' networks and systems to deliver optimum solutions that meet their business needs now and into the future. Our business model is built around helping our customers use technology to embrace, support and drive their strategic business processes. We help them manage complexity to meet business challenges with advanced technical skills, world-class products, and proven experience. Headquartered in the UK, Logicalis Group currently has annual revenues in excess of US$1 billion, with operations in the United States (US), United Kingdom (UK), Germany and South America. The group currently employs around 1 500 people worldwide, including highly trained service specialists who design, specify, deploy and manage complex ICT infrastructures to meet the needs of over 6 000 corporate and public sector customers. To achieve this, Logicalis maintains strong partnerships with technology leaders such as IBM, HP and Cisco.
2008 OPERATIONAL HIGHLIGHTS
THE YEAR IN REVIEW Tougher market conditions in the US in the first half of the year caused planned revenue growth not to materialise. This accelerated a strategic assessment of the US business model and resulted in service delivery being unified under a focused management team and a streamlining of the cost base to match the ongoing activity level. After a weak first-half performance, for the full year, group revenues of US$845,1 million were up 22% and EBITDA of US$36,2 million was up 35% on the prior year. During the financial period under review, Logicalis completed one acquisition and increased its stake in two of its existing operations. On 1 June 2007, the group acquired Carotek's Information Technology Division (Carotek ITD), based in Matthews, NC. The acquisition increased Logicalis' presence in the Carolinas, Georgia, Alabama, Tennessee and Florida, while strengthening its ability to service HP business accounts. The acquisition added approximately 30 staff members and increased revenue by US$14 million in the fiscal year. During the year, the group also purchased the 20% minority interest in its South American operations and increased its stake in a Germany-based services business to 75%. After the year-end, on 17 March 2008, the group announced its intention to merge Logicalis' existing operations across South America with the business ofPromon Tecnologia ("PT"), a leading Brazilian network integrator, to create a regional market leader with a presence in six countries. The transaction was completed on 2 May 2008. PT is a leading Brazilian network integrator and Cisco's largest partner in Brazil. Its product offering encompasses Cisco's Advanced Technology offerings (Unified Communications, Security, and Wireless Solutions), with strong consulting and service offerings. PT enjoys a marketleading position in the Brazilian service provider and telecommunications market, and complements Logicalis' existing South American operation and commercial sector experience. Under the terms of the merger, Logicalis holds 70% of the shares of the enlarged holding company which will own all of the South American operations with Promon SA, PT's parent, retaining the remaining 30% shareholding. The combined operation will be the largest independent network integrator in South America with almost 500 employees and annualised revenues approaching US$300 million. The operations in Argentina, Uruguay, Chile, Peru and Paraguay will trade under the Logicalis name whilst the Brazilian operation will be called PromonLogicalis and will be based at PT's existing offices in São Paulo and Rio de Janeiro. The focus of the division will be to capture synergies across South America by providing cross-border solutions and services to customers in the region. The board and management of PromonLogicalis Latin America will comprise directors and executives from both Promon SA and Logicalis. This transaction marked an important step for Logicalis, to realise its plans to double revenues and improve the operating profit ratios over the next three years, and to increase its geographical reach into the faster growing economies. Management has long believed that there is a significant market opportunity for an integrator to provide IT and communication solutions throughout the South American market. The merger with PT provides the platform for further growth in the South American market and enhances Logicalis' capability to service major multinationals that operate in the region. Logicalis now enjoys the following commanding market positions:
MARKETS Year-on-year growth in demand for Cisco networking equipment was around 18% overall, with Cisco's advanced technology products enjoying growth of around 27%. In the high-end enterprise storage and servers market, HP enjoyed high, single-digit year-onyear growth but IBM saw a decrease in revenues in its systems and technology group revenues of -3% (driven by lower zSeries and iSeries revenues). Overall, investment in ICT is expected to continue to show steady growth over the next few years with a number of higher growth areas driven by convergence and unified communications, consolidation and virtualisation technologies. Industry analysts also forecast strong growth in outsourced managed services. Latin America is expected to grow at the faster rate of 10% a year to 2010. An important trend affecting the ICT market is that buying decisions are increasingly being made by functional and business unit managers rather than ICT functions. In addition, the boundaries separating communications, computing platforms and applications are becoming increasingly blurred and, therefore, complex. As a result, value-added resellers such as Logicalis increasingly need to engage with customers on a business level to identify the issues for which solutions will be designed. Competition is also expected to remain intense, exacerbated by industry consolidation. Going forward, 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 financial and business management. STRATEGY The group's strategy is based on three key principles:
In addition, we benefit from a strong customer base, a national presence and 24x7 managed service centres in the US, UK and Latin America. The Group's strategic goal remains the maximisation of growth in profit and value by being a leading player in our chosen markets and with strength in scale, efficiency and quality of execution.
Logicalis will focus on building long-term corporate relationships by:
In terms of technology, the group's focus remains on higher demand, advanced technologies that deliver secure, converged computing and communications infrastructures. These include wireless, IP communications, storage and data management, intelligent networking and security. This strategy, combined with our established technical skills, has been recognised by our key vendors for the year under review.
Logicalis in the UK has the independent triple certification for its integrated management system supporting computing and communications solutions, information security and IT service management offerings: ISO 9001/2000; ISO 27001 and ISO 20000, respectively. Logicalis also has the ISO 14001 certification, the Environmental Management System. Moving forward, Logicalis will seek to make further acquisitions that extend its services business as well as its participation in other strategic geographic markets. FINANCIAL PERFORMANCE Product sales growth of 19% year-on-year generated additional demand for consulting and technical services which increased by 27%. Managed services and annuity revenues grew 33% year-on-year. Total gross margin percentage for the year was 22,9% (FY2007 22,3%) with services and annuity margins offsetting slightly weaker product margins. The total gross margin increased 25% on the prior year. Operating expenses increased by 23% over the previous financial year, lower than the 25% growth in gross margin. Further leverage benefits were held back by the failure of planned revenue growth in the US to materialise, and resulted in a subsequent restructuring of the US operations. The EBITDA profit for the year rose to US$36,2 million compared to an EBITDA profit of US$26,8 million in the previous financial year, an increase of 35%. After charges for depreciation and amortisation of intangible assets, the total operating profit was US$26,1 million (FY2007: US$18,8 million). The days' sales outstanding for accounts receivable of 44 days, was better than the 50 days achieved at 28 February 2007. Net cash was US$44,3 million, a significant increase on the US$8,6 million at 28 February 2007, with the increase primarily due to the profits generated for the year, the reduction in the accounts receivable days' sales outstanding and some favourable trading terms with certain suppliers. PEOPLE FUTURE PROSPECTS With the increased uncertainty in the macro-economic outlook, management is alert to any reduction in revenue from market-related drivers. However, Logicalis remains focused on delivering the right solutions to our customers meeting their price, performance and quality of service delivery expectations, and is well placed to improve its performance in the next fiscal year.
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