RM announces preliminary results for the year to 30 September 2008
RM, the UK's leading provider of information and communications technology (ICT) and other products and services to education, announces strong results in line with expectations for the year to 30 September 2008.
*Adjusted profit is before amortisation of acquisition related intangible assets and, in 2007, an exceptional pension credit of £3.5m
Commenting on the results, Terry Sweeney, Chief Executive of RM, said:
'2008 has been a very good year for RM. We're announcing results that are in line with our original plan for the year, even after increased BSF investment. In BSF, we won half of the contracts that were available in the year and, since year-end, we've had further success. Our Education Resources business has grown by 51%, and our international activities have nearly doubled in size and now contribute 6% of revenues.
'We operate in a resilient market. Education is a priority for the developed and developing world and, in the UK, which still represents the majority of revenue, customers have three-year visibility of budgets. RM is a financially strong group of companies. Committed revenues have increased further this year and we have a strong balance sheet and committed bank facilities in place. With our experience and deep educational knowledge there are opportunities ahead for all of our businesses.'
For further information, please contact:
Terry Sweeney, Chief Executive Officer RM plc 08450 700300
Mike Greig, Chief Financial Officer
Phil Hemmings, Director of Corporate Affairs
Andrew Fenwick Brunswick 020 7404 5959
Catherine Colloms
A briefing to analysts will take place at 10:00am on Monday 24 November 2008 at Brunswick, 16 Lincoln's Inn Fields, London, WC2A 3ED. A live audio feed will be available to those analysts and shareholders unable to attend this meeting in person. To access this facility, call +44 (0) 1452 561263, conference ID 74744292.
A copy of the presentation will be available at www.rm.com from 8.30am on 24 November 2008.
Business Review: Operations
FY-2008 saw RM firmly established as the leading ICT supplier to the Government's BSF (Building Schools for the Future) programme, with a substantially enlarged Education Resources business, and well-positioned for international growth.
Results
Results for the year were in line with management's original plan for the year.
Financial highlights |
FY-2008 |
FY-2007 |
Revenue |
£289.5m |
£270.9m |
Adjusted* profit before tax |
£16.4m |
£15.5m |
Profit before tax |
£15.4m |
£18.4m |
BSF bid costs expensed |
£4.7m |
£3.6m |
Adjusted* basic EPS |
13.1p |
12.4p |
Basic EPS |
12.3p |
14.6p |
Dividend per share - proposed and paid |
5.81p |
5.49p |
Operating cash flows before movements in working capital |
£24.0m |
£23.5m |
Cash |
£18.3m |
£29.3m |
Net funds less deferred consideration |
£12.4m |
£27.4m |
|
|
|
Other key performance indicators |
FY-2008 |
FY-2007 |
Committed revenues |
£410m |
£330m |
Customer satisfaction (on a scale of one to ten) |
7.67 |
7.64 |
Employee satisfaction |
75.0% |
74.6% |
*Adjusted profit is before amortisation of acquisition related intangible assets and, in 2007, an exceptional pension credit of £3.5m |
Group revenue increased by 6.9% to £289.5m (2007: £270.9m), with growth from Education Resources, international business and BSF more than offsetting decreases in commodity hardware and UK curriculum software.
Committed revenues (order book, deferred revenue and projects at preferred/selected bidder stage) have increased further to a record £410m (2007: £330m), reflecting BSF and other long-term contract wins.
Adjusted profit before tax - our preferred measure, which excludes amortisation of acquisition-related intangible assets - increased by 6% to £16.4m (2007: £15.5m excluding an exceptional pension credit of £3.5m). The statutory measure of profit before tax was £15.4m (2007: £18.4m including an exceptional pension credit of £3.5m). Profit is stated after an increase in the level of BSF bid costs expensed during the year to £4.7m (2007: £3.6m).
RM is a cash-generative business. Operating cash flows before movements in working capital in the year were £24.0m (2007: £23.5m). At 30 September 2008, cash balances were £18.3m (30 September 2007: £29.3m).
The Board is recommending an increase in dividend, reflecting RM's performance and our continued confidence in future prospects. RM's dividend has increased, or remained at the same level, every year since the Group floated. A proposed final dividend of 4.55p per share will increase the full-year dividend by 6% to 5.81p (2007: 5.49p). Subject to approval at the Annual General Meeting (AGM), the final dividend is payable on 6 February 2009 to shareholders on the register on 9 January 2009.
RM's externally-reviewed customer satisfaction score - the Group's most important non-financial performance indicator - increased for the fifth year in succession to 7.67 (on a scale of zero to ten; 2007: 7.64). The overall employee satisfaction score, determined by a Group-wide survey, increased to 75.0% (2007: 74.6%).
Market
Education is a resilient market. In the UK, schools have three-year budgets and the Government has reinforced its commitment to long-term capital investment in the education sector; globally, education is a priority in developed and developing nations.
RM's customers are not directly affected by current economic conditions. Education is a market where customers expect their suppliers to understand their specific needs and to demonstrate long-term commitment. RM has operated in the education sector for over 30 years. We are confident that there will continue to be excellent opportunities for companies with the expertise and experience to offer products and services that help improve teaching and learning.
Learning Technologies
RM is the leading supplier of educational technology to schools and colleges in the UK. RM's Learning Technologies division has a mix of large multi-year contracts (including BSF) and business from individual schools, colleges and universities. Revenue for 2008 was £213.1m (2007: £215.6m). The reduction in average selling prices for commodity hardware more than offset an increase in BSF revenues. Divisional profit before BSF bid costs was £11.6m (2007: £10.5m).
We continue to build our portfolio of long-term contracts. During the year, in addition to the BSF contracts described below, we won three large multi-year managed service contracts, worth a total of £19.7m. Since year-end, we have won a further project, a £14m extension of our existing ten-year contract to provide the Dudley Grid for Learning.
Our individual school and college business is driven by continuous improvements in our products and services. Key developments in the year include:
Community Connect 4, the ninth generation of our networking solution for schools, which we launched in the second half. Initial interest in the product has been very positive and we comfortably met sales targets for the year, with 550 schools taking the product. Community Connect 4 is a major strategic upgrade for our customers which will drive infrastructure sales and form the basis of our managed service offer over the next two to five years.
The RM Asus miniBook, the ground-breaking one-per-pupil computing device, which we launched in October 2007. We have significantly exceeded our target for the year, selling more than 40,000 units. The combination of excellent functionality, low price, ease-of-use and robustness makes it an ideal device for students to carry around with them.
Kaleidos learning platform, which now has 1.7 million users. Learning platforms are sophisticated software systems supporting communications & collaboration and are increasingly being used by schools to manage the way they deliver teaching and learning. The Government's increasing focus on providing real time access to school data for parents will further accelerate the uptake of learning platforms.
