Preliminary Results

RNS Number : 5443W

RM PLC

22 November 2010

 



22 November 2010

RM plc

RM announces results for the year to 30 September 2010

RM, the international provider of education solutions, announces results for the year to 30 September 2010.

Financial highlights

·      Revenue up 10%: £380.1m (2009: £346.9m)

·      Adjusted operating profit up 12%: £19.9m (2009: £17.7m)*

·      Operating profit (including exceptional pension credit of £7.0m): £24.1m  (2009: £16.1m)

·      Adjusted basic earnings per share up 7%: 16.3p (2009: 15.3p)*

·      Dividend per share (paid and proposed) up 8%: 6.64p (2009:6.17p)

·      Significant cash generation from operations: £23.7m (2009: £14.9m)

·      Committed revenues at September 2010: £385m (2009: £419m)

Operational highlights

·      Third successive year of record revenue and profit

·      Growth in revenue and profit across each of RM's three segments

·      Developing international channels for key RM-'own' products

*excluding amortisation of acquisition related intangible assets, exceptional charges and exceptional pension credit

Terry Sweeney, Chief Executive of RM, said:

"We are delighted to have delivered double-digit growth in revenue and operating profit in 2010. Our successful diversification strategy has allowed the Group to achieve this excellent outcome, which demonstrates the underlying resilience of our business.

"Looking ahead, clearly the UK public sector is in a period of significant funding and policy change. However, the overall funding environment for schools is better than many anticipated and shows modest real-terms growth over the next four years. RM has a long track record of responding positively to changes in UK education policy. Internationally, we continue to see plenty of opportunity for RM product and services.

"Continued growth in our higher margin segments, combined with greater focus on cost control, mean that we approach the year ahead with confidence."

For further information, please contact:

Terry Sweeney, Chief Executive Iain McIntosh, Chief Financial Officer Phil Hemmings, Director of Corporate Affairs	RM plc	08450 700300
Juliet Clarke James Macey White	Financial Dynamics	020 7831 3113

A briefing for analysts will take place at 09.30 on Monday 22 November at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB. A live audio feed will be available to analysts and shareholders unable to attend this meeting in person. To access this facility, call [phone] and use reference number 26450300.

A copy of the presentation will be available at www.rm.com from 08:30 on 22 November 2010.

Chairman's Statement

2010 was the third successive year of record revenue and profit for RM - a track record we are proud of and clear proof that the work we have done to build a diverse group of education businesses has made RM a stronger and more resilient company. We are confident that RM is well-positioned for the future and excited about our prospects.

Strong results in 2010

RM delivered strong results in 2010, with good progress on nearly all of our key performance indicators. Revenue and profit both reached new record levels: we have delivered three years of unbroken revenue growth and earnings have grown every year since 2002. Cash conversion was excellent and we ended the year with positive net funds less deferred consideration. Committed revenues, however, decreased year-on-year, largely reflecting the Government's review of the Building Schools for the Future (BSF) scheme, which resulted in a number of school rebuild projects either being scaled back or cancelled.

The Board remains excited about RM's future growth prospects. Reflecting this, we are recommending an 8% increase in full year dividend (paid and proposed) to 6.64p (2009: 6.17p). RM's dividend has been maintained or increased every year since the Group was listed on the London Stock Exchange in 1994.

Building a resilient business

Our strong performance in 2010 reflects the substantial effort we have put into making RM a more resilient business, which is not dependent on any one product or market. In a year when we have seen significant policy changes made by the UK Government which affect our UK Learning Technologies business, our resilience has allowed us to continue to deliver profitable growth.

Ten years ago, we were a largely domestic educational computer company; today we are a diverse education group, with three distinct business segments, a leading position in our home market, and a growing presence in the US and Australia. This year, less than half of the Group's profit came from Learning Technologies and the most rapidly growing area of our business was Education Resources. In 2010 each of our three segments has grown revenue and profit, and we are establishing international positions for a number of our educational technology products and services. We are vigorously continuing to drive this process.

Board

Iain McIntosh joined the Board and was appointed CFO on 1 April 2010. Iain has held a number of senior finance positions in both listed and private companies, serving most recently as CFO of Axon, the FTSE250 business transformation consultancy. He brings with him energy and vision which will help RM deliver further profitable growth in the future. Iain succeeds Mike Greig, who has retired as RM's Finance Director after over twenty years in the role. In his time with the Group, Mike made a major contribution to building the company that is RM today. On behalf of the Board, I thank Mike for his inestimable contribution and wish him well for the future.

Well-positioned for the future

The Board is confident that RM enters 2011 well positioned for the future both in the UK and internationally, and is excited about the Group's prospects.

The new UK Government has clearly indicated that education is a priority area for public spending, with English schools budgets set to grow modestly over the next four years. It is likely that the UK Learning Technology market will be subdued in the immediate future. However, RM is the clear market leader and, in the medium term, the use of ICT in education will continue to increase. Our Education Resources business is largely funded from 'front-line' school budgets and we see significant opportunities for further growth. Assessment and Data is well-positioned to benefit from the pipeline of opportunities we can see for it.

