Interim Results
28th May 2002
Results for the Six Months Ended 31st March 2002 and Key Findings of Review of
Strategy and Operations
RM plc, the UK's leading supplier of ICT software, systems and services to
education establishments, announces results for the six months ended 31st March
2002, and the key findings of a review of strategy and operations undertaken
since February 2002.
Results
Results (before exceptional charges) are in line with revised expectations
following the trading update made on 4th February 2002:
* Turnover of £89.1million (2001: £113.7 million)
* Strong cash generation with cash up £16 million on a year ago to £33.2
million (2001: £17.2 million)
* Loss before tax, goodwill and exceptional items of £4.7 million (2001: £2.1
million profit)
* Exceptional restructuring charge of £3.5 million covering redundancies and
property
* Intangible asset impairment of £5 million
* Unchanged interim dividend of 0.95p (2001: 0.95p)
Review of Strategy and Operations
Following the February update, RM initiated a review of strategy and
operations. Key findings include:
* Schools ICT market has continued growth potential, but with volatility in
spend profile and mix
* RM has unrivalled customer relationships and a highly respected brand
* RM remains the clear leader in ICT provision to UK schools
* Business structure to focus on customer relationships
* Product offer to remain broadly based with product development tightly
focused on emerging educational market requirements
* Recovery will be driven by tight management of the business rather than
revenue growth.
The Group has already implemented significant operational improvements:
* Cost control initiatives
* Moves to strengthen Board and senior management team
* Recovery plan in place to return the Group to profits growth
Commenting today, Tim Pearson, Chief Executive of RM said:
'Following a thorough review of strategy and operations we have put in place a
strategy, and a medium-term recovery plan, that builds on the unrivalled
strength of our customer relationships.
'Our results for the half year were in line with revised expectations following
the trading update made on 4th February. Looking ahead, recovery is underway
with a strong strategy in place, continued improvements in operational
efficiency and a strengthened leadership team. The Board expects a return to
profits growth next year.'
- Ends -
For further information, please contact:
Tim Pearson, Chief Executive RM plc 08709 200200
Mike Greig, Finance Director
Phil Hemmings, Director of Corporate Affairs and
Investor Relations
Andrew Fenwick Brunswick 020 7404 5959
Fiona Fong
A briefing to analysts will take place at 9.30 am on Tuesday 28th May at 16
Lincoln's Inn Fields, London WC2A 3ED.
A live audio feed will be available to analysts and shareholders who are unable
to attend this meeting in person. Please dial telephone number: 020 8901 6934
to access this facility.
An interview with Chief Executive, Tim Pearson, in video/audio and text will be
available from 0700 on Tuesday 28th May on www.cantos.com
Chairman's Statement
The first half of 2002 has been a difficult time for RM plc. We entered the
year with our cost base set for a year of turnover growth. However, as we
reported in February, with the educational ICT market experiencing rapid
changes and unprecedented volatility the Group now expects turnover for the
year to decline by approximately 15%. In line with February's guidance,
performance in the first half was significantly worse than our original plan
and, given the seasonal nature of the Group's business, this has resulted in a
first half loss before exceptional charges. In response, we have undertaken a
thorough review of strategy and operations, made significant management changes
and taken action to reduce costs.
Results
RM plc's results for the six months to 31st March 2002 are in line with revised
expectations following the trading update made on 4th February 2002. Group
turnover was £89.1 million (2001: £113.7 million), with the expected decrease
in Learning Schools Programme revenues contributing £5.4 million of the
reduction. Loss before tax, goodwill amortisation and exceptional items
(described later) was £4.7 million, compared with a profit of £2.1 million last
year. Diluted loss-per-share before goodwill amortisation and exceptional items
was 3.5p (2001: earnings-per-share of 1.7p).
The Group's cash position remains very strong - cash balances at 31st March
2002 were £33 million, with a net cash inflow from operating activities during
the period of £12.2 million. The net funds position at the end of the period
was £26.3 million (2001: £14.9 million) following the purchase, for £5.6
million in cash and loan notes, of Softease (an educational software developer)
and the electronic publishing assets of Helicon.
