16th May 2005 07:00
RM PLC16 May 2005 16 May 2005 RM announces Interim Results for the six months to 31 March 2005 RM plc, the leading supplier of information and communications technology (ICT)and other services to education announces results for the six months to 31 March2005. Highlights • Results in line with management's expectations - with, after last year's one-off benefits, a return to a more normal seasonal pattern with a small first half loss • Progress across the business: customer satisfaction, innovation and delivery • Increasing investment in Building Schools for the Future programme • Turnover: £109.2 million (2004: £108.9 million) • Loss before tax (before goodwill charges*): £0.3 million (2004: profit £2.7million) • Loss before tax (after goodwill charges*): £4.8 million (2004: profit £0.8 million) • Net funds at 31 March 2005: £12.7 million (31 March 2004: £34.4 million) - after £27 million investment in acquisitions and long term contracts over the last 12 months • Dividend per share up 5% to 1.05p (2004: 1.00p) *goodwill amortisation and impairment of £4.5 million (2004: £2.0 million) Commenting, Tim Pearson, CEO of RM, said: "Our focus this year is on delivering improving levels of performance for allour stakeholders. With underlying growth in the business, increasing levels ofcustomer satisfaction and success in delivering our education projects, we'remaking good progress. RM is a seasonal business, so we still have the majorityof the year's orders - and all of the year's profit - to get in the second half.However, having successfully replaced the one-off turnover that was a feature oflast year's first half, we expect modest turnover growth for the year as awhole. "The government's Building Schools for the Future programme represents a majorlong term opportunity for RM. The Group's combination of educational focus,scale and technical expertise means that we are uniquely well suited to achieveour aim of being the leading provider of educational ICT to the programme. Wewon't see material revenues from BSF until 2007 though and, in the meantime, weneed to increase our already significant level of investment to secure ourposition." - Ends - For further information, please contact: Tim Pearson, CEO RM plc 08709 200200Mike Greig, Group Finance DirectorPhil Hemmings, Director of Corporate Affairs Andrew Fenwick Brunswick 020 7404 5959Fiona LaffanMark Antelme A briefing to analysts will take place at 9.30 am on Monday 16 May 2005 atBrunswick, 16 Lincoln's Inn Fields, London WC2A 3ED. A live audio feed will beavailable to analysts and shareholders who are unable to attend this meeting inperson. Please dial telephone number: +44 (0) 1452 561263 to access thisfacility. A copy of the presentation will be available on www.rm.com at 9.30 am. Results As we commented at the time, RM's performance in the first half of last yearbenefited from non-recurring, one-off factors. This year there has been a returnto a more normal seasonal pattern, with a small first half loss. Group turnover increased by £0.3 million to £109.2 million (2004: £108.9million). This increase reflects a combination of contributions from recentacquisitions and growth in education projects revenue replacing the one-offhardware shipments that were a feature of last year's first half. Gross profit percentage was up slightly at 26.9% (2004: 26.6%), resulting ingross profit of £29.4 million (2004: £29.0 million). Operating costs excluding goodwill charges increased by £3.3 million to £30.0million (2004: £26.7 million). Of this increase, £2.1 million is directlyattributable to recent acquisitions, with the balance of the increase reflectingthe Group's priority investment areas - research and development andestablishing RM as the leading provider of ICT to the government's BuildingSchools for the Future (BSF) programme. As expected, the seasonal nature of RM's business resulted in a small lossbefore tax (excluding goodwill charges) of £0.3 million (2004: £2.7 millionprofit). Reflecting RM's practice of amortising goodwill arising from acquisitions overfive years, and including an impairment charge of £1.1 million relating topeakschoolhaus, goodwill amortisation and impairment increased to £4.5 million(2004: £2.0 million). After this charge the loss before tax was £4.8 million(2004: profit of £0.8 million). Net funds at 31 March 2005 were £12.7 million compared to £34.4 million a yearearlier. This reflects the investment of £27 million in acquisitions and longterm contracts over the twelve month period. The Board has declared an increased interim dividend of 1.05p per share (2004:1.0p) payable on 1 July 2005 to shareholders on the register at 3 June 2005. Market Education remains a public sector spending priority, with the most recentComprehensive Spending Review allocating real-terms budget increases of 4.4% ineach of government years 2005/06 and 2006/07. Of particular importance to RM isthe BSF programme, a £30 billion, 15-year initiative to rebuild or