Logicalis is transitioning into a ‘Digital Enabler’, investing in new skills and services.
Logicalis revenues remained flat in FY2016 despite weak emerging market currencies and a trading slowdown in Brazil. Our revenue mix, which has been impacted by the loss of a large UK services contract and by the dilution of the services contribution from Latin America caused by the stronger US dollar, resulted in a slight drop in gross profits.
This stronger US dollar helped to contain the translated impact of operating costs for those territories outside of the US despite an increase in restructuring expenses across much of the business, resulting in a small improvement. EBITDA margins remained above 5% although overall Group EBITDA dropped by 17% or by $16m to $81m.
From a geographic perspective, the strong US dollar and difficult trading conditions in Brazil resulted in a significant drop in the relative contribution from Latin America, in both revenue and gross profit terms.
In previous years, Latin America was the largest contributor to revenues and gross profit. In the US, the recent acquisition of ATIG boosted the contribution from that region and we are confident that the business will continue to develop positively from this new level. Europe benefited from a strong performance from our German businesses, including inforsacom which we acquired in FY2015. Our operations are still relatively small in Asia Pacific but we continue to explore ways to grow successfully without deviation from our core markets, such as the acquisition of Thomas Duryea Consulting in Australia which adds scale to our existing Australian operations.
With our vendor partners, there was a reduction in Cisco’s relative share due to the weaker conditions across Latin America, while our HPE sales were stronger in the US. The ‘other’ segment will have a larger weighting going forward as Oracle becomes more important to the Group as a consequence of our expansion in Germany.
Looking forward, we remain confident about the prospects for our industry and our positioning. We have a strong balance sheet delivered by good working capital management. Logicalis is transitioning itself into a ‘Digital Enabler’ for its customers, tapping into themes such as security to augment its strong networking heritage, and is investing in areas such as data analytics to grow its data centre infrastructure offerings for customers. The strong dollar continues to impact the translated value of local currency services, and while we are confident in our positioning, skills set and global coverage, we remain cautious at a macro level with the state of global growth and the fragile state of emerging markets.