Interim Results - 6 Months to 31 March 2000

RM PLC 15 May 2000 RM plc Interim Results 2000 Results for the half year ended 31st March 2000 RM plc ('RM'), the leading supplier of information and communications technology software, services and systems to UK education, today announces its results for the half year ended 31st March 2000. Highlights *Turnover up 10% to £78.1m (1999 £71.1m) *Order intake strong, with order book in excess of £100m *Profit before tax and goodwill amortisation £1.5m (1999 £2.5m) - After £2.1m against cost of Classroom 2000 project in Northern Ireland *Interim dividend of 0.8p per share, an increase of 21% (1999 0.66p) *Software and services revenue increased by 25% *Learning Schools Programme delivering excellent progress, at the end of the first half orders received from 2,800 schools representing 50,000 (11%) of the UK's teachers *RM.com achieves over 15 million page impressions per month Richard Girling, Chief Executive of RM plc said: 'We are delighted with the progress we have made in the year to date. The performance of our software and services business has been strong, these businesses now contribute over 50 % of the Group's turnover. Looking ahead we remain convinced that the use of ICT in education will continue to increase dramatically. Our investment in developing internet related businesses and in our Learning Schools Programme and learning software activities positions us well to capitalise on the next phase of this growth. We expect continued strong financial performance in the second half and are confident of further good progress for the group.' Enquiries: Richard Girling RM plc 01235 826 000 Mike Greig Andrew Fenwick Brunswick 020 7404 5959 Katie Hall Chairman's Statement During the six months to 31 March 2000, RM plc further reinforced its position as the leading supplier of ICT software, services and systems to UK education and made excellent progress in its Internet, teacher training and learning software activities. Financial results for the period exceeded expectations. Results At the time of RM's preliminary results announcement in November 1999 we reported that, as was the case two years ago, significant additional government funding for ICT in education would become available in the second half of RM's next financial year. As anticipated, this has had an effect on first half results and will accentuate the seasonal pattern by which the majority of the Group's profit is earned in the second half. Turnover for the first half grew by 10% to £78.1 million (1999: £71.1 million). Order intake significantly exceeded turnover for the period and, for the first time, the value of the Group's order book (in the form of deferred income and order backlog at the close of the period) was in excess of £100 million. Profit before tax and goodwill amortisation, but after establishing a £2.1 million provision relating to the Classroom 2000 project, was £1.5 million. The half-year profit compares with £2.5 million last year and £0.6 million two years ago. Diluted earnings per share were 1.1p (1999: 1.9p). The procurement process for Classroom 2000, the £300 million project to provide managed ICT services to all schools in Northern Ireland, is progressing satisfactorily. We expect that Trilith (the RM - ICL joint venture company bidding for the project) will be appointed preferred bidder this financial year, subject to agreeing suitable commercial terms. Pending this, a provision against costs associated with the project has been established. Our software and services activities continue to grow faster than the business as a whole, with the Learning Schools Programme making a particularly significant contribution. Turnover from these areas grew by 25% and these activities now account for more than 50% of the Group's business. RM continues to be strongly cash generative. After the £10.7 million investment to date in the Group's ten-year PFI project to provide the Dudley Grid for Learning, cash balances at the end of the half were £16.5 million. This compares with £16.6 million a year ago. The Board has approved the payment of an interim dividend of 0.8p (1999: 0.66p) - an increase of 21%. Internet presence RM has an unrivalled Internet presence in the UK education market. Our web sites serve in excess of 15 million page impressions per month and the Group leads the way in providing Internet connections, premium content services and web-based email to UK schools. Our connections business - Internet for Learning (IfL) - continues to be the leading Internet service provider in the UK education sector. The Government has clearly signalled that whole-network connection, using broadband technology, is the future for Internet in schools - £37 million of NGfL funding in government year 2000/01 is earmarked for broadband projects. 