Learning Technologies - BSF
BSF, the Government's programme to rebuild or refurbish all secondary schools in England, continues to represent a very large opportunity for the Group. The programme is now rolling forward very much to plan, and Partnerships for Schools (the government agency responsible for its delivery) is looking for ways to further accelerate progress.
Our net investment on BSF during the year was £4.4m and we have been very successful in securing new contracts, with a win-rate well ahead of our target. We were selected for five contracts during the year (out of ten that were awarded and eight that we bid for), which represent 49.5% of the business that was available in the year. Since year-end we have been selected for a further contract, worth £15m, in Southwark. BSF projects now contribute £191m of committed revenues.
Several of the BSF contracts we have already won are now well into the delivery phase. Our BSF delivery team has grown rapidly and now comprises 80 people, 40 of whom have transferred to us from our local authority customers. Over the summer we successfully commissioned ICT infrastructure in eight schools.
In July 2008 we acquired EasyTrace for a total cost of up to £2.8m. EasyTrace provides identity management systems, which support cashless catering, access control and electronic registration. These technologies are typically required as part of new school builds, in particular as part of BSF projects. We had already worked with EasyTrace on several contracts.
In 2009, we anticipate bidding for BSF contracts at a similar rate. RM's BSF activities are expected to move from net investment to net contribution in FY-2010.
Education Resources
Our Education Resources business has grown significantly since the acquisition of TTS Group in 2004 and now contributes a significant amount of the Group's profit. Revenue for 2008 was £57.0m (2007: £37.8m), the increase reflecting strong growth in general resources offset by a further decrease in UK curriculum software revenue. Divisional profit was £7.1m (2007: £6.6m), again reflecting increased revenue, offset by the decrease in high-margin curriculum software.
Key developments in Education Resources include:
The successful completion of the delivery of the Tesco Sport for Schools and Clubs scheme in the second half of the year, meeting or exceeding all of the targets set by Tesco. Tesco has subsequently appointed RM to deliver a new scheme in 2009, which combines their existing Computers and Sports schemes.
The acquisition of SpaceKraft in October 2007 for a net cost of up to £4.6m. SpaceKraft provides special educational needs (SEN) products and services, including sophisticated 'sensory environments' designed to provide multi-sensory stimulation for SEN pupils.
The acquisition of a 25% stake in Inclusive Technology in April 2008 for a total cost of £1m. Inclusive Technology is the UK market leader in the supply of software, computer access devices and technology for learners with physical disabilities, sensory impairments and learning difficulties. It brings additional critical mass to our existing SEN businesses.
In the UK, the curriculum software market had another tough year. Since year-end we have reorganised our activities accordingly. Our three separate curriculum software activities - Softease, 3T Productions and RM Learning Products - have been rationalised into a single business unit. We expect this to yield annual cost savings of £1m, for a one-off cost of £0.4m in H1-2009.
Until June 2008, our Education Resources division was run by Terry Sweeney. On Terry's appointment as CEO, we recruited Ronan Smith as Group Managing Director - Education Resources. Ronan's key objective is to continue to grow the profit contribution of our Education Resources business.
Assessment and Data Services
Over five years, Assessment and Data Services has moved from a single contract to provide on-screen testing services, to a profitable and growing business with an increasing number of long-term contracted clients. Revenue for 2008 was £19.3m (2007: £17.5m); divisional profit was £2.1m (2007: £1.2m).
Assessment & Data comprises three linked areas of activity:
On-screen marking. We provide outsourced services to Examination Boards and professional bodies to help them manage the marking of high-stakes examinations and tests. Our service comprises scanning of examination/test scripts; electronic distribution of electronic script images to markers; on-screen marking tools; electronic return of marks; and workflow across the whole system. In 2008 we facilitated the marking of over 3 million exam scripts for our strategic partner Cambridge Assessment, as well as working with a number of other bodies. In UK schools, approximately 40% of examination scripts are currently marked on-screen; we anticipate that this number will grow rapidly over the next five years as on-screen marking becomes the norm.
On-screen testing. We provide software that allows pupils and students to take tests on-screen, using a computer, rather than using traditional pen and paper techniques. This is an emerging area at the moment and, because of work providing on-screen testing for the Qualifications and Curriculum Authority (QCA) in the UK, we have significant experience. We anticipate a growing proportion of tests will be delivered on-screen.
Data management and analysis. We provide outsourced services that collect, process and analyse detailed education performance data. The UK has a well-developed capability for using performance data to inform educational practice. RM's Forvus subsidiary provides the National Pupil Database which collects this performance data on behalf of the Department for Children, Schools and Families, and also a number of innovative analysis tools.
There are significant international opportunities for our Assessment and Data Services activities and the Group, along with partners Cambridge Assessment, hosted a major international conference during the year in the UAE to gauge the potential for international business. British Examination Boards have strong overseas operations and are already beginning to implement on-screen marking and on-screen testing in their international businesses. The UK is viewed as a leader in data-driven education and we have seen emerging interest from a number of governments in implementing similar services to those we offer in the UK.
International
The Group's objective here is to identify and develop profitable opportunities for its products, services and intellectual property in selected international territories. International revenues in 2008 almost doubled to £16.5m (2007: £8.8m - note international revenues are also included in the divisional revenue numbers given above).
In 2008, international activity came predominantly in three businesses, each of which performed well during the year:
DACTA, the specialist education distributor of branded products (including LEGO Education, Tolo Education and Brio Education) which we acquired in 2007 is an international business, with three-quarters of revenues coming from Continental Europe. It is profitable, growing and an excellent channel for a wider range of products - from both other RM Group companies and third parties.
RM Asia-Pacific is the number one supplier of education management systems in Australia, where we have been active since 1998.
RM Educational Software Inc is our US subsidiary and sells RM's curriculum software products in North America. The Company was set up in 2003, achieved profitability in 2007, and doubled revenues in 2008.
With this foundation in place, we are now increasing our focus on international activities.
Since year-end, we have substantially increased our footprint in North America through the acquisition of Computrac LLC for a total cost of up to $8.0m (c.£5.0m). Computrac, which specialises in providing interactive whole-class teaching technology to schools in the Southeastern US, has been an RM partner for two years, selling our curriculum software. It will be combined with our existing RM Educational Software Inc and the new business makes an excellent platform for further growth in the US. Our American business will be headed by Kevin Pawsey, who has been with the Group for seven years and has led the development of our operations in the US since 2006.
Prospects
RM has always been a seasonal business, with the majority of revenues and an even larger proportion of profit coming in the second half of the year. This remains the case and it is too early to give any meaningful view of the outlook for FY-2009; however, the further increase in committed revenues to £410m (2007: £330m) provides us with much better visibility than we have had five years ago.