Looking more widely, our strategy is to maintain our leading UK Learning Technologies position, and grow market share for our Education Resources and Assessment and Data businesses. Each of our businesses has world-leading intellectual property, embodied in RM-'own' products and services. We are increasingly building channels that will allow us to take these products and services to market in a number of territories around the world.

Education is an important sector in every country in the world. Our aim is to be a global leader in education solutions. The Board is confident that RM has the market positions, the people and the vision need to achieve this.

Business Review: Strategy and Operations

RM achieved double digit revenue and profit growth in 2010. During the year we delivered more for our customers than ever before, and made further progress in the strategic development of the RM Group.

Delivering profitable growth

	Year to 30 September
	2010	2009	change
Revenue	£380.1m	£346.9m	+10%
Committed revenues at year-end	£385m	£419m	-8%
Adjusted* operating profit	£19.9m	£17.7m	+12%
Operating profit	£24.1m	£16.1m	+50%
Adjusted* basic EPS	16.3p	15.3p	+7%
Dividend** per share	6.64p	6.17p	+8%
Net cash	£2.3m	£5.0m
Net funds/(debt) less deferred consideration	£0.5m	£(0.7)m

*Adjusted profit and EPS are before amortisation of acquisition related intangible assets, exceptional charges & exceptional pension credit in 2010, and acquisition integration costs in 2009

**Paid and proposed

RM delivered record results in 2010, with growth in revenue, profit and cash.

Group revenue increased by 10% to £380.1m (2009: £346.9m), with growth in each of our three operating segments. Revenue from outside the UK increased to £49.6m (2009: £41.5m). Education Resources grew most rapidly and now represents 22% (2009: 18%) of Group revenue and 39% (2009: 40%) of adjusted operating profit in the year. Building Schools for the Future (BSF) represented 14% (2009: 11%) of Group revenue.

Adjusted operating profit (excluding amortisation of acquisition related intangible assets, exceptional charges and exceptional pension credit) increased by 12% to £19.9m (2009: £17.7m). Adjusted operating profit margin increased by 0.1pp to 5.2% (2009: 5.1%).

Exceptional costs related to the Department for Education's review of the BSF scheme were £1.5m.

The statutory measure of profit before tax was £23.9m (2009: £16.3m). This increase does not reflect underlying business performance as it includes both an exceptional credit arising from a curtailment gain on RM's defined benefit pension scheme deficit, and the BSF-related exceptional charges.

Cash generation in the year was strong, with cash generated by operations of £23.7m (2009: £14.9m), equivalent to 140% of profit from operations (excluding pension credit) (2009: 93%). Net funds less deferred consideration at the year-end stood at £0.5m (2009: net funds less deferred consideration of £(0.7)m).

Delivering educational excellence

In 2010, we delivered more new school ICT installations, processed more examination scripts, and shipped more classroom resources and learning technologies products than ever before. During the year we completed major ICT installations in 56 BSF schools, in addition to providing new networks in a further 750 schools; our Assessment and Data segment supported the on-screen marking of 5.5 million examination scripts; and Education Resources revenue increased by 30%.

Our strategy

Our aim is to build a growing international business which is known by its shareholders for delivering profitable growth, by its people as a great place to work, and by its education customers for contributing to their success.

We have set three priorities:

·      Grow a broadly-based and global education business

·      Deliver superior products and services that help teachers to teach and learners to learn

·      Simplify so we can operate cost-effectively in the current economic climate and can better serve our customers

Market Context

Since its election in May 2010, the UK Coalition Government has set out both its first budget and a four-year Spending Review. In both of these, the settlement for education was generally more favourable than that for other areas of public spending, underlining the continued priority placed on education.

The budget largely maintained the previous administration's education spending plans, whilst also freezing public sector pay (including teachers' salaries) for two years. The Spending Review protected frontline schools budgets, which will show small real-terms increases year-on-year, and confirmed that a schools capital spending programme will continue (though reduced to levels of spending similar to those before the beginning of the BSF programme).

Overall, the combination of Government priority, a broadly supportive budget environment, and increasing demand for education driven by demographic change, provides a solid backdrop for RM's UK operations.

In the US, education technology is relatively under-developed compared to the UK (as an indicator, research from Futuresource suggests that only 36% of classroom are equipped with interactive whiteboards, compared with 77% in the UK). The Federal National Education Technology Plan reflects a commitment to improving this position. RM's market position is currently small relative to the total market opportunity, and our contacts with policy makers suggest that UK educational technology expertise is well-regarded. We view this as a positive environment for further growth.

In other markets across the world, education technology is also relatively under-developed (the Futuresource research shows interactive whiteboard penetration at 46% in Australia, 10% in EMEA and 4% in China). Areas of particular interest to RM are: Australia, which has a strong and stable economy, a commitment to education investment, and where we already have an established operation; and Europe, where we see strong and stable education spending, and where, through DACTA, we have an established distribution network. We are also pursuing opportunities in India and China, and expect initial business from these territories in 2011.

Learning Technologies - Strategy and Operations

Learning Technologies provides schools with classroom technology (including learning platforms, computer systems and interactive teaching equipment) and infrastructure (including networking, MIS software, access control and cashless catering). RM is the UK market leader for these kinds of products and services, and is building a strong position providing selected products and services in the US and in the Asia Pacific region.