The Board is proposing an unchanged Interim dividend per share of 0.95p payable
on 5th July 2002 to shareholders on the register at 7th June 2002.
Exceptional items
Following the trading update in February the Board has taken action to bring
costs in line with expected turnover: ninety-nine people have been made
redundant; and a provision has been set aside against the costs of vacating
22,000 sq ft of property in Oxfordshire. The Group has taken a restructuring
charge of £3.5 million: £2.1 million related to staff changes and redundancies;
and £1.4 million related to property costs. These actions are expected to
deliver annualised cost savings of approximately £4 million, commencing in the
second half of this year with the full benefit being felt in the next financial
year.
During the Strategic Review it became clear that the 10-year strategic alliance
agreement RM entered into with Computer Curriculum Corporation (CCC) in 1997
was unlikely to deliver the expected benefits in the years ahead. Since the
agreement was signed the ownership and management of CCC has changed and,
following significant product development delays, the Board's expectations of
future products have reduced. The Group has taken a non-cash asset impairment
charge of £5m to reduce the carrying value of the intangible asset relating to
the CCC alliance to £0.4 million.
After goodwill amortisation, exceptional items and taxation the loss for the
period was £10.6 million (2001: £1.1 million profit) and loss-per-share was
11.3p.
Board
On 23rd January 2002 the Group announced that Tim Pearson was to succeed
Richard Girling as Chief Executive. At the time of the February trading update
this succession was accelerated, with Tim taking control immediately. Richard
stood down from the Board today and I would like to thank him for his
contribution to RM over more than twenty years. I would also like to welcome
Tim to his new role, where he is already having considerable impact.
Mark Burrell (Senior Non-Executive Director) also leaves the Board today having
reached the end of his term and I would like to thank him for his input and
ideas during his time with RM. The role of Senior Non-Executive Director will
pass to Sherry Coutu, who has been a member of the Board since 1999. We are at
an advanced stage in recruiting new Non-Executive Directors to support the
Executive team.
Review of strategy and operations
On his appointment, Tim Pearson initiated a thorough review of strategy and
operations. The brief for the review was to develop a strategy for RM that
would maximise shareholder value and to set out the foundations for a new
business plan that would deliver this strategy. As part of the review an
external strategy consultancy was appointed to provide objective analysis and
advice and to work with the Board in developing strategic options.
Key findings of the review are:
1. The schools ICT market has ongoing - although reduced - growth potential
but there is significant volatility in spend profile and mix due to
increasing central government intervention.
The educational ICT market is made up of a number of sub-segments (eg: PCs,
broadband connections and teacher training), with funding coming from multiple
sources (eg: schools' core budgets, central government funding and lottery
funding). Over the last five years the market has grown significantly, with
this growth resulting from a number of different initiatives. Up until the end
of last year, RM had delivered smooth profit and turnover growth by
successfully reacting to changes in both funding sources and product
requirements. However, over the last twelve months, the market has moved
rapidly with shifts in product demand and significant changes in government
initiatives. RM has not responded quickly enough to these changes either in
terms of targeted product plans or reductions to its cost base.
2. RM has unrivalled customer relationships and the UK's strongest
distribution channel for education products, founded on understanding
schools' ICT needs.
The review has confirmed that the RM brand is highly respected in our target
markets. The Group's relationships with schools are well developed, with
approximately one third of schools identifying themselves as regular and loyal
purchasers and a further one third purchasing from RM occasionally. RM is
significantly larger (in terms of sales) than its nearest competitor in the
educational ICT market, with strong market share and the leading position in
each market sub-segment. The Group is also the leading commercial supplier (by
value) to schools in general.
Building on these findings the Board has agreed a four-point strategy:
* Leverage the key strategic advantage of customer relationships, and
structure the company to take best advantage of it;
* Address expected volatility by remaining broadly based (by product) and
becoming more flexible;
* Drive performance through targeted initiatives and tight cost control;
* Set the cost base to deliver acceptable profitability even with modest
market growth and significant BBC impact.
RM will focus on its channel and customer relationship strengths and be a
broadly based supplier of products and services to schools. For the moment RM
will concentrate on ICT products, with the immediate recovery plan not
requiring any significant product diversification.