BSF continues to be an excellent opportunity for the Group and continues to be a significant investment. We expect to bid for the majority of contracts available during FY-2009; bid costs in FY-2009 will be approximately £4.5m. We anticipate that the in-year profit contribution from BSF will exceed bid costs in FY-2010.
Across the rest of the Group, we continue to make good progress. Education Resources is now a substantial, profitable and rapidly growing business; Assessment & Data Services has achieved critical mass, with a number of long-term contracted clients, and is beginning to explore international opportunities; and we have made a major step in the US with the acquisition of Computrac.
Global economic conditions are clearly challenging. However, RM operates in a resilient market: education is a priority for the developed and developing world and, in our home market, which still represents the majority of revenue, we have seen no indications of a decrease in spending. We are financially strong group of companies: committed revenues have increased further and we have a strong balance sheet and committed bank facilities in place. With our experience, deep educational knowledge, and good cultural fit, there are opportunities ahead for all of our businesses.
Business Review: Finance
Shareholder return
Total dividend for the year increased by 6% to 5.81p (2007: 5.49p); the dividend payment comprises an interim dividend per share of 1.26p and a proposed final dividend per share of 4.55p, payable on 6 February 2009. The estimated total cost of dividends paid and proposed for FY-2008 is £5.4m, dividend yield for the year is 3.46%, based on the share price at the end of the year. Over the last five years, the total dividend payment has been 25.92p per share, with a total cash cost of £23.7m.
Over the last five years, the Group's TSR (total shareholder return) has outperformed the FTSE Software and Computer Services sector by 24 percentage points. Over the last three years RM's TSR is in the top 20 percent of the sector.
The Group's share price at close of business on 30 September 2008 was 168.0p (28 September 2007: 191.5p); market capitalisation at the same date was £156.4m.
Revenue and profits
Group revenue increased by £18.6m to £289.5m (2007: £270.9m).
Acquisitions made in FY-2008, and the full-year effect of acquisitions made in FY-2007 contributing for a whole year, accounted for £10.0m of this increase, with organic growth accounting for the balance of £8.6m.
BSF contract revenue in the year was £9.0m (2007: £2.9m); BSF operating profit was £0.3m (2007: £nil).
Over the last five years, the sources of RM's revenue have changed markedly. Growth has come in the area of general Education Resources, which now represents 14% of revenue, and long-term contracts, which have grown from 9% to 18%. Commodity hardware (PCs, electronic whiteboards and 3rd party peripherals) has reduced from 51% of the total to 35%; whilst high-margin UK curriculum software has reduced from 12% of the total to 4%. In both cases the declines reflect market trends.
International revenues, at £16.5m, now represent 6% of Group turnover, compared with less than 1% in FY-2004.
Adjusted profit before tax (the Group's preferred measure, which excludes amortisation of acquisition related intangible assets) was £16.4m (2007: £15.5m excluding an exceptional pension credit of £3.5m). Profit before tax was £15.4m (2007: £18.4m including the FY-2007 exceptional pension credit).
The Group is structured as three operating divisions: Learning Technologies, Education Resources and Assessment & Data Services. The Operations Review provides information about performance in each of these divisions. To help investors in their analysis of the business, the tables provided in note 2 summarise revenue and divisional profit for FY-2007 and FY-2008.
Operating costs and investment income
Operating costs increased to £63.1m (2007: £60.0m). Acquisitions made in FY-2008 and the full-year impact of acquisitions made in FY-2007, which contributed an additional £3.2m to operating costs, explain all of the increase and, in particular, most of the increase in administrative costs.
Selling & distribution costs includes BSF bid costs of £4.7m (2007: £3.6m) and costs of £0.5m bidding for the Ultranet project in Australia in H1-2008. All bid costs, prior to appointment as preferred or selected bidder, are expensed in the year.
Research & development costs included in operating costs decreased year-on-year. However, research and development activities directly related to specific projects, which are included in cost of sales for those projects, increased. The Group did not capitalise any research & development expenditure in FY-2008 or prior years, as no material expenditure met the criteria for capitalisation.
Investment income includes income arising from the sale of leases of £0.7m (2007: £0.7m).
Profit margin
Adjusted divisional operating profit margin (adjusted divisional operating profit as a percentage of total revenue) was 5.6% (2007: 5.4%).
As has been the case for four years, profit and profit margin have been reduced due to the costs of bidding for BSF projects. BSF is an exceptional investment programme for the Group: projects typically take one to two years to bid and reach financial close; following this, the pay-back period is a further three to four years. Adjusted operating profit before BSF net investment was £20.5m (2007: £18.3m); profit margin before net BSF investment increased to 7.1% (2007: 6.8%).
Balance sheet and cash
Cash generated by operations in the year was £15.4m and adjusted profit from operations was £14.6m, a cash conversion rate of 106%.
The acquisitions of SpaceKraft and EasyTrace for a total net cost of £7.4m resulted in an increase in goodwill and acquisition related intangible assets to £34.6m (2007: £27.9m). In addition the Group acquired a 25% stake in Inclusive Technology for a total net cost of £1.0m.
Net capital expenditure increased to £10.5m (2007: £6.8m), including £3.9m expenditure on computer equipment refresh for the Group's PFI projects, £2.1m investment in hosting including a new data centre and a four-yearly peak in replacement of the car fleet which is on RM's balance sheet.
At 30 September 2008 cash and cash equivalents stood at £18.3m (2007: £29.3m).
The seasonal nature of the Group's business, with high demand from schools in the summer months, results in a peak in working capital during the summer. Average cash balances before acquisition facility borrowing during the year were £7.0m (2007: £16.9m), with maximum borrowings in early September of £9.0m (2007: £1.8m).
Working capital
Excluding the effect of acquisitions, working capital increased by £8.6m, with almost all of the increase attributable to the impact of BSF on the Group's operations:
Typical invoicing terms for BSF schools are 70% on issue of acceptance certificate, 25% two months later and 5% on completion of a group of schools; eight BSF schools were completed over the summer and these payment terms led to a year-on-year increase of £6.3m in trade receivables.
Long-term contract balances increased to £8.0m (2007: £6.1m) as a result of BSF.
Bank facilities
The Group has put in place credit facilities to manage its cash requirements. These include a long-term borrowing facility with HSBC entered into in July 2008. This is a £25m, five-year, committed facility, which is intended to provide flexibility to finance acquisitions. In addition, the Group has a £25m facility with HSBC, to finance seasonal cash requirements.