Our strategy is:

·      Maintain our leading UK position with new propositions to address new requirements

·      Enhance our US capability through organic growth and selective acquisitions

·      Grow our emerging international learning platform business in English-speaking territories

In 2010, revenue increased by 4% to £273.9m (2009: £263.7m), with growth in the UK, US and the Asia Pacific region. Adjusted operating profit increased by 16% to £9.3m (2009: £8.0m). Adjusted operating profit margin increased by 0.4pp.

In the UK, which accounts for the large majority of Learning Technologies revenue, demand for our products and services held up as expected, against a backdrop of increasing pressures on public spending. Overall revenue growth was 3%, with an increase in revenues arising from BSF projects offsetting a decline in other business, reflecting a reduction in hardware and distribution shipments. During the year, new, extended and renewed contracts added £119m to committed revenues, of which £84m is BSF business.

Looking ahead, the year ahead will be a period of significant change for schools and we anticipate a decline in revenues in 2011. However, we have substantial revenue visibility and our operations are well-aligned with policy developments.

In terms of Policy development, we identify the following key trends as significant to RM:

·      Protection of frontline schools budgets: RM's 'transactional' business is largely driven by individual school's decisions and budgets.

·      Focus of attention swinging back to individual schools: RM already has a well-established individual schools sales channel, and we have restructured our Strategic Projects sales team to reduce cost.

·      New capital spending programme: The Department for Education has indicated that it intends to continue refurbishing and refreshing the English school building estate, though with reduction in total education capital expenditure. Our market-leading position in the BSF market means we have relevant products and capabilities and we are already a leading supplier to Academy schools.

In the US, revenue growth was 7% (9% in US$ terms). The provision of interactive classroom technology to Cobb County, our largest US customer, is now largely complete and we are working to establish a scalable business exploiting a wider range of RM Group intellectual property. During the year we secured our first learning platform sale in Lake Washington School District; we have subsequently started working with two further school districts and are successfully building a pipeline for this product. We are also continuing to see significant interest in RM Easiteach Next Generation, our platform-independent whole-class teaching software products. We continue to invest to improve our operational capability and have also established a high-profile Advisory Board, featuring nationally-recognised educational ICT experts.

In the Asia Pacific region, where our business is largely centred on Australia, revenue growth was 20%. Whilst we classify our Asia Pacific region activities in Learning Technologies, the business draws products and intellectual property from across the RM Group. We are moving our business from a legacy position of providing school MIS systems, to a more broadly-based education business. Good progress continued during the year with a 87% increase in non-MIS revenue. Looking ahead, we see further opportunities for growth in Australia and are exploring other markets in the region, notably China.

Education Resources - Strategy and Operations

Education Resources provides schools with curriculum-focused classroom resources including teaching equipment & materials, furniture and educational software. RM is a rapidly growing supplier of these kinds of products in the UK, with a range of RM-'own' products which have significant international potential.

Our strategy is:

·      Grow UK market share

·      Accelerate development of 'own' products

·      Develop international channels for education resources products

In 2010, revenue increased by 30% to £83.3m (2009: £63.9m). This revenue growth came principally from TTS Group, our general classroom resources business, which achieved significant market share gain by both introducing new products and broadening its distribution capabilities through trade partners.

Operating profit increased by 10% to £7.7m, reflecting investment to consolidate growth and build a strong and sustainable business. Operating margin of 9.3% (2009: 11.1%) reflects action during 2010 to prepare the business for further growth. There were one-off costs related to rationalising our property portfolio and integrating the Pisces business we acquired last year. We have also strengthened the team and increased the distribution capacity at TTS, the largest of our Education Resources business.

We continue to concentrate on developing unique and exclusive products with real education value. TTS, our general classroom resources business, introduced over 350 'own' products during the year and has plans to increase this in 2011. Lightbox Education launched Easiteach Next Generation, the latest version of our interactive classroom software, for which we now have a global network of OEM partners.

Looking ahead, we are well-positioned to respond to UK education policy changes. Sales in our Education Resources business are largely driven by individual school's decisions, where budgets have been protected. We also see further opportunities to increase market share, both by expanding the range of product/curriculum areas we address and by enhancing distribution through significant trade partners already active in the education market.

Internationally, we are also finding opportunities for our products. During the year we entered into a joint venture with LEGO to provide LEGO Education products across Europe. The new company, LEGO Education Europe, is 51% owned by LEGO and 49% by RM, holds exclusive distribution rights for ten years. It will start trading on 1 January 2011. In the US, we have established an indirect distribution channel, through Learning Resources Inc, a major education resources distributor.

Assessment and Data - Strategy and Operations

Assessment and Data provides systems, platforms and outsourcing for testing and qualifications, and performs the collection, analysis and distribution of educational performance data. RM has long-term strategic relationships with a number of UK qualifications providers and Government Departments & Agencies, and is building an international presence.

Our strategy is:

·      Further penetrate UK on-screen marking and data services market

·      Grow emerging international on-screen marking business

·      Establish on-screen testing capability

In 2010, revenue increased by 18% to £22.9m (2009: £19.3m), reflecting increased volume from existing clients and initial business from new clients. Adjusted operating profit increased by 9% to £2.8m (2009: £2.6m). Adjusted operating margin was 12.2% (2009: 13.2%), due to the contract maturity profile.