refurbish allEnglish secondary schools; the 2005 Budget further reinforced the LabourGovernment's commitment to BSF and provided additional funding from 2009 forprimary school renewal. ICT continues to have a high profile in education policy, with the recentlypublished Department for Education and Skills (DfES) e-Learning Strategy clearlypositioning ICT as a fundamental enabler of the government's education plans. As part of its workforce remodelling programme, the DfES has identified ICT as akey factor in managing schools efficiently and effectively. However, phase threeof the programme, which requires that all teachers have at least 10% of theirtimetabled teaching time available for planning, preparation and assessment, islikely to result in increased pressures on school budgets in the immediate shortterm. The increasing focus on public service efficiency is resulting in greatercentral government engagement in education procurement. RM's scale means that weare better placed to respond to centrally-driven purchasing initiatives thanmany of our competitors; however, there remains a risk that poorly conceivedinitiatives will cause turbulence in the market and reduce educational value. At individual school level, changes in the school funding mechanism mean thathead teachers will have three-year visibility of their budgets. The ability tomake medium-term investment decisions is particularly helpful in allowingschools to construct strategic investment plans for ICT. Delivery We commented at the time of the 2004 preliminary results that our number onefocus in 2005 would be delivering improving levels of performance for all ourstakeholders. Progress has been strong across the business: our sevenestablished long-term education projects are all on plan and are delivering realbenefits for our customers; whilst customer satisfaction levels continue to riseacross the business. Education project highlights include: • Dudley LEA managed service: mid-term refresh completed to plan; • South Lanarkshire Council managed service: first major refresh of all networks completed; • UCLES e-assessment project: scaling to 1,000+ examiners, 500,000 scripts over Summer 2005; • QCA Key Stage 3 ICT assessment service: 500 schools participating in the 2005 summative test; • Warwickshire LEA ICT PFI project: >800 'teacher toolkits' installed in over 100 schools; • South Yorkshire eLearning Program: 4,500 ICT level 2 qualifications achieved. Building a track record for delivering complex education projects is importantin the current market environment. The BSF programme is focusing both biddersand clients on identifying high quality partners to work with. Our aim is tobecome the leading ICT supplier to the BSF programme and our combination ofrelative scale, education focus and technical capability means that we arebetter placed than many of our competitors to achieve this. Innovation Customer Success, by which we mean providing products and services that helpteachers to teach and learners to learn, is one of RM's core values. Ourproducts and services have received an unprecedented number of external awardsand accolades over the last six months, clearly indicating that we are widelyviewed as a leading educational ICT innovator. The Group's educational software products took four prestigious BETT Awards (theDfES-endorsed awards given to the year's most innovative and educationallyeffective products at the annual BETT exhibition). In addition, both the RM One(our unique 'all-in-one' PC designed specifically for education) and classroomresources from our recent acquisition TTS have won Education Resources Awards(the annual industry awards presented at the Education Show). Excellent service is the best way of retaining customers and building customersatisfaction. Over the last three years we have worked hard to improve thequality of our technical support. Support Online, our Internet-deliveredtechnical support operation, has been named one of the world's Ten Best WebSupport Sites for the second year running, whilst our telephone support team wasa finalist in the Help Desk Institute's UK Help Desk Support Excellence Awards.We have also improved the geographical spread of our support operations withsignificant growth of our support team in Bellshill near Glasgow. Research and development is a priority investment area for RM. During the firsthalf we have enhanced our range of education software products, launchingDiscover Alive and extensions to the Easiteach range at BETT in January 2005. Wehave also continued to develop Kaleidos Portal Plus, the sophisticated 'learningplatform' which as at the heart of several of our education projects; thislearning platform approach is fundamental to the proposition we are developingfor the BSF programme. International We have made good progress in the initial steps of establishing Easiteach, ourground-breaking interactive whole-class teaching software range, as a worldproduct. The opportunity for Easiteach in the USA is significant: only 4% ofapproximately 1.8 million classrooms in the USA currently have whiteboards,compared with approximately 20% of the 300,000 classrooms in the UK. We now havecontractual agreements in place with four of the five leading North Americanwhiteboard suppliers who between them represent 20% of the USA market; and eachof them will be bundling Easiteach Studio with all of their educational sales. Business developments Our recent acquisitions TTS Group, a distributor of general educationalresources, and Sentinel Products, which provides the Ranger suite of networkmanagement software for educational establishments, are progressing to plan andhave made good contributions to the business in the first half. In February 2005 we signed a £17.1 million / 8-year PFI contract with LambethLEA. The Lambeth project was the last of four DfES-funded contracts, all ofwhich aim to raise educational standards through the innovative use oftechnology. RM has bid for, and won, three of these four contracts. Otherbusiness developments during the first half include: PANDA/PAT, a £1.9 milliondevelopment and process outsourcing project for Ofsted; a further two FE collegeoutsourced managed service contracts reaching preferred bidder status; and theappointment of both RM and our 3T subsidiary as preferred direct suppliers forthe BBC Digital Curriculum. As previously announced, peakschoolhaus, which we acquired in October 2003, wasnot selected by Ofsted as a preferred regional inspection services partner. Wehave now decided to close this business, which has resulted in a goodwillimpairment charge of £1.1 million. Outlook and prospects Education continues to represent a positive market opportunity: educationspending is growing and the opportunities for ICT to deliver educationalimprovement continue to expand. The BSF programme is likely to define the secondary school market for the nextten years; it is our major focus area and we believe we are well placed toachieve our aim to be the leading provider of educational ICT to the programme.We will not, however, see material revenues from BSF before 2007 and in theinterim we will need to increase our investment in further developing technicaland educational solutions and in bidding for contracts. As always, the seasonality of RM's business, which reflects school buyingpatterns, with more than half of the Group's orders expected to occur in thesecond half, means that first half results are not a good indicator of thefull-year outcome. In the first half we have successfully replaced the one-off turnover relating toproject shipments that was a feature of the comparative period last year. Thefactors that have allowed this - the contribution from acquisitions and growingeducation project revenues - will continue in the second half and we continue toanticipate modest turnover growth for the year as a whole. John Leighfield16 May 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT ----------------------------- ------ --- -------- ---- ------- --- -------- Half year ended Year ended 31 March 31 March 30 September £000 2005 2004 2004 Turnover 109,211 108,944 263,264 Operating (loss)/profit (5,128) 247 5,983 ----------------------------- ------ --- -------- ---- ------- --- --------Operating (loss)/profitanalysed:Before goodwill charges (595) 2,222 10,502Goodwill charges (4,533) (1,975) (4,519) -------- ---- ------- --- --------Total operating (loss)/profit (5,128) 247 5,983----------------------------- ------ --- -------- ---- ------- --- -------- Net interest receivable 340 519 1,071----------------------------- ------ --- -------- ---- ------- --- --------(Loss)/Profit on ordinaryactivities before taxation (4,788) 766 7,054 ----------------------------- ------ --- -------- ---- ------- --- --------(Loss)/Profit on ordinaryactivities before taxationanalysed:Before goodwill charges (255) 2,741 11,573Goodwill charges (4,533) (1,975) (4,519) -------- ---- ------- --- --------Total (loss)/profit onordinary (4,788) 766 7,054activities before taxation ------ --- -------- ---- ------- --- ------------------------------------- Tax credit/(charge) on(loss)/profit on ordinaryactivities 71 (765) (3,162)----------------------------- ------ --- -------- ---- ------- --- --------(Loss)/Profit on ordinaryactivities after taxation (4,717) 1 3,892 Dividends paid and proposed (932) (881) (4,075)----------------------------- ------ --- -------- ---- ------- --- --------Retained loss (5,649) (880) (183)----------------------------- ------ --- -------- ---- ------- --- -------- (Loss)/Earnings per ordinaryshare:Basic (5.3p) 0.0p 4.4pDiluted (5.3p) 0.0p 4.3pDiluted - before goodwillcharges (0.2p) 2.2p 9.4p CONSOLIDATED BALANCE SHEET ------------------------------ -------- ------- -------- As at As at As at 31 March 31 March 30 September £000 2005 2004 2004 Fixed assetsIntangible fixed assets 20,151 16,344 24,737Tangible fixed assets 24,420 15,179 20,202------------------------------ -------- ------- -------- 44,571 31,523 44,939 