Tax
The Group's tax charge, measured as a percentage of adjusted profit, was 26.4% (2007: 26.8%). This rate is below the standard UK corporation tax rate, principally due the benefit the Group gains from enhanced tax deductions on qualifying research & development activities.
Pensions
At year-end the deficit in the Group's defined benefit pension scheme was £0.6m (30 September 2007: £3.3m). Management actions in the year included a special contribution of £1.5m (paid in October 2007) and the continuation of a funding payment which was £2.1m above the current service charge. Market related movements netted to a £0.9m increase in the deficit, as the reduction in the value of liabilities, due to an increase in discount rate, almost offset the reduction in asset values.
Defined benefit pension scheme valuations remain volatile. The table below provides an analysis of the sensitivity of the Group's pension scheme to changes in key assumptions.
Sensitivity analysis |
||
Current assumption |
Change in assumption |
Increase/(decrease) in deficit |
6.7% |
0.1% increase in discount rate |
(£1.5m) |
3.6% |
0.1% increase in inflation |
£0.8m |
PA92 Medium Cohort |
1 year increase in life expectancy |
£0.9m |
Finance income from pensions in FY-2008 was £0.6m (2007: £0.3m), but is expected to be an expense of approximately £0.4m in FY-2009 as a consequence of the decline in asset values during FY-2008.
Consolidated income statement
for the year ended 30 September 2008
£'000 |
|
|
|
2008 |
|
|
2007 |
|
Notes |
Before amortisation of acquisition related intangible assets |
Amortisation of acquisition related intangible assets |
Total |
Before amortisation of acquisition related intangible assets and exceptional pension credit |
Amortisation of acquisition related intangible assets and exceptional pension credit |
Total |
Revenue |
2 |
289,473 |
- |
289,473 |
270,910 |
|
270,910 |
Cost of sales |
|
(211,713) |
- |
(211,713) |
(197,376) |
|
(197,376) |
Gross profit |
|
77,760 |
- |
77,760 |
73,534 |
|
73,534 |
Selling and distribution costs |
|
(35,131) |
- |
(35,131) |
(33,979) |
|
(33,979) |
Research and development expenses |
|
(13,180) |
- |
(13,180) |
(14,886) |
|
(14,886) |
Administrative expenses |
|
(14,813) |
(1,026) |
(15,839) |
(11,174) |
(580) |
(11,754) |
Share of results of associates |
|
(36) |
(14) |
(50) |
- |
- |
- |
Exceptional pension credit |
|
- |
- |
- |
- |
3,500 |
3,500 |
|
|
(63,160) |
(1,040) |
(64,200) |
(60,039) |
2,920 |
(57,119) |
Profit from operations |
|
14,600 |
(1,040) |
13,560 |
13,495 |
2,920 |
16,415 |
Investment income |
3 |
1,994 |
- |
1,994 |
2,047 |
|
2,047 |
Finance costs |
4 |
(167) |
- |
(167) |
(27) |
|
(27) |
Profit before tax |
2 |
16,427 |
(1,040) |
15,387 |
15,515 |
2,920 |
18,435 |
Tax |
5 |
(4,331) |
270 |
(4,061) |
(4,153) |
(877) |
(5,030) |
Profit for the period attributable to equity holders of the parent |
10 |
12,096 |
(770) |
11,326 |
11,362 |
2,043 |
13,405 |
|
|
|
|
|
|
|
|
Earnings per ordinary share: |
6 |
|
|
|
|
|
|
Basic |
|
13.1p |
(0.8)p |
12.3p |
12.4p |
2.2p |
14.6p |
Diluted |
|
13.0p |
(0.8)p |
12.2p |
12.3p |
2.2p |
14.5p |
|
|
|
|
|
|
|
|
Paid and proposed dividends per share: |
7 |
|
|
|
|
|
|
Interim |
|
|
|
1.26p |
|
|
1.19p |
Final |
|
|
|
4.55p |
|
|
4.30p |
|
|
|
|
|
|
|
|
All activities relate to continuing operations.
Consolidated statement of recognised income and expense
for the year ended 30 September 2008
£'000 |
|
2008 |
2007 |
|
Note |
|
|
Exchange (losses)/gains on translation of foreign operations |
10 |
(23) |
194 |
Actuarial (losses)/gains on defined benefit pension scheme |
11 |
(1,532) |
7,565 |
Current tax on items taken directly to equity |
5 |
147 |
198 |
Deferred tax on items taken directly to equity |
5 |
398 |
(2,294) |
Net (loss)/income recognised directly in equity |
|
(1,010) |
5,663 |
Profit for the year |
|
11,326 |
13,405 |
Total recognised income and expense for the year attributable to equity holders of the parent |
|
10,316 |
19,068 |
Total tax credited to equity was £545,000 (2007: charge of £2,096,000).