We continue to identify new clients for our technology and outsourcing capabilities. Significant new relationships in the year include International Baccalaureate Organisation (an international provider of school-age qualifications) and the ACCA (a leading international accounting body). These relationships are extremely important to the future success of the Assessment and Data business, as they typically increase the amount of their activities they handle on-screen as their confidence grows.

In the UK, the Coalition Government has indicated that assessment remains an important part of education policy. There is also a continuing movement to providing increasing amounts of education performance data to teachers, policy makers and parents. These trends are strongly supportive of further growth. Internationally we are also seeing interest in our technologies and capabilities and are currently bidding for projects in Europe and the Asia Pacific region.

Summary and Outlook

Continued growth in our higher margin segments, combined with a greater focus on cost control, mean that we approach the year ahead with confidence.

Clearly the UK public sector environment is in a period of significant funding and policy change. However, the overall funding environment is better than many anticipated and shows modest real terms growth over the next four years. RM has demonstrated over more than three decades that it can react positively to changes in the education landscape, providing compelling products and services that customers value.

Internationally, we see plenty of opportunity for RM products and services and we are putting in place the strategies and resources that will allow us to continue to build a sustainable and scalable business.

We have made good progress in 2010, delivering profitable growth for our shareholders. We enter 2011 a diverse and resilient business, well-positioned to serve the global education market.

Business Review: Finance

Group revenue and profit

Group revenue increased by 10% to £380.1m (2009: £346.9m). Details of the performance of each of our three segments is given in the Strategy and Operations part of this Business Review.

RM is an increasingly international business. In 2010, 13% of total Group revenue arose from outside the UK, an increase from 1% five years ago. The US business accounts for 7% of total Group revenues and the Asia Pacific region for 2%.

Profit before tax increased by 47% to £23.9m (2009: £16.3m) though this comparison is flattered by the inclusion of an exceptional pension credit in the income statement in 2010, as explained in the Pensions section of this part of the Business Review.

Adjusted operating profit (excluding amortisation of acquisition related intangible assets, exceptional charges & exceptional pension credit in 2010, and acquisition integrations costs in 2009)  increased by 12% to £19.9m (2009: £17.7m), this is our preferred measure of profit as it provides a better view of underlying business performance than profit before tax. Adjusted operating profit margin increased slightly to 5.2% (2009: 5.1%).

Adjusted profit before tax increased by 10% to £19.6m (2009: £17.9m).

The adjustment for exceptional charges and exceptional pension credit are explained in the Exceptional Costs and Pension sections of this part of the Business Review.

The Strategy and Operations part of the Business Review provides details of revenue and adjusted operating profit performance for each of the Group's three segments.

Revenue visibility

Committed revenues (order book, deferred income, and contracts at preferred bidder, selected bidder or equivalent) stood at £385m at year-end (2009: £419m). Of the committed revenues at year-end, 53% relates to BSF projects, 36% to other Learning Technologies projects, 7% to Assessment and Data projects, and 4% to Education Resources business. 46% of committed revenues are due within one year, 22% in one to two years, and 32% beyond two years.

The committed revenues position is impacted by the Department for Education's (DfE) Review of the Building Schools for the Future (BSF) programme, which resulted in some projects which were previously included no longer going ahead.

Exceptional charges

Exceptional charges of £1.5m in the year related to the Group's actions in response to the DfE's Review of the BSF programme. As a result of this Review, future BSF procurement activity was stopped and some projects at preferred bidder stage were scaled back. As a consequence, we restructured our strategic projects sales activity and wrote-off previously capitalised post-preferred bidder costs relating to projects which will now no longer go ahead as anticipated.

£1.1m of the charge relates to the cost of redundancies arising from restructuring our strategic project sales team.

Shareholder return

Adjusted basic earnings per share grew 7% to 16.3p (2009: 15.3p). Since 2002, adjusted diluted earnings per share has increased from 3.8p to 16.3p in 2010. The compound annual growth rate in EPS over the last three years has been 10%.

Total dividend (paid and proposed) will increase by 7.6% to 6.64p (2009: 6.17p). This comprises an already paid interim dividend of 1.39p per share, and a proposed final dividend of 5.25p per share. The estimated total cost of dividends paid and proposed for 2010 is £5.8m (2009: £5.4m). Dividend cover is over 2.5-times. The compound annual growth rate of the dividend over the last three years has been 7%.

RM's share price at the close of business on 30 September 2010 was 140.5p (2009: 157.5p). Market capitalisation at the same date was £131.3m (2009: £146.7m).

Cash and cash flow

Cash generation was strong, with cash generated by operations of £23.7m (2009: £14.9m), equivalent to 140% (2009: 93%) of profit from operations (excluding pension credit in 2010).

During the year the Group purchased two million of its own shares for a total cost of £3.4m. These shares are held by the RM plc Employee Share Trust and will be used to fulfil share-based payment awards.

Bank facilities

The Group has in place facilities to manage its cash requirements.