Current assetsStocks 17,928 11,997 16,492Debtors 31,745 30,096 51,538Investments - short-term cash deposits - 7,738 5,000Cash at bank and in hand 13,849 27,479 22,480------------------------------ -------- ------- -------- 63,522 77,310 95,510 CreditorsAmounts falling due within one year (60,962) (55,404) (86,442)------------------------------ -------- ------- --------Net current assets 2,560 21,906 9,068------------------------------ -------- ------- -------- Total assets less current liabilities 47,131 53,429 54,007 CreditorsAmounts falling due after more than oneyear (9,851) (10,152) (11,086) Provisions for liabilities and charges (2,264) (3,174) (2,320)------------------------------ -------- ------- --------Net assets 35,016 40,103 40,601------------------------------ -------- ------- -------- Capital and reservesCalled up share capital 1,795 1,794 1,794Share premium account 20,464 20,349 20,349Capital redemption reserve 94 94 94ESOP shareholding (996) (849) (1,010)Profit and loss account 13,659 18,715 19,374------------------------------ -------- ------- --------Equity shareholders' funds 35,016 40,103 40,601------------------------------ -------- ------- -------- CONSOLIDATED CASH FLOW STATEMENT ------------------------------ ---- -------- ---- ------- ---- -------- Half year ended Year ended 31 March 31 March 30 September £000 2005 2004 2004 Net cash (outflow)/inflow fromoperating activities (631) 7,863 22,399 Returns on investments andservicing of finance 340 519 1,071Taxation (1,468) (1,583) (3,532)Capital expenditure andfinancial investment (8,136) (1,818) (9,691)Acquisitions - (5,715) (16,873)Equity dividends paid (3,195) (3,020) (3,909)------------------------------ ---- -------- ---- ------- ---- --------Net cash outflow before use ofliquid resources and financing (13,090) (3,754) (10,535) Management of liquid resources 5,000 5,387 8,125 Financing (549) (1,633) (2,607)------------------------------ ---- -------- ---- ------- ---- --------Decrease in cash in the period (8,639) - (5,017)------------------------------ ---- -------- ---- ------- ---- -------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS ------------------------------ ---- -------- ---- ------- ---- -------- Half year ended Year ended 31 March 31 March 30 September £000 2005 2004 2004 Decrease in cash in the period (8,639) - (5,017) Cash outflow from change inliquid resources (5,000) (5,387) (8,125)Settlement of loan notes 600 1,422 2,208------------------------------ ---- -------- ---- ------- ---- --------Change in net cash resultingfrom cash flows (13,039) (3,965) (10,934)Issue of loan notes - - (1,699)Exchange translation 8 (21) (3)------------------------------ ---- -------- ---- ------- ---- --------Movement in net funds in theperiod (13,031) (3,986) (12,636) Net funds brought forward 25,781 38,417 38,417------------------------------ ---- -------- ---- ------- ---- --------Net funds carried forward 12,750 34,431 25,781------------------------------ ---- -------- ---- ------- ---- -------- NOTES TO THE FINANCIAL INFORMATION -------------------------------------------------------------------------------- 1. Basis of preparation The financial information for the half years ended 31 March 2004 and 31 March 2005has been prepared on a basis consistent with the statutory accounts for the yearended 30 September 2004. The financial information contained in this statementdoes not constitute statutory accounts within the meaning of section 240 of theCompanies Act 1985. The information for the six months ended 31 March 2004 and 31March 2005 has not been audited. The information relating to the year ended 30September 2004 is an extract from the audited statements for that year on whichthe auditors gave an unqualified audit report and did not contain a statementunder section 237(2) of the Companies Act 1985. A copy of those financialstatements has been filed with the Registrar of Companies. 2. Additional profit and loss account information Half year ended Year ended 31 March 31 March 30 September£000 2005 2004 2004-------------------------------- -------- --- -------- --- --------- Cost of sales 79,856 79,976 194,757-------------------------------- -------- --- -------- --- --------- -------------------------------- -------- --- -------- --- --------- Gross profit 29,355 28,968 68,507-------------------------------- -------- --- -------- --- --------- Operating expenses:---------------------Selling & distribution 16,095 15,090 32,746 Research & development 7,523 6,614 14,546-------------------------------- -------- --- -------- --- --------- Administrative expenses - excludinggoodwill charges 6,332 5,042 10,713 Administrative expenses - goodwillcharges 4,533 1,975 4,519-------------------------------- -------- --- -------- --- --------- Total administrative expenses 10,865 7,017 15,232-------------------------------- -------- --- -------- --- --------- Total operating expenses 34,483 28,721 62,524-------------------------------- -------- --- -------- --- --------- 