70% of the 10,000 Internet accounts provided by IfL are whole-network connections and RM has just announced that it will double the amount of bandwidth it currently offers to schools. The offer will mean that schools can connect at twice the bandwidth, for example from 64k to 128k for no increase in Internet charges. Many secondary schools are already connecting to the Internet at 256k and the new offer will now allow them to connect at 512k. The group is already providing high bandwidth connections of 2Mb to over fifty establishments, with bandwidths of 100Mb currently under development. As the UK education market's leading ISP RM is well placed to provide additional value added services to our customers and to build significant online communities of educationalists and students. RM EasyMail, the Group's ASP-delivered (application service provider) email service now provides email facilities for 500,000 users and handles 160,000 items of mail per month. We also provide web hosting services for 5,000 schools. RM's Internet content business has been expanded with the launch in February of Window Box Online (www.wbol.co.uk). This product takes the core RM Window Box values of integration and ease-of-use online by providing a wide range of free curriculum resources and teacher support materials. Together with Living Library and EduWeb, Window Box Online positions RM as the leading provider of premium educational Internet content in the UK. On 10 March 2000 RM acquired the web design company 3T Productions Limited for £5.5 million (structured as a combination of shares, loan notes and cash.) 3T specialises in producing interactive multimedia content for the education market and brings with it a strong customer base including the Teacher Training Agency, the Health Education Authority and BP. RM has previously collaborated with 3T on a number of projects including the successful Explore Parliament web site. The addition of 3T's content creation and management expertise allows us to offer a fuller service to our Internet customers covering connections, premium content products and bespoke content development. Markets The Group continues to focus on the UK primary and secondary school market and also has a significant presence in the higher education and further education sectors. The priority educationalists place on ICT and the availability of additional government funding have driven the high level of investment in educational ICT. Whilst this has brought increased competitor activity RM remains the clear market leader. Government year 2000/01 sees a considerable increase in the NGfL Standard Fund grant in England (from £105 million to £168 million, with a further £37 million available specifically for broadband connectivity products.) This increase has caused some schools to defer expenditure in order to capitalise on the larger grants available from April 2000. The RM Window Box, which is used by more than 45% of UK primary schools, is already the definitive ICT product in its class. This position was further enhanced during the period by the well-received introduction of Window Box Online in February and by the announcement of aggressive new pricing at BETT 2000. RM Window Box is now not only the most appropriate and effective ICT curriculum tool for primary schools, but also the class leader for cost-effectiveness. Our position in secondary schools has been reinforced during the period. Despite growing competition, the RM Connect product range continues to lead in terms of strong, educationally relevant product differentiation. The RM Connect brand has been extended to encompass more of RM's broad range of capabilities. Under the RM Community Connect name, the product range has now been enhanced to include more educational value than before and also provides the options for RM to directly manage customers' networks. Learning Schools Programme The Learning Schools Programme - RM's partnership with the Open University to address the £230 million New Opportunity Fund (NOF) initiative to provide ICT training for teachers - has made a strong initial contribution in this half's results. At the end of the first half we had taken orders from 2,800 schools representing 50,000 (11%) of the UK's teachers and a value of approximately £22 million. These orders are for delivery throughout the three-year lifetime of the initiative. All teachers registered on the Learning Schools Programme have the opportunity to participate in online, Internet-based conferencing. The Learning Schools Programme conferencing environment is being used by teachers to exchange views about wider aspects of their profession as well as specific ICT issues. This has proved to be a valuable part of the product with contributions from teachers already reaching 10,000 a month. Engaging customers in online communities of interest is a key element of our Internet business strategy. Learning Software The Group's learning software business, which provides integrated learning systems, had an excellent half year with its best ever revenue and order performance. Both our SuccessMaker products and the RM Maths Learning System are widely acknowledged as having a real ability to improve educational standards. An increased sales focus in this area of our business has encouraged more rapid and widespread adoption of them. The period also saw the introduction of Snapshot, an assessment tool for primary school mathematics and the demonstration of a prototype whole-class teaching tool. These two new products build on both the technology and the experience the Group has gained through the