Consolidated balance sheet
as at 30 September 2008
£'000 |
Note |
2008 |
2007 |
Non-current assets |
|
|
|
Goodwill |
|
29,662 |
24,626 |
Acquisition related intangible assets |
|
4,941 |
3,267 |
Other intangible assets |
|
2,242 |
2,395 |
Property, plant and equipment |
|
19,882 |
21,125 |
Interests in associates |
|
964 |
- |
Deferred tax assets |
|
1,532 |
2,739 |
|
|
59,223 |
54,152 |
Current assets |
|
|
|
Inventories |
|
18,254 |
13,701 |
Trade and other receivables |
8 |
70,303 |
58,803 |
Cash and cash equivalents |
|
18,291 |
29,321 |
|
|
106,848 |
101,825 |
|
|
|
|
Non-current assets held for sale |
|
2,580 |
- |
Total assets |
|
168,651 |
155,977 |
|
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
9 |
(93,200) |
(86,006) |
Tax liabilities |
9 |
(920) |
(1,221) |
|
|
(94,120) |
(87,227) |
|
|
|
|
Net current assets |
|
12,728 |
14,598 |
|
|
|
|
Non-current liabilities |
|
|
|
Retirement benefit obligation |
11 |
(561) |
(3,269) |
Bank loans |
|
(1,000) |
- |
Deferred tax liabilities |
|
(83) |
(135) |
Other payables |
9 |
(9,112) |
(5,182) |
Provisions |
|
(488) |
(2,252) |
|
|
(11,244) |
(10,838) |
|
|
|
|
Total liabilities |
|
(105,364) |
(98,065) |
|
|
|
|
Net assets |
|
63,287 |
57,912 |
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
Share capital |
|
1,863 |
1,854 |
Share premium account |
|
26,578 |
25,727 |
Own shares |
|
(1,323) |
(998) |
Capital redemption reserve |
|
94 |
94 |
Translation reserve |
|
167 |
190 |
Retained earnings |
|
35,908 |
31,045 |
Total equity |
10 |
63,287 |
57,912 |
Consolidated cash flow statement
for the year ended 30 September 2008
£'000 |
|
2008 |
2007 |
|
|
|
|
Profit from operations |
|
13,560 |
16,415 |
Adjustments for: |
|
|
|
(Gain)/loss on derivatives |
|
(653) |
55 |
Amortisation of acquisition related intangible assets |
|
1,040 |
580 |
Depreciation of property, plant and equipment |
|
8,869 |
8,793 |
Amortisation of other intangible assets |
|
912 |
1,010 |
Gain on disposal of property, plant and equipment |
|
(300) |
(657) |
Decrease in provisions |
|
- |
(195) |
Share-based payment charge |
|
600 |
1,038 |
Exceptional pension credit |
|
- |
(3,500) |
Operating cash flows before movements in working capital |
|
24,028 |
23,539 |
Increase in inventories |
|
(3,813) |
(1,934) |
Increase in receivables |
|
(9,736) |
(6,492) |
Increase in payables |
|
4,965 |
4,508 |
Cash generated by operations |
|
15,444 |
19,621 |
Defined benefit pension contribution in excess of current service cost |
|
(3,627) |
(3,573) |
Tax paid |
|
(3,103) |
(3,470) |
Income on sale of finance lease debt |
|
651 |
688 |
Interest paid |
|
(167) |
(27) |
Net cash inflow from operating activities |
|
9,198 |
13,239 |
|
|
|
|
Investing activities |
|
|
|
Interest received |
|
521 |
872 |
Proceeds on disposal of property, plant and equipment |
|
663 |
2,004 |
Purchases of property, plant and equipment |
|
(10,458) |
(7,482) |
Purchases of other intangible assets |
|
(691) |
(1,303) |
Acquisition of investment in associate |
|
(1,014) |
- |
Acquisition of subsidiaries, net of cash acquired |
|
(3,999) |
(2,767) |
Net cash used in investing activities |
|
(14,978) |
(8,676) |
|
|
|
|
Financing activities |
|
|
|
Dividends paid |
|
(5,126) |
(4,801) |
Proceeds from share capital issue, net of share issue costs |
|
460 |
1,280 |
Repayment of borrowings assumed in acquisitions |
|
(554) |
- |
Borrowings |
|
1,000 |
- |
Purchase of own shares |
|
(874) |
(559) |
Repayment of loan notes and deferred consideration |
|
(246) |
(1,316) |
Net cash used in financing activities |
|
(5,340) |
(5,396) |
|
|
|
|
Net decrease in cash and cash equivalents |
|
(11,120) |
(833) |
|
|
|
|
Cash and cash equivalents at the beginning of year |
|
29,321 |
30,092 |
Effect of foreign exchange rate changes |
|
90 |
62 |
Cash and cash equivalents at the end of year |
|
18,291 |
29,321 |
Group net funds
for the year ended 30 September 2008
£'000 |
2007 |
Cash flow |
Non-cash movements |
2008 |
|
|
|
|
|
Cash and cash equivalents |
29,321 |
(11,120) |
90 |
18,291 |
Bank borrowing |
- |
(1,000) |
- |
(1,000) |
Loan notes |
(246) |
246 |
(4,464) |
(4,464) |
Net funds |
29,075 |
(11,874) |
(4,374) |
12,827 |
Issuable loan notes |
(1,710) |
- |
1,710 |
- |
Deferred consideration |
- |
- |
(440) |
(440) |
|
27,365 |
(11,874) |
(3,104) |
12,387 |
Notes to the report and accounts
1. Preliminary results
The preliminary results for the year to 30 September 2008 have been prepared in accordance with the accounting principles of International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the Companies Act 1985. However, this announcement does not contain sufficient information to comply with IFRS. The Group expects to publish full financial statements which will be delivered before the Company's Annual General Meeting in January 2009.
The financial information set out in the preliminary announcement does not constitute the Group's statutory accounts for the years ended 30 September 2007 or 2008, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention any matters by way of emphasis, without qualifying their report and did not contain statements under s237(2) or (3) Companies Act 1985.
This Preliminary Announcement was approved by the Board of Directors on 24 November 2008.
2. Business segments
The Group's business is supplying products and services to education. During 2008 the operational structure of the Group has developed, with the results of three operating divisions being reported internally. These operating divisions are Learning Technologies which includes Education Management Systems; Education Resources; and Assessment and Data Services. Although an International division is emerging and will form part of the Group's future strategy, its results are not yet analysed separately by management and are included below on the basis of the nature of the products and services provided.
The following disclosure shows the result of these divisions, being shown before Building Schools for the Future (BSF) bid costs:
Divisional result
£'000 |
Learning Technologies |
Education Resources (and Curriculum software) |
Assessment and Data Services |
Total |
2008 |
|
|
|
|
Revenue |
213,094 |
57,032 |
19,347 |
289,473 |
Divisional profit |
11,613 |
7,070 |
2,140 |
20,823 |
BSF bid costs |
(4,750) |
- |
- |
(4,750) |
|
6,863 |
7,070 |
2,140 |
16,073 |
Net bank and loan note interest receivable (note 3) |
|
|
|
354 |
Profit before tax* |
|
|
|
16,427 |
Amortisation of acquisition related intangible assets |
|
|
|
(1,040) |
Profit before tax |
|
|
|
15,387 |
|
|
|
|
|
Group profit before tax |
|
|
|
15,437 |
Share of associate result |
|
|
|
(50) |
|
|
|
|
15,387 |
|
|
|
|
|
2007 |
|
|
|
|
Revenue |
215,635 |
37,819 |
17,456 |
270,910 |
Divisional profit |
10,549 |
6,586 |
1,169 |
18,304 |
BSF bid costs |
(3,634) |
- |
- |
(3,634) |
|
6,915 |
6,586 |
1,169 |
14,670 |
Net bank and loan note interest receivable (note 3) |
|
|
|
845 |
Profit before tax* |
|
|
|
15,515 |
Amortisation of acquisition related intangible assets |
|
|
|
(580) |
Exceptional pension credit |
|
|
|
3,500 |
Profit before tax |
|
|
|
18,435 |
|
|
|
|
|
* before amortisation of acquisition related intangible assets and 2007 exceptional pension credit
Building Schools for the Future net investment represents the pre-preferred bidder expenditure incurred by the Group in bidding for these contracts less operating profit from contracts in delivery:
£'000 |
|
|
Building Schools for the Future: |
|
|
- bid costs |
4,750 |
3,634 |
- operating profit |
(330) |
(70) |
- net investment |
4,420 |
3,564 |
Profit before tax, amortisation of acquisition related intangible assets, the 2007 exceptional pension credit and BSF net investment was £20.8m (2007:£19.1m).