Operational developments
Since taking over in February, Tim Pearson has made six significant changes to
RM's senior operational team, including new directors in sales, marketing and
services. He has also introduced the new role of Strategic Projects director,
focusing on large project orders. The changes have sharpened the Group's
operational focus and position us well to address future opportunities in the
increasingly volatile market. The Board is also exploring ways to further align
the interests of the Group's Executives with those of shareholders and, if
appropriate, will be seeking shareholder approval for new incentive schemes in
due course.
As part of the Group's cost control measures it has been necessary to reduce
staff numbers. The staff reductions were concentrated on de-layering RM's
operations and increasing efficiencies in general and administration areas.
Redundancies are always painful, and particularly so in a company that has
always placed a strong emphasis on the quality and commitment of its people.
However, combined with the implementation of strict discretionary cost
controls, the redundancies mean that RM can now face the future with a cost
base that is better matched to likely revenues.
As reported in February, the release of RM Community Connect 3 was delayed in
order to complete additional testing and achieve the very highest levels of
customer satisfaction. Shipments of Community Connect 3 commenced on 13th May
2002 and, with £5 million of orders so far, the product is performing well. The
product is a major (once in five years) strategic upgrade for our customers and
is expected to generate significant additional business for the Group's other
product ranges.
The BBC's Digital Curriculum proposals continue to pose problems for the
education software industry and the education community. The BBC has submitted
its request for new service approval to the Department of Culture and Media and
Sport, and a public consultation started on 23rd May 2002 with a closing date
of 5th July 2002. RM is strongly opposed to these proposals. The Board firmly
believes they will damage choice, innovation and diversity in the digital
learning resources market to the detriment of schools, who will be faced with a
monopoly supplier. Along with 17 other educational software publishers, RM has
sought leave to apply for a judicial review of the BBC's current activities.
Expectations
The first six months of RM's year is never a good indicator of performance for
the full year. Nonetheless, the seasonal nature of RM's business (with higher
revenues in the second half of the year) combined with the impact of the cost
reduction programme, give the Board confidence that the pre-exceptional outcome
for the full year will be in line with expectations.
Looking further ahead, a number of factors will impact the next financial year
as the Group executes its recovery plan. There will be the further expected
decline in contribution from Learning Schools Programme, with government
funding for this initiative ending in March 2003. The Group will, however,
benefit from a full year of cost reductions. The Board expects to see a return
to profits growth next year, albeit with little change in turnover from the
current year.
RM's strong relationships with schools position it well to grasp the
opportunities the education market continues to offer. Recovery is under way
with a strong strategy in place, continued improvements in operational
efficiency and effectiveness and a strengthened leadership team.
John Leighfield
27th May 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Half year ended Year ended
31 March 31 March 30
September
£000 2002 2001 2001
Turnover
Existing operations 88,503 113,716 241,916
Acquisitions 630 - -
Total Turnover 89,133 113,716 241,916
Cost of sales (69,351) (88,307) (179,837)
Gross Profit 19,782 25,409 62,079
Operating expenses:
Selling & distribution (14,548) (13,886) (26,906)
Research & development (6,557) (6,013) (11,646)
Administration before exceptional (4,849)
items
Exceptional administration (8,468)
Total administration (13,317) (3,867) (8,712)
(34,422) (23,766) (47,264)
Operating (Loss)/Profit (14,640) 1,643 14,815
Operating (loss)/profit analysed
between:
Existing operations before (5,447) 2,166 15,860
exceptional items
Exceptional administration (8,468) - -
Amortisation of goodwill - (546) (523) (1,045)
existing operations