development of RM Maths Learning System. Managed Services The Group now provides managed services for 13,500 desktops in over 300 establishments across the UK. During the period we successfully bid for the first major contract to be awarded under the government's NGfL Managed Services scheme. The Scottish Borders contract, worth £4.7 million, is to provide ICT services - including Internet connections and content and email - to all 81 schools in the Borders area. Our ten-year PFI project to provide a complete, managed educational ICT service to schools in Dudley Metropolitan Borough is now fully operational and customer reception for this project has been good. During the period former Grant Maintained schools in Dudley, which which were not part of the original contract, opted to take the service in a £5.4 million contract extension. The Dudley Grid for Learning now offers a high-quality, predictable revenue stream to RM and a platform to offer further ICT services to schools in the Borough. Prospects The March 2000 Budget demonstrated that education remains at the top of the Government's agenda. The appointment, for the first time, of a Minister for Technology and Learning demonstrates the continuing, strong commitment to using ICT as a key modernising force in the education service. Significant numbers of teachers are now undergoing training under the NOF initiative and this is building broad-based and informed enthusiasm for using ICT - and particularly the Internet - in the classroom. Looking further ahead, it remains my our conviction that the role of ICT in education will continue to increase dramatically. Our investment in developing Internet-related businesses, and in our learning software and Learning Schools Programme activities, puts us in an excellent position to capitalise on the next phase of growth of ICT in education. Performance in the second half of the Group's financial year will benefit from the incremental government funding that became available in April 2000. The procurement process for the Classroom 2000 project will require further investment and we will continue to fund the development of new business areas. Looking at the year as a whole, we expect continued strong financial performance and the Board is confident of further good progress for the Group. John Leighfield May 2000 RM plc Consolidated Profit and Loss Account ----------------------------------------------------------------------------- Half year ended Year ended 31 March 31 March 30 September £000 2000 1999 1999 Turnover Existing operations 77,799 71,116 162,210 Acquisitions 275 - - -------- --------- ------------- Total turnover 78,074 71,116 162,210 Operating profit Existing operations before amortisation of goodwill 1,227 2,262 11,730 Amortisation of goodwill (87) - - Acquisitions 50 - - --------- --------- ------------- Total operating profit 1,190 2,262 11,730 Net interest receivable 242 231 532 --------- --------- ------------- Profit on ordinary activities before taxation 1,432 2,493 12,262 ------------------------------------------------------------------------------ Profit on ordinary activities before taxation analysed between: Profit on ordinary activities before taxation and amortisation of goodwill 1,519 2,493 12,262 Amortisation of goodwill (87) - - ---------- --------- -------------- 1,432 2,493 12,262 ---------- --------- -------------- ----------------------------------------------------------------------------- Tax on profit on ordinary activities (358) (698) (3,065) ----------- --------- ------------- Profit on ordinary activities after taxation 1,074 1,795 9,197 Dividends paid and proposed (745) (607) (2,633) ----------- --------- ------------- Retained profit 329 1,188 6,564 =========== ========= ============= Earnings per share Basic 1.2p 2.0p 10.0p Diluted 1.1p 1.9p 9.8p RM plc Consolidated Balance Sheet ------------------------------------------------------------------------------ As at As at As at 31 March 31 March 30 September £000 2000 1999 1999 Fixed assets Intangible assets 12,483 8,108 7,837 Tangible assets 24,809 13,041 23,032 ----------- --------- ------------- 37,292 21,149 30,869 Current assets Stocks 10,822 8,019 10,171 Debtors 35,652 31,497 35,948 Cash at bank and short term deposits 16,536 16,588 17,794 ----------- --------- ------------- 63,010 56,104 63,913 Creditors Amounts falling due within one year (52,102) (42,664) (53,578) ----------- --------- ------------- Net current assets 10,908 13,440 10,335 ----------- --------- ------------- Total assets less current liabilities 48,200 34,589 41,204 Creditors Amounts falling due after more than one year (6,372) (3,465) (3,531) Provision for liabilities and charges (1,130) (56) (1,130) ----------- --------- ------------- Net assets 40,698 31,068 36,543 =========== ========= ============= Capital and reserves Called up share capital 1,863 1,839 1,842 Other reserve 500 - - Share premium account 9,334 5,933 6,029 Profit and loss account 29,001 23,296 28,672 ----------- --------- ------------- Equity shareholders' funds 40,698 31,068 36,543 =========== ========= ============= RM plc Consolidated Cash Flow Statement ------------------------------------------------------------------------------ Half year ended Year ended 31 March 31 March 30 September £000 2000 1999 1999 Net cash inflow from operating activities 4,976 4,839 22,116 Returns on investments and servicing of finance 242 231 532 Taxation (452) (9) (3,569) Capital expenditure and financial investment (4,710) (4,390) (16,693) Acquisition of subsidiary (325) - - Equity dividends paid (2,026) (1,635) (2,243) ----------- --------- ------------ Net cash (outflow)/inflow before use of liquid resources and financing (2,295) (964) 143 Management of liquid resources 4,734 5,646 1,314 Financing 1,037 588 687 ----------- --------- ------------- Increase in cash in the period 3,476 5,270 2,144 =========== ========= ============= Reconciliation of net cash flow to movement in net cash Increase in cash in the period 3,476 5,270 2,144 Cash flow from change in liquid resources (4,734) (5,646) (1,314) ----------- --------- ------------- Movement in net cash in the period (1,258) (376) 830 Net cash brought forward 17,794 16,964 16,964 ----------- --------- ------------- Net cash carried forward 16,536 16,588 17,794 =========== ========= ============= RM plc 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 1999 and 31 March 2000 have been prepared on a basis consistent with the statutory accounts for the year ended 30 September 1999. Those accounts received an unqualified auditor's report and have been filed with the Registrar of Companies. 2. Cost of sales, gross profit and other operating expenses Half year ended Year ended Half year ended 31 March 2000 31 March 30 September 1999 1999 Existing Existing Existing £000 Operations Acquisitions Total Operations Operations Cost of sales 58,333 153 58,486 53,296 118,367 ---------- ----------- -------- ---------- ------------ Gross profit 19,466 122 19,588 17,820 43,843 ---------- ----------- ------- ---------- ------------ Operating expenses(excluding goodwill amortisation) Selling & distribution 10,567 53 10,620 9,030 18,777 Research & development 4,563 - 4,563 3,313 6,651 Administration 3,109 19 3,128 3,215 6,685 ---------- ----------- -------- ---------- ------------ 18,239 72 18,311 15,558 32,113 ---------- ----------- -------- ---------- ------------ 3. Tax on profit on ordinary activities The tax charge for the half year ended 31 March 2000 has been provided at the estimated effective rate for the full year. 4. Dividend The proposed interim dividend of 0.80p per ordinary share (1999: 0.66p) will be paid on 30 June 2000 to shareholders on the register on 5 June 2000. 5. Earnings per share Earnings per share for the half year ended 31 March 2000 are based on earnings of £1,074,000 (1999: £1,795,000). Basic earnings per share is based on 92,833,654 ordinary shares (1999: 91,612,199), being the weighted average number of ordinary shares in issue during the half year ended 31 March 2000. The diluted earnings per share is based on a weighted average of 95,521,435 (1999: 94,345,793)ordinary shares issued and issuable. A reconciliation of basic earnings per share with diluted earnings per share is as follows: Half year ended 31 March 2000 Half year ended 31 March 1999 Profit No. of Pence Profit No. of Pence after tax Shares per share after tax Shares per share £000 ('000) £000 ('000) Basic earnings per share 1,074 92,834 1.2 1,795 91,612 2.0 Impact of share options 2,688 (0.1) 2,734 (0.1) ---------------------------- ----------------------------- Diluted earnings per share 1,074 95,521 1.1 1,795 94,346 1.9 ---------------------------- ----------------------------- 6. Intangible assets £000 Licence Goodwill Total Cost at 1 October 1999 9,643 - 9,643 Additions - 5,228 5,228 -------------------- ------------------- Cost at 31 March 2000 9,643 5,228 14,871 --------------------- ------------------- Amortisation at 1 October 1999 1,806 - 1,806 Charge for period 495 87 582 --------------------- ------------------- Amortisation at 31 March 2000 2,301 87 2,388 --------------------- ------------------- Net Book Value --------------------- ------------------- As at 1 October 1999 7,837 - 7,837 --------------------- ------------------- As at 31 March 2000 7,342 5,141 12,483 --------------------- ------------------- On 10 March 2000 the Group acquired 3T Productions Limited for a consideration of £5.5m, consisting of £2.3m in shares, £2.3m in loan notes and £0.3m paid in cash plus a further £0.5m payable in either shares or loan notes and £0.1m payable as cash dependent upon short-term profit meeting financial performance targets. Goodwill arising from the acquisition is being amortised over five years. 7. Reconciliation of operating profit to operating cashflows Half year ended Year ended 31 March 31 March 30 September £000 2000 1999 1999 Operating profit 1,190 2,262 11,730 Depreciation charge 3,146 1,740 3,889 Amortisation of intangible assets 582 480 951 Profit on disposal of fixed assets (110) (24) (91) (Increase)/decrease in stock (651) 508 (1,644) Decrease/(increase) in debtors 721 3,330 (1,574) Increase/(decrease) in creditors 98 (3,457) 8,855 ---------- --------- --------------- Net cash inflow from operating 4,976 4,839 22,116 activities ========== ========= ===============

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