3. Goodwill The Group continues to amortise goodwill at rates estimated to write off the costof goodwill on a straight-line basis over a period of five years. The charge forthe half year ended 31 March 2005 has increased as a result of the inclusion ofcharges for the full period on goodwill arising on the acquisitions of TTS GroupLimited and Sentinel Products Limited and also an impairment of the goodwillarising on peakschoolhaus Limited. At the 31 March 2005, a Group company peakschoolhaus was engaged in bidding tobe a preferred partner to Ofsted for regional inspection services. On 7 April2005 the Group announced that peakschoolhaus had been unsuccessful in its bid.An impairment review was performed on the goodwill arising on the acquisition ofpeakschoolhaus using cash flows updated to reflect the status of the bid. Thisreview indicated that the unamortised goodwill of £1.1m was impaired.Consequently, an impairment charge of £1.1m has been made to operating profitfor the period. 4. Tax credit on loss on ordinary activities The tax credit for the half year ended 31 March 2005 has been provided at theestimated effective rate for the full year of 28% (2004: 28%) of profit beforegoodwill charges. NOTES TO THE FINANCIAL INFORMATION CONTINUED---------------------------------------------------- 5. Dividend The proposed interim dividend of 1.05p per ordinary share (2004: 1.0p) will bepaid on 1 July 2005 to shareholders on the register on 3 June 2005. 6. (Loss)/Earnings per share (Loss)/Earnings per share for the half year ended 31 March 2005 are based on aloss of £4,717,000 (2004: profit of £1,000). Basic (loss)/earnings per share is based on 88,750,795 ordinary shares (2004:88,927,918), being the weighted average number of ordinary shares in issueduring the half year ended 31 March 2005. The diluted (loss)/earnings per share is based on a weighted average of89,704,258 (2004: 89,313,849) ordinary shares issued and issuable. An additional (loss)/earnings per share measure before goodwill charges isdisclosed to give a clearer understanding of underlying trading performance. Areconciliation of basic (loss)/ earnings per share with diluted (loss)/earningsper share is as follows: Half year ended 31 March 2005 Half year ended 31 March 2004 Loss No. of Pence Profit No. of Pence after tax Shares Per share after tax shares per share £000 ('000) £000 ('000) Basic (loss)/earnings per share (4,717) 88,751 (5.3) 1 88,928 0.0Impact ofshare options - 953 - - 386 ------------------------ ------ ------- ------- ---- ------ ------ -------Diluted (loss)/earnings per share (4,717) 89,704 (5.3) 1 89,314 0.0----------------------- ------ ------- ------- ---- ------ ------ ------- Supplementary (loss)/earnings per share before goodwill charges: Diluted (loss)/earnings per share (4,717) 89,704 (5.3) 1 89,314 0.0Effect of goodwillcharges 4,533 - 5.1 1,975 - 2.2----------------------- ------ ------- ------- ---- ------ ------ -------Diluted (loss)/earnings per sharebefore goodwillcharges (184) 89,704 (0.2) 1,976 89,314 2.2----------------------- ------ ------- ------- ---- ------ ------ ------- NOTES TO THE FINANCIAL INFORMATION CONTINUED----------------------------------------------------- 7. Reserves and reconciliation of movements in equity shareholders' funds Half year ended Called Profit 31 March 2005 up Share Capital and Total equity share premium redemption ESOP loss shareholders'£000 capital account reserve s/holding account Funds Beginning of the period 1,794 20,349 94 (1,010) 19,374 40,601Retained loss for the period - - - - (5,649) (5,649)Share issues 1 50 - - - 51Transfer in respect of issue ofshares to employee trusts - 65 - - (65) -ESOP reserve transfer - - - 14 (14) -Other - - - - 13 13 End of the period 1,795 20,464 94 (996) 13,659 35,016 8. Reconciliation of operating (loss)/profit to operating cash flows Half year ended Year ended 31 March 31 March 30 September£000 2005 2004 2004 Operating (loss)/profit (5,128) 247 5,983Depreciation charge 4,066 3,822 7,805Goodwill charges 4,533 1,975 4,519Profit on sale of fixed assets (112) (47) (205)(Increase)/Decrease in stock (1,436) 1,762 (1,952)Decrease/(Increase) in debtors 19,909 14,448 (5,168)(Decrease)/Increase in creditors (22,463) (14,344) 11,417----------------------------- ---- ------- ---- ------- -----------Net cash (outflow)/inflow fromoperating activities (631) 7,863 22,399----------------------------- ---- ------- ---- ------- ----------- INDEPENDENT REVIEW REPORT TO RM PLC --------------------------------------------------- Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2005 which comprises the profit and loss account,the balance sheet, the cash flow statement and related notes 1 to 8. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolices and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2005. Deloitte & Touche LLPChartered AccountantsReading13 May 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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