A £25m facility with HSBC, committed to 2013, provides flexibility and finance for acquisitions. At year-end £11.5m (2009: £8.3m) was drawn on this facility, relating to previous acquisitions. The covenants on this facility require the net debt to be less than 2.5xEBITDA and the net facility interest to be less than EBITDA/4, and the Group is comfortably within these.

The Group also has in place annual facilities to fund seasonal working capital requirements. None of these were drawn down at 30 September 2010 (2009: nil). On 18 November 2010, the Group renewed an annual unsecured overdraft of $39.5m (set at a minimum of £25m) with HSBC. This is in addition to a £3m facility with Barclays Bank.

Tax

RM's tax charge, measured as a percentage of adjusted profit before tax, was 23.4% (2009: 21.3%). This tax rate has been below the standard UK corporation tax rate for a number of years, principally because of the benefit the Group gains from enhanced tax deductions on qualifying research & development activities. The tax charge for 2010 also benefitted from finalising revised research & development tax claims for prior periods, following an extension to this relief. Without this, the rate would have been 26.2%.

In total, RM paid and collected tax on behalf of HMRC in the UK amounting to £54.6m (2009: £51.3m). This includes corporation tax of £2.3m (2009: £2.9m), employment taxes of £28.5m (2009: £27.4m) and VAT and other indirect taxes of £23.8m (2009: £21.0m).

Pensions

The Group has a defined benefit pension scheme in the UK which has been closed to new entrants since January 2003. Existing members continue to make contributions and accrue benefits under the scheme. The scheme is currently in deficit.

During the year, RM and the Trustees agreed the 31 May 2009 triennial valuation. In doing so, a number of actions designed to reduce the risk to the Group of the scheme deficit were also agreed. These actions comprise: a 1pp increase in employee contributions; a reduction in the cap on salary increases contributing to pensions; and the continuation of annual deficit reduction payments of £1.7m pa until 2017. The effect of these actions is a curtailment gain of £7.0m (net of related costs), which is treated as an exceptional credit in the income statement.

Changes in market-driven assumptions, including inflation and interest rates, offset the benefit of the curtailment gain. At September 2010 the IAS 19 deficit (pre tax) was £12.4m (30 September 2009: £12.8m).

Change of year end

From 2011, RM intends to change its financial year end from 30 September to 30 November. This will separate both annual financial year planning and financial year end activity from the busiest operational period of the Group's year.

The change of year end will mean that 2011 will be a fourteen-month year running from 1 October 2010 to 30 November 2011. RM will report interim results for the six months to March 2011 as usual and annual results for the fourteen-month period. Additional information will be included in next year's Annual Report to aid year-on-year comparisons.

Statement of risks

As with any business, RM is exposed to risks as an inherent part of creating value for shareholders. As described above, the Group has put in place processes designed to identify these principal risks and to manage and mitigate the effect of them. The Audit Committee is responsible for ensuring that risks are properly considered and the Board is responsible for deciding what risks should be taken and how best to manage and mitigate the risks.

The Audit Committee is satisfied that the Group's risk management and internal control processes provide a high level of confidence that the Executive Committee has identified and addressed the principal risks affecting RM. 

The most significant risks the Group is exposed to are set out below. 