Operating (loss)/profit for (14,461) 1,643 14,815
existing operations
Acquisitions 198 - -
Amortisation of goodwill - (377) - -
acquisitions
Operating loss for acquisitions (179) - -
Total operating (loss)/profit (14,640) 1,643 14,815
Net interest receivable/(payable) 509 (107) 392
(Loss)/Profit on Ordinary (14,131) 1,536 15,207
Activities before Taxation
(Loss)/Profit on ordinary
activities before taxation
analysed between:
(Loss)/Profit on ordinary (4,740) 2,059 16,252
activities before taxation,
amortisation of goodwill and
exceptional items
Exceptional administration (8,468) - -
(Loss)/Profit on ordinary (13,208) 2,059 16,252
activities before taxation and
amortisation of goodwill
Amortisation of goodwill (923) (523) (1,045)
(14,131) 1,536 15,207
Tax credit/(charge) on (loss)/ 3,488 (412) (4,551)
profit on ordinary activities
(Loss)/Profit on Ordinary (10,643) 1,124 10,656
Activities after Taxation
Dividends paid and proposed (897) (891) (3,911)
Retained (Loss)/Profit (11,540) 233 6,745
(Loss)/Earnings per ordinary
share:
Basic (11.3p) 1.2p 11.4p
Diluted (11.2p) 1.2p 11.2p
Diluted - before amortisation of (10.3p) 1.7p 12.3p
goodwill
Diluted - before amortisation of (3.5p) 1.7p 12.3p
goodwill and exceptional
administration
CONSOLIDATED BALANCE SHEET
As at As at As at
31 March 31 March 30
September
£000 2002 2001 2001
Fixed Assets
Intangible fixed assets 8,235 10,447 9,430
Tangible fixed assets 23,603 26,236 25,299
31,838 36,683 34,729
Current Assets
Stocks 8,712 8,751 10,972
Debtors 41,302 51,761 53,665
Investments - short term cash deposits 9,236 10,000 8,095
Cash at bank and in hand 23,927 7,217 21,070
83,177 77,729 93,802
Creditors
Amounts falling due within one year (63,340) (62,598) (67,975)
Net Current Assets 19,837 15,131 25,827
Total Assets Less Current Liabilities 51,675 51,814 60,556
Creditors
Amounts falling due after more than one (4,942) (4,589) (6,506)
year
Provisions for Liabilities and Charges (5,261) (1,601) (1,026)
Net Assets 41,472 45,624 53,024
Capital and Reserves
Called up share capital 1,888 1,878 1,887
Share premium account 20,349 17,888 20,340
Profit and loss account 19,235 25,858 30,797
Equity Shareholders' Funds 41,472 45,624 53,024
CONSOLIDATED CASH FLOW STATEMENT
Half year ended Year ended
31 March 31 March 30
September
£000 2002 2001 2001
Net Cash Inflow From Operating 12,212 4,605 20,913
Activities
Returns on investments and servicing 509 (107) 392
of finance
Taxation (2,701) (149) (1,545)
Capital expenditure and financial (2,460) (3,990) (7,272)
investment
Acquisitions and disposals (498) - -
Equity dividends paid (3,020) (2,528) (3,419)
Net Cash Inflow/(Outflow) before use 4,042 (2,169) 9,069
of Liquid Resources and Financing
Management of liquid resources (1,141) 2,201 4,106
Financing (22) 208 919
Increase in Cash in the Period 2,879 240 14,094
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Increase in Cash in the Period 2,879 240 14,094
Capital element of finance lease 5 - 21
payments
Cash inflow/(outflow) from change in 1,141 (2,201) (4,106)
liquid resources
Settlement of loan notes - 55 212
Change in net cash resulting from cash 4,025 (1,906) 10,221
flows
New finance leases - (2) -
Issue of loan notes (4,764) - -
Exchange translation (22) (4) (5)
Movement in Net Funds in the Period (761) (1,912) 10,216
Net funds brought forward 27,068 16,852 16,852
Net Funds Carried Forward 26,307 14,940 27,068
NOTES TO THE INTERIM STATEMENTS
1. Basis of Preparation
The financial information contained in this statement does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The unaudited consolidated profit and loss account and balance sheet for the
half years ended 31 March 2001 and 31 March 2002 have been prepared on a basis
consistent with the statutory accounts for the year ended 30 September 2001,
with the exception that FRS 19 'Deferred Taxation' has been adopted from 1
October 2001. The effect of adopting FRS 19 is not material on the Group. The
accounts for the year ended 30 September 2001 received an unqualified auditor's
report and have been filed with the Registrar of Companies.
2. Acquisitions
Softease Limited was acquired for a maximum consideration of £4,900,000 on 21
October 2001 to be satisfied by the issue of loan notes of which a maximum of £
1,900,000 is deferred and payable over 18 months, conditional upon certain
financial targets being met. The assets of Helicon Publishing Limited were
acquired on 12 February for £700,000.