3. Investment income
£'000 |
2008 |
2007 |
|
|
|
Bank interest |
521 |
872 |
Income from sale of finance lease debt |
651 |
688 |
Net finance income on defined benefit pension scheme |
613 |
300 |
Other finance income |
209 |
187 |
|
1,994 |
2,047 |
Net bank and loan note interest income receivable is £354,000, being £521,000 bank interest less finance costs of £167,000 (2007: £845,000 income, being £872,000 bank interest less £27,000 finance costs).
4. Finance costs
£'000 |
2008 |
2007 |
|
|
|
Interest on bank overdrafts and loans |
155 |
21 |
Interest on loan notes |
12 |
6 |
|
167 |
27 |
5. Tax
a) Income statement
Analysis of tax charged in income statement:
£'000 |
2008 |
2007 Restated |
|
|
|
Current taxation |
|
|
UK corporation tax at 29% (2007: 30%) based on the profit for the year |
3,078 |
3,365 |
Adjustment in respect of prior years |
(232) |
109 |
Overseas tax - current year |
171 |
- |
Total current tax |
3,017 |
3,474 |
|
|
|
Deferred taxation |
|
|
Temporary differences |
907 |
1,953 |
Adjustment in respect of prior years |
137 |
(397) |
Total deferred tax |
1,044 |
1,556 |
|
|
|
Total income statement tax charge |
4,061 |
5,030 |
The disclosure for the comparative period has been restated to correct the allocation of tax charged between current and deferred tax. As deferred tax had already been provided on the retirement benefit obligation and on acquisition related intangible assets, the movements relating to these items through income, as a result of the exceptional pension credit and amortisation respectively, gave rise to a deferred tax charge of £877,000 rather than a current tax charge of £877,000 as previously disclosed.
In addition to the amount charged to the income statement, £545,000 of tax has been credited to equity through the statement of recognised income and expense (2007: charge of £2,096,000). The credit comprises a tax credit on the equity component of share-based payments of £74,000 (2007: £239,000) and a tax credit on actuarial gains and losses of £471,000 (2007: debit of £2,335,000). The 2007 entries include £89,000 of debit arising from the change in tax rate.
b) Reconciliation to standard UK tax rate
The difference between the total tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit on ordinary activities before tax is as follows:
£'000 |
2008 |
2007 |
Profit on ordinary activities before tax |
15,387 |
18,435 |
|
|
|
Tax at 29% (2007: 30%) thereon: |
4,462 |
5,532 |
|
|
|
Effects of: |
|
|
- impact of change in tax rate on brought forward deferred tax asset |
- |
62 |
- other expenses not deductible for tax purposes |
37 |
59 |
- other temporary timing differences |
233 |
278 |
- research and development tax credit |
(495) |
(502) |
- effect of overseas profits |
(81) |
(111) |
- prior period adjustments |
(95) |
(288) |
Tax |
4,061 |
5,030 |
The UK tax rate of 29% is calculated on the basis of half a year at 30% and half a year at 28%, following changes announced in the March 2007 budget statement.
c) Effective tax rate
The Group's effective tax rate of 26.4% (2007: 26.8%) has been calculated excluding the impact of acquisition related intangible amortisation and the exceptional pension credit from profit before tax:
£'000 |
|
|
2008 |
|
|
2007 |
|
Before amortisation of acquisition related intangible assets |
Amortisation of acquisition related intangible assets |
Total |
Before amortisation of acquisition related intangible assets and exceptional pension credit |
Amortisation of acquisition related intangible assets and exceptional pension credit |
Total |
Profit before tax |
16,427 |
(1,040) |
15,387 |
15,515 |
2,920 |
18,435 |
Tax charge/(credit) |
4,331 |
(270) |
4,061 |
4,153 |
877 |
5,030 |
Effective rate |
26.4% |
26.0% |
26.4% |
26.8% |
30.0% |
27.3% |
The tax credit on the amortisation of acquisition related intangible assets of £270,000 (2007: charge of £877,000 including tax charge on exceptional pension credit) comprises a deferred tax credit of £231,000 and current tax credit of £39,000 (2007: deferred tax charge of £877,000).
The tax rate on the amortisation of acquisition related intangible assets is different from the standard rate of UK corporation tax of 29%. This results from the tax impact of the equity investment in Inclusive being incorporated within the Share of results of associates.
At the balance sheet date, the Group has unused tax losses of £0.4 million (2007: £0.4 million) which are available for offset against future profits. A deferred tax asset has been recognised in respect of none (2007: £0.2 million) of this amount.
No liability has been recognised on the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries because the Group is in a position to control the timing and method of the reversal of these differences and it is not probable that such differences will give rise to a tax liability in the foreseeable future.
6. Earnings per ordinary share
The calculation of basic and diluted earnings per ordinary share is shown below: Earnings per share have also been presented which remove the impact of the amortisation of acquisition related intangible assets and also the exceptional pension credit. Additionally, to understand the impact of the Group's net investment (bid costs expensed less profit recognised) in the Building Schools for the Future programme, adjustment for this expenditure is shown.