	Risk	Mitigation
Public Policy	The majority of RM's business is funded from government sources. Changes in political administration - or changes in policy priorities - might result in a reduction in education spending. Global economic conditions might result in a reduction in budgets available for public spending generally and education spending specifically.	The Group seeks to understand the education policy environment by regular monitoring of policy positions in all of its major markets and by building relationships with education policy makers. The Group seeks to increase the diversity of its revenue streams both by developing a broad product portfolio and building its position in territories other than the UK.
Education practice	Educational practices and priorities may change and, as a result, RM's products and services might no longer meet customer requirements.	The Group seeks to maintain a deep level of knowledge of current education practice and priorities by maintaining close relationships with customers.
Global competition in IT markets	The IT hardware market is subject to intense global competition. RM has to react to continual average selling price reductions and margin pressures, as well as to US Dollar rate fluctuations.	The Group seeks to reduce its exposure to commodity hardware sales and has a programme of foreign exchange hedging activity.
Execution	RM provides sophisticated products and services, which require a high level of technical expertise to develop and support, and on which its customers place a high level of reliance. RM is engaged in the delivery of large, multi-year education projects, typically involving the development and integration of complex ICT systems, and may have liability for failure to deliver on time.	The Group invests in maintaining a high level of technical expertise. The Group has in place a range of customer satisfaction programmes, which includes management processes designed to address the causes of customers' dissatisfaction. The Group enters into major projects only after they have been approved by the Transaction Committee. Strong internal management control processes are in place to govern the delivery of education projects, including regular reviews by the Executive Committee and detailed progress reporting to the Board.
Product safety	RM is involved in the supply of physical education resources that will be to be used by children of all ages and abilities.	The Group's product development processes take full account of international safety regulations.
Data	RM is engaged in storing and processing sensitive educational data (for example, exam papers and scripts, and school and pupil records), where accuracy, privacy and security are very important.	The Group's IS function has invested in developing secure Data Centres, and has been successfully certified to ISO/IEC 27001:2005 for the provision of systems, information and hosting services to RM Education plc.
People	RM's business depends on highly skilled employees.	The Group seeks to be an excellent employer and regularly monitors the satisfaction of its employees. It has been identified as one of the UK's Top Employers and as the UK's Top IT Employers. RM also has an active senior career planning and succession planning programme.
Innovation	The IT market is subject to rapid, and often unpredictable, change. As a result of inappropriate technology choices, RM's products and services might become unattractive to its chosen customer base. RM's continued success depends on developing a continuous stream of innovative and effective education products.	The Group closely monitors technology developments, invests continually in keeping its products up to date, undertakes extensive testing for new products and services, and maintains strong relationships with key technology providers. The Group invests in continuous product development and works closely with teachers and educators to understand opportunities and requirements.
Financial	RM has international activities (principally in the US, India and Australia) and in exposed to foreign currency risk. RM is exposed to counterparty risk on liquid assets.	The Group enters into US$ and Indian Rupee denominated hedging contracts with approved banking organisations. No more than one-third of the Group's cash may be held with any one bank. Cash and cash reserves are with safe and secure banks.
Pension	RM operates a defined benefits pension scheme in the UK (closed to new entrants), which is in deficit.	The financial position of the scheme is reviewed at least bi-annually, when management meets with the scheme actuary. The Group has actively managed its exposure to pension risk by agreeing changes in the scheme with members.
Acquisitions	RM has acquired, and anticipates continuing to acquire, other businesses.	The Group carries out a detailed analysis of potential acquisitions. Subsequent to acquisition, the business performance of new subsidiary companies is reviewed quarterly by the Executive Committee, and the Group's internal audit function carries out regular reviews to ensure that appropriate controls and management structures are in place.
Business recovery	RM would be significantly impacted if, as a result of a natural disaster, act of God, act of terrorism or other similar event, its buildings, systems and infrastructure could not function for a long period.	The group has established an Information Security Committee to oversee the security aspects of the Group's information systems. This covers data integrity and protection, defence against external threats and disaster recovery. The Group has made significant investments in protecting itself against the consequences of a disaster and has piloted its plans for dealing with a disaster. The Group has comprehensive property insurance covering all of its properties.

Directors' responsibilities statement

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year to 30 September 2010. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

·      The financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and income of the Company and the undertakings included in the consolidation taken as a whole.

·      The management report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties they face.

The responsibility statement was approved by the Board of Directors on 22 November 2010 and is signed on its behalf by:

T. Sweeney                                                 I. McIntosh

Chief Executive                                            Chief Financial Officer

Consolidated income statement

for the year ended 30 September 2010

	Notes	Adjusted £'000	Adjustments £'000	2010 Total £000	Adjusted £'000	Adjustments £'000	2009 Total £000
Revenue		380,124	-	380,124	346,917	-	346,917
Cost of sales		(280,403)	-	(280,403)	(255,680)	-	(255,680)
Gross profit		99,721	-	99,721	91,237	-	91,237
Selling and distribution costs		(45,792)	-	(45,792)	(39,839)	-	(39,839)
Research and development expenses		(12,404)	-	(12,404)	(13,731)	-	(13,731)
Administrative expenses		(21,724)	-	(21,724)	(20,024)	-	(20,024)
- Amortisation of acquisition related intangible assets		-	(1,273)	(1,273)	-	(1,483)	(1,483)
- Exceptional costs relating to curtailment of Building Schools for the Future programme		-	(1,474)	(1,474)	-	-	-
- Exceptional pension credit		-	7,056	7,056	-	-	-
- Acquisition integration costs		-	-	-	-	(89)	(89)
Share of results of associates		67	(28)	39	22	(19)	3
		(79,853)	4,281	(75,572)	(73,572)	(1,591)	(75,163)
Profit from operations		19,868	4,281	24,149	17,665	(1,591)	16,074
Investment income	3	1,091	-	1,091	1,192	-	1,192
Finance costs	4	(1,321)	-	(1,321)	(947)	-	(947)
Profit before tax		19,638	4,281	23,919	17,910	(1,591)	16,319
Tax	5	(4,602)	(1,158)	(5,760)	(3,809)	448	(3,361)
Profit for the year attributable to equity holders of the parent		15,036	3,123	18,159	14,101	(1,143)	12,958
Earnings per ordinary share:	6
Basic		16.3p	3.4p	19.7p	15.3p	(1.3)p	14.0p
Diluted		16.3p	3.4p	19.7p	15.2p	(1.2)p	14.0p
Paid and proposed dividends per share:	7
Interim				1.39p			1.32p
Final				5.25p			4.85p

Adjustments relate to: amortisation of acquisition related intangible assets of £1,273,000 (2009: £1,483,000); amortisation of acquisition related intangible assets on associates of £28,000 (2009: £19,000); exceptional costs relating to the curtailment of the Building Schools for the Future programme of £1,474,000 (2009: £nil); an exceptional pension credit on the Group's defined benefit pension scheme, shown net of related costs, of £7,056,000 (2009: £nil) and acquisition integration costs of £nil (2009: £89,000).