3. Exceptional Administration
(a) The Directors have critically reviewed the organisation's cost base in
light of the lower turnover and the review of the strategy and have taken
steps, which include employee redundancies and rationalisation of facilities,
to reduce it. An exceptional charge of £3,468,000 has been included in the
profit and loss account in respect of the costs of executing this
reorganisation. £2,068,000 relates to restructuring and redundancy costs and £
1,400,000 relates to rationalisation of facilities.
(b) The Directors have performed an impairment review of the carrying value of
the licence held as an intangible fixed asset. The licence relates to the
rights to manufacture and distribute certain software products and was acquired
in 1997. Having due regard to the recent and forecast performance, developments
in the competitive market place and other influencing factors, the Directors
consider that a carrying value as at 31 March 2002 of £362,000 is appropriate.
£5,000,000 has been charged to the profit and loss account and is included
within administration costs.
4. Tax Charge on Profit on Ordinary Activities
The tax charge for the half year ended 31 March 2002 has been provided at the
estimated effective rate for the full year.
5. Dividend
The proposed interim dividend of 0.95p per ordinary share (2001: 0.95p) will be
paid on 5 July 2002 to shareholders on the register on 7 June 2002.
6. (Loss)/Earnings per Share
(Loss)/Earnings per share for the half year ended 31 March 2002 are based on a
loss of £10,643,000 (2001: earnings of £1,124,000).
Basic (loss)/earnings per share is based on 94,377,184 ordinary shares (2001:
93,744,041), being the weighted average number of ordinary shares in issue
during the half year ended 31 March 2002.
The diluted (loss)/earnings per share is based on a weighted average of
94,607,543 (2001: 95,758,223) ordinary shares issued and issuable.
A reconciliation of basic (loss)/earnings per share with diluted (loss)/
earnings per share is as follows:
Half year ended 31 Half year ended 31 March
March 2002 2001
Loss No. of Pence Profit No. of Pence
after Shares per after Shares per
tax share tax share
£000 ('000) £000 ('000)
Basic (loss)/earnings per (10,643) 94,377 (11.3) 1,124 93,744 1.2
share
Impact of share options - 231 0.1 - 2,014 -
Diluted (loss)/earnings (10,643) 94,608 (11.2) 1,124 95,758 1.2
per share
Supplementary (loss)/earnings per share before amortisation of goodwill and
exceptional administration:
Diluted (loss)/earnings (10,643) 94,608 (11.2) 1,124 95,758 1.2
per share
Effect of amortisation of 923 - 0.9 523 - 0.5
goodwill
Diluted (loss)/earnings (9,720) 94,608 (10.3) 1,647 95,758 1.7
per share before
amortisation of goodwill
Effect of exceptional 6,402 - 6.8 - - -
administration
Diluted (loss)/earnings (3,318) 94,608 (3.5) 1,647 95,758 1.7
per share before
amortisation of goodwill
and exceptional
administration
7. Reserves and Reconciliation of Movements in Shareholders' Funds
Half year ended
31 March
2002
Share Profit Total
Share Premium and Loss Shareholders'
£000 Capital Account Account Funds
Beginning of the period 1,887 20,340 30,797 53,024
Retained loss for the period - - (11,540) (11,540)
Share issues 1 9 - 10
Other - - (22) (22)
End of the period 1,888 20,349 19,235 41,472
8. Reconciliation of Operating (Loss)/Profit to Operating Cash Flows
Half year ended Year ended
31 March 31 March 30
September
£000 2002 2001 2001
Operating (loss)/profit (14,640) 1,643 14,815
Depreciation charge 4,360 3,915 8,127
Amortisation of intangible 6,418 1,018 2,035
assets (including
exceptional write down)
Profit on disposal of fixed (135) (68) (61)
assets
Decrease in stock 2,271 12,066 9,845
Decrease in debtors 12,465 15,994 14,089
Increase/(Decrease) in 1,473 (29,963) (27,937)
creditors
Net cash inflow from 12,212 4,605 20,913
operating activities
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