Basic earnings per ordinary share:
|
2008 |
2007 |
||||
|
Profit after tax £'000 |
Weighted average number of shares '000 |
Pence per share |
Profit after tax £'000 |
Weighted average number of shares '000 |
Pence per share |
Basic earnings per ordinary share |
11,326 |
92,297 |
12.3 |
13,405 |
91,780 |
14.6 |
Effect of amortisation of acquisition related intangible assets and 2007 exceptional pension credit |
770 |
- |
0.8 |
(2,043) |
- |
(2.2) |
Basic earnings per ordinary share adjusted for amortisation of acquisition related intangible assets and 2007 exceptional pension credit |
12,096 |
92,297 |
13.1 |
11,362 |
91,780 |
12.4 |
Effect of BSF net investment, net of tax |
3,138 |
- |
3.4 |
2,495 |
- |
2.7 |
Basic earnings per ordinary share adjusted for BSF net investment, amortisation of acquisition related intangible assets and 2007 exceptional pension credit |
15,234 |
92,297 |
16.5 |
13,857 |
91,780 |
15.1 |
Diluted earnings per ordinary share:
|
2008 |
2007 |
||||
|
Profit after tax £'000 |
Weighted average number of shares '000 |
Pence per share |
Profit after tax £'000 |
Weighted average number of shares '000 |
Pence per share |
Basic earnings per ordinary share |
11,326 |
92,297 |
12.3 |
13,405 |
91,780 |
14.6 |
Effect of dilutive potential ordinary shares: share options |
- |
409 |
(0.1) |
- |
505 |
(0.1) |
Diluted earnings per ordinary share |
11,326 |
92,706 |
12.2 |
13,405 |
92,285 |
14.5 |
Effect of amortisation of acquisition related intangible assets and 2007 exceptional pension credit |
770 |
- |
0.8 |
(2,043) |
- |
(2.2) |
Diluted earnings per ordinary share adjusted for amortisation of acquisition related intangible assets and 2007 exceptional pension credit |
12,096 |
92,706 |
13.0 |
11,362 |
92,285 |
12.3 |
Effect of BSF net investment, net of tax |
3,138 |
- |
3.4 |
2,495 |
- |
2.7 |
Diluted earnings per ordinary share adjusted for BSF net investment, amortisation of acquisition related intangible assets and 2007 exceptional pension credit |
15,234 |
92,706 |
16.4 |
13,857 |
92,285 |
15.0 |
7. Dividends
Amounts recognised as distributions to equity holders in the year:
£'000 |
2008 |
2007 |
|
|
|
Final dividend for the year ended 30 September 2007 of 4.30p (2006: 4.05p) per share |
3,964 |
3,688 |
Interim dividend for the year ended 30 September 2008 of 1.26p (2007: 1.19p) per share |
1,162 |
1,113 |
|
5,126 |
4,801 |
The proposed final dividend of 4.55p per share was approved by the Board on 21 November 2008. The dividend is subject to approval by shareholders at the Annual General Meeting and the expected cost of £4.2 million has not been included as a liability as at 30 September 2008.
8. Trade and other receivables
£'000 |
|
|
|
2008 |
2007 |
|
|
|
Current |
|
|
|
|
|
Trade receivables |
54,423 |
47,943 |
Long-term contract balances |
8,036 |
6,079 |
Other receivables |
208 |
432 |
Prepayments and accrued income |
7,636 |
4,349 |
|
70,303 |
58,803 |
9. Trade and other payables
£'000 |
|
|
|
2008 |
2007 |
|
|
|
Current |
|
|
Trade payables |
30,173 |
26,520 |
Other taxation and social security |
10,408 |
11,046 |
Other payables - other |
692 |
793 |
Accruals |
29,054 |
24,873 |
Deferred income |
22,192 |
22,528 |
Loan notes |
681 |
246 |
|
93,200 |
86,006 |
|
|
|
Tax liabilities |
920 |
1,221 |
|
|
|
Non-current |
|
|
Deferred income: |
|
|
- due after one year but within two years |
3,392 |
3,660 |
- due after two years but within five years |
1,450 |
1,492 |
- due after five years |
47 |
30 |
|
4,889 |
5,182 |
Other payables - deferred consideration |
440 |
- |
Loan notes |
3,783 |
- |
|
9,112 |
5,182 |
10. Reconciliation of shareholder's equity and reserves
£'000 |
Share capital |
Share premium account |
Own shares |
Capital redemption reserve |
Translation reserve |
Retained earnings |
Total equity |
Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 October 2006 |
1,836 |
23,877 |
(954) |
94 |
(4) |
17,426 |
42,275 |
Profit for the year |
- |
- |
- |
- |
- |
13,405 |
13,405 |
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
194 |
- |
194 |
Actuarial gains and losses on defined benefit scheme |
- |
- |
- |
- |
- |
7,565 |
7,565 |
Tax charge on items taken directly to equity |
- |
- |
- |
- |
- |
(2,096) |
(2,096) |
Purchase of shares |
- |
- |
(559) |
- |
- |
- |
(559) |
Transfer in respect of issue of shares to employee trusts |
- |
588 |
- |
- |
- |
(588) |
- |
Share-based payment awards exercised in year |
- |
- |
515 |
- |
- |
(904) |
(389) |
Share-based payment transactions |
- |
- |
- |
- |
- |
1,038 |
1,038 |
Dividends paid |
- |
- |
- |
- |
- |
(4,801) |
(4,801) |
Share issues |
18 |
1,262 |
- |
- |
- |
- |
1,280 |
At 1 October 2007 |
1,854 |
25,727 |
(998) |
94 |
190 |
31,045 |
57,912 |
Profit for the year |
- |
- |
- |
- |
- |
11,326 |
11,326 |
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
(23) |
- |
(23) |
Actuarial gains and losses on defined benefit scheme |
- |
- |
- |
- |
- |
(1,532) |
(1,532) |
Tax charge on items taken directly to equity |
- |
- |
- |
- |
- |
545 |
545 |
Purchase of shares |
- |
- |
(734) |
- |
- |
- |
(734) |
Transfer in respect of issue of shares to employee trusts |
- |
400 |
- |
- |
- |
(400) |
- |
Share-based payment awards exercised in year |
- |
- |
409 |
- |
- |
(550) |
(141) |
Share-based payment transactions |
- |
- |
- |
- |
- |
600 |
600 |
Dividends paid |
- |
- |
- |
- |
- |
(5,126) |
(5,126) |
Share issues |
9 |
451 |
- |
- |
- |
- |
460 |
At 30 September 2008 |
1,863 |
26,578 |
(1,323) |
94 |
167 |
35,908 |
63,287 |
Transfers in respect of issue of shares to employee trusts represents transactions between Retained earnings and Share premium on share options exercised in the year at the difference between the option exercise price and the market value at the date of exercise. The exercise of options represents the only issuance of share capital.
Share-based payment awards exercised in the year represents the impact on Retained earnings of releasing the fair value charge accrued under IFRS 2 Share-based payment, which for the co-investment scheme is partially matched by the release of own-shares held.
In addition to the £734,000 purchase of own-shares held, a further £140,000 was spent on own-shares during the year in respect of the Group's obligations under the RM plc Staff Share Scheme. These shares are for the benefit of employees and are not shown in the Group's balance sheet. The total amount spent on own shares was therefore £874,000.
11. Defined benefit scheme
The Group operates one defined benefit pension scheme, the Research Machines plc 1988 Pension Scheme. The scheme provides benefit to qualifying employees and former employees of RM Education plc, 3T Productions Ltd and Softease Ltd, but was closed to new members with effect from 1 January 2003. Under the scheme employees are entitled to retirement benefits of 1/60th of final salary for each qualifying year on attainment of retirement age of 60 or 65 years and additional benefits based on the value of individual accounts. No other post-retirement benefits are provided. The scheme is a funded scheme.
The assets of the scheme are held separately from those of the Group in a trustee-administered fund.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation were carried out for statutory funding purposes at 31 May 2006 by a qualified independent actuary. The valuation of plan assets was updated to 30 September 2008 and liabilities rolled forward to this date under IAS 19 Employee Benefits. The present value of the defined benefit obligation and the related current service cost was measured using the projected unit credit method.