Consolidated statement of comprehensive income

for the year ended 30 September 2010

	Notes	2010 £000	2009 £000
Profit for the year		18,159	12,958
Exchange gains on translation of foreign operations		505	957
Actuarial gains and (losses) on defined benefit pension scheme	10	(7,913)	(14,582)
Fair value loss on interest rate swap		(128)	(61)
Current tax on items taken directly to equity		(9)	31
Deferred tax on items taken directly to equity	5	2,218	3,893
Other comprehensive income/(expense) for the year		(5,327)	(9,762)
Total comprehensive income for the year attributable to equity holders of the parent		12,832	3,196

Total tax credited to equity was £2,209,000 (2009: credit of £3,924,000).

Consolidated balance sheet

as at 30 September 2010

	Notes	2010 £000	2009 £000
Non-current assets
Goodwill		34,220	33,818
Acquisition related intangible assets		3,690	4,981
Other intangible assets		3,186	2,654
Property, plant and equipment		21,054	21,321
Interest in associates		1,013	967
Deferred tax assets		4,859	5,227
		68,022	68,968
Current assets
Inventories		25,079	19,905
Trade and other receivables	8	97,838	86,164
Tax assets		877	-
Cash and cash equivalents		13,814	13,297
		137, 608	119,366
Total assets		205,630	188,334
Current liabilities
Trade and other payables	9	(106,554)	(96,829)
Provisions		(536)	-
Tax liabilities		(1,878)	(1,320)
		(108,968)	(98,149)
Net current assets		28,640	21,217
Non-current liabilities
Retirement benefit obligation	10	(12,380)	(12,786)
Bank loans		(11,507)	(8,281)
Deferred tax liabilities		(34)	(51)
Other payables	9	(5,918)	(7,654)
Provisions		(678)	(589)
		(30,517)	(29,361)
Total liabilities		(139,485)	(127,510)
Net assets		66,145	60,824
Equity attributable to equity holders of the parent
Share capital		1,868	1,863
Share premium account		26,918	26,725
Own shares		(3,805)	(1,246)
Capital redemption reserve		94	94
Hedging reserve		(189)	(61)
Translation reserve		1,629	1,124
Retained earnings		39,630	32,325
Total equity		66,145	60,824

Consolidated cash flow statement

for the year ended 30 September 2010

	Notes	2010 £000	2009 £000
Profit from operations		24,149	16,074
Adjustments for:
Loss/(gain) on foreign exchange derivatives		160	(160)
Share of results of associates		(39)	-
Amortisation of acquisition related intangible assets		1,273	1,511
Amortisation of other intangible assets		1,180	914
Depreciation of property, plant and equipment		7,554	8,331
Gain on disposal of property, plant and equipment		(322)	(499)
Loss on disposal of other intangible assets		-	123
Increase in provisions		737	61
Share-based payment charge		1,417	1,021
Exceptional pension credit	10	(7,267)	-
Operating cash flows before movements in working capital		28,842	27,376
(Increase)/decrease in inventories		(5,174)	1,129
Increase in receivables		(11,773)	(12,814)
Increase/(decrease) in payables		11,825	(798)
Cash generated by operations		23,720	14,893
Defined benefit pension contribution in excess of current service cost	10	(1,682)	(2,773)
Tax paid		(3,526)	(3,272)
Income on sale of finance lease debt	3	795	622
Interest paid:
- bank overdrafts and loans	4	(627)	(464)
- other	4	(64)	(67)
Net cash inflow from operating activities		18,616	8,939
Investing activities
Interest received		65	226
Proceeds on disposal of property, plant and equipment		583	949
Purchases of property, plant and equipment		(7,744)	(7,737)
Purchases of other intangible assets		(1,525)	(1,398)
Acquisition of subsidiaries and business combinations, net of cash acquired		-	(3,418)
Net cash used in investing activities		(8,621)	(11,378)
Financing activities
Dividends paid	7	(5,764)	(5,425)
Proceeds from share capital issue, net of share issue costs		198	91
Repayment of borrowings assumed in acquisitions		-	(2,477)
Increase in borrowings		3,161	7,419
Purchase of own shares		(3,362)	(1,347)
Repayment of loan notes and deferred consideration		(3,841)	(1,059)
Net cash used in financing activities		(9,608)	(2,798)
Net increase/(decrease) in cash and cash equivalents		387	(5,237)
Cash and cash equivalents at the beginning of year		13,297	18,291
Effect of foreign exchange rate changes		130	243
Cash and cash equivalents at the end of year		13,814	13,297

Group net funds

for the year ended 30 September 2010

	2009 £000	Cash flow £000	Non-cash movements		2010 £000
			Foreign exchange £000	Other £000
Cash and cash equivalents	13,297	387	130	-	13,814
Borrowings	(8,281)	(3,161)	(65)	-	(11,507)
Net cash	5,016	(2,774)	65	-	2,307
Loan notes	(3,606)	2,161	-	66	(1,379)
Net funds	1,410	(613)	65	66	928
Deferred consideration	(2,120)	1,680	-	50	(390)
Net funds less deferred consideration	(710)	1,067	65	116	538