The triennial valuation for statutory funding purposes showed a deficit of £12.7 million as at 31 May 2006 (31 May 2003: £12.9m). The cost of future provision was revised to 21.4% for Normal Retirement Age 60 (2003: 20.4%) and 15.3% for Normal Retirement Age 65 (2003: 13.1%).
IAS 19 valuation
Key assumptions used:
|
2008 |
2007 |
Rate of increase in salaries |
3.90% |
3.70% |
Rate of increase of pensions in payment |
3.60% |
3.30% |
Rate of increase of pensions in deferment |
3.60% |
3.30% |
Discount rate |
6.70% |
5.80% |
Inflation assumption |
3.60% |
3.30% |
At 30 September 2008, as a consequence of current conditions in the credit market, the market derived discount rate, given by the iBoxx £ Corporates AA 15+ index yield, was 7.3% (5.8% at 30 September 2007). As required by IAS 19 Employee Benefits, management has considered whether the rate at 30 September 2008 contains a significant risk premium and has consequently adjusted it down to 6.7%. Use of the market derived discount rate would have resulted in the recognition of an £8.6m surplus. Further analysis of sensitivity to this assumption is explained below.
Mortality assumptions continue to be based on the PA92 medium cohort tables which give average life expectancies as follows:
|
2008 |
2007 |
||
|
Male |
Female |
Male |
Female |
Pensioner member age 65 (current life expectancy) |
21.8 |
24.7 |
21.8 |
24.7 |
Non-pensioner member age 45 (life expectancy at 65) |
23.0 |
25.8 |
23.0 |
25.8 |
Defined benefit pension scheme charges/(credits) recognised in income are as follows:
£'000 |
2008 |
2007 |
|
|
|
Current service cost |
3,190 |
3,668 |
Exceptional pension credit |
- |
(3,500) |
Cost recognised within operating profit |
3,190 |
168 |
Interest cost |
4,879 |
4,258 |
Expected return on scheme assets |
(5,492) |
(4,558) |
Income recognised within finance income |
(613) |
(300) |
|
2,577 |
(132) |
The exceptional 2007 pension credit relates to the January 2007 implementation of a 5% pensionable salary cap. As part of the agreement to the cap a special contribution of £3.5m was put into the scheme in two parts, with the second and final element of £1.5m being paid in October 2007. This payment was in addition to the current service contribution and ongoing deficit catch up payments agreed with the scheme's trustees in 2006.
Amounts recognised directly in equity in respect of the defined benefit pension scheme are as follows:
£'000 |
2008 |
2007 |
|
|
|
Actuarial gains and (losses) |
(1,532) |
7,565 |
Experience gains and (losses) |
- |
- |
|
(1,532) |
7,565 |
Cumulative actuarial gains and losses recognised in the statement of recognised income and expense since 1 October 2004 are losses of £0.2m (2007: gain of £1.4m).
The amount included within the balance sheet arising from the Group's obligations in respect of its defined benefit scheme, and the expected rate of return on scheme assets are as follows:
£'000 |
2008 |
2007 |
||
|
|
|
|
|
Equities |
6.80% |
36,924 |
7.40% |
54,974 |
Bonds |
5.45% |
39,320 |
4.90% |
24,698 |
Total fair value of scheme assets |
|
76,244 |
|
79,672 |
Present value of defined benefit obligations |
|
(76,805) |
|
(82,941) |
Deficit in scheme and liability recognised in balance sheet |
|
(561) |
|
(3,269) |
Related deferred tax asset |
|
157 |
|
915 |
Net pension deficit |
|
(404) |
|
(2,354) |
The actual return on scheme assets was a loss of £9.6 million (2007: gain of £6.1 million). The expected return on scheme equity assets is based upon the expected out-performance of equities over government bonds over the long term and includes an allowance for future expenses. The bond rate is based on the addition of a risk loading to the long term risk free rate of return and also includes an allowance for future expenses.
Movements in fair value of defined benefit obligations were as follows:
£'000 |
2008 |
2007 |
|
|
|
At 1 October |
82,941 |
85,582 |
Current service costs |
3,190 |
3,668 |
Interest cost |
4,879 |
4,258 |
Exceptional pension credit |
- |
(3,500) |
Contributions from scheme members |
23 |
71 |
Actuarial (gains) and losses |
(13,657) |
(6,463) |
Benefits paid |
(571) |
(675) |
At 30 September |
76,805 |
82,941 |
Movements in fair value of scheme assets were as follows:
£'000 |
2008 |
2007 |
|
|
|
At 1 October |
79,672 |
66,875 |
Expected return on scheme assets |
5,492 |
4,558 |
Actuarial (losses) and gains - actual return less expected return |
(15,189) |
1,102 |
Contributions from sponsoring companies: |
|
|
In respect of current service cost |
3,190 |
3,668 |
In excess of current service cost |
3,627 |
4,073 |
|
6,817 |
7,741 |
Contributions from scheme members |
23 |
71 |
Benefits paid |
(571) |
(675) |
At 30 September |
76,244 |
79,672 |
The history of experience adjustments is as follows
£'000 |
2008 |
2007 |
2006 |
2005 |
2004* |
|
|
|
|
|
|
Difference between expected and actual return on scheme assets: |
|
|
|
|
|
- amount (£'000) |
(15,189) |
1,102 |
2,025 |
5,900 |
1,230 |
- as a percentage of scheme assets |
20% |
1% |
3% |
10% |
3% |
Experience gains and (losses) on scheme liabilities: |
|
|
|
|
|
- amount (£'000) |
- |
- |
1,813 |
- |
(1,270) |
- as a percentage of scheme liabilities |
- |
- |
2% |
- |
2% |
* Amounts disclosed for 2004 are under UK GAAP Financial Reporting Standard 17 as it is not practical to restate these amounts prior to the date of transition to IFRS.
The amounts of contributions expected to be paid to the scheme during the financial year ending 30 September 2009 are approximately £2.7m in respect of current service and approximately £1.7m in respect of regular deficit catch up payments.
Defined benefit pension parameters
The defined benefit pension scheme accounting entries require a number of estimates to be made including the discount rate applied to liabilities, the current and past service costs and appropriate mortality assumptions. The financial position and performance of the scheme are sensitive to these parameters.
Sensitivity to these assumptions are shown in the table below:
£'000 |
|
|
Assumption changed |
Current assumption |
Increase/(decrease) in pre-tax deficit |
Discount rate increase of 0.1% |
6.7% |
(1,500) |
Inflation increase of 0.1% |
3.6% |
800 |
1 year additional life expectancy |
PA92 Medium cohort |
900 |