Consolidated statement of changes in equity

for the year ended 30 September 2010

		Share capital £000	Share premium account £000	Own shares £000	Capital redemption reserve £000	Hedging Reserve £000	Translation reserve £000	Retained earnings £000	Total equity £000
Group
At 1 October 2008		1,863	26,578	(1,323)	94	-	167	35,908	63,287
Profit for the year		-	-	-	-	-	-	12,958	12,958
Other comprehensive income
Exchange differences on translation of foreign operations		-	-	-	-	-	957	-	957
Actuarial gains and (losses) on defined benefit scheme		-	-	-	-	-	-	(14,582)	(14,582)
Fair value loss on interest rate swap		-	-	-	-	(61)	-	-	(61)
Tax credit on items taken directly to equity		-	-	-	-	-	-	3,924	3,924
Total other comprehensive income		-	-	-	-	(61)	957	(10,658)	(9,762)
Purchase of shares		-	-	(1,207)	-	-	-	-	(1,207)
Share issues		-	91	-	-	-	-	-	91
Transfer in respect of issue of shares to employee trusts		-	56	-	-	-	-	(56)	-
Share-based payment awards exercised in year		-	-	1,284	-	-	-	(1,423)	(139)
Share-based payment fair value charges		-	-	-	-	-	-	1,021	1,021
Dividends paid		-	-	-	-	-	-	(5,425)	(5,425)
At 1 October 2009		1,863	26,725	(1,246)	94	(61)	1,124	32,325	60,824
Profit for the year		-	-	-	-	-	-	18,159	18,159
Other comprehensive income
Exchange differences on translation of foreign operations		-	-	-	-	-	505	-	505
Actuarial gains and (losses) on defined benefit scheme		-	-	-	-	-	-	(7,913)	(7,913)
Fair value loss on interest rate swap		-	-	-	-	(128)	-	-	(128)
Tax credit on items taken directly to equity		-	-	-	-	-	-	2,209	2,209
Total other comprehensive income		-	-	-	-	(128)	505	(5,704)	(5,327)
Purchase of shares		-	-	(3,213)	-	-	-	-	(3,213)
Share issues		5	193	-	-	-	-	-	198
Share-based payment awards exercised in year		-	-	654	-	-	-	(803)	(149)
Share-based payment fair value charges		-	-	-	-	-	-	1,417	1,417
Dividends paid		-	-	-	-	-	-	(5,764)	(5,764)
At 30 September 2010		1,868	26,918	(3,805)	94	(189)	1,629	39,630	66,145

Notes to the report and accounts

1. Preliminary announcement

The preliminary results for the year ended 30 September 2010 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 2006. 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 2011. These full financial statements will be published on the Group's website at www.rm.com/investors

The financial information set out in the preliminary announcement does not constitute the Group's statutory accounts for the years ended 30 September 2010 or 2009. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 2010 and 2009 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

This Preliminary Announcement was approved by the Board of Directors on 22 November 2010.

Income statement presentation

The income statement is presented in three columns. This presentation is intended to give a better guide to business performance by separately identifying: the amortisation charge relating to acquisition related intangible assets; exceptional costs relating to the curtailment of the Building Schools for the Future programme; and an exceptional pension credit on the Group's defined benefit pension scheme. (2009: amortisation charge relating to acquisition related intangible assets and acquisition integration costs). The columns extend down the income statement to allow the tax and earnings per share impacts of these transactions to be understood.

Adoption of new and revised International Financial Reporting Standards

The Group has adopted no new standards that impact reported results or financial position in the current financial year.

Basis of preparation

The financial statements have been prepared on the historical cost basis except for certain financial instruments, share-based payments and pension assets and liabilities which are measured at fair value. The preparation of financial statements, in conformity with generally accepted accounting principles, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of current events and actions, actual results ultimately may differ from those estimates.

The Directors have assessed forecast future cash flows over the coming year and are satisfied that the Group's agreed working capital facilities are sufficient to meet these cash flows. Given the Group's continued seasonality and long term education project contractual commitments, cash flows are forecast to be at their highest outflow between July and September.

Considering the above, the Directors believe that the Group is well placed to manage its business risks successfully despite the continued current uncertain economic outlook and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

2. Operating segments

The Group's business is supplying products and services to the education sector. The Group's operating segments are Learning Technologies which includes US and Asia Pacific operations; Education Resources; and Assessment and Data Services. These segments are the basis on which the group reports its primary segment information. Results of overseas operations are included below on the basis of the nature of the products and services provided.

2. Operating segments (continued)

The following disclosure shows the result and total assets of these segments:

Segmental result

2010	Learning Technologies £000	Education Resources £000	Assessment and Data Services £000	Total £000
Revenue	273,950	83,288	22,886	380,124
Adjusted operating profit*	9,326	7,746	2,796	19,868
Investment income (note 3)				1,091
Finance costs (note 4)				(1,321)
Adjusted profit before tax*				19,638
Amortisation of acquisition related intangible assets				(1,273)
Exceptional costs relating to curtailment of BSF programme				(1,474)
Exceptional pension credit				7,056
Amortisation of acquisition related intangible assets - associate				(28)
Profit before tax				23,919
Group profit before tax				23,880
Share of associate result				39
Profit before tax				23,919

2009	Learning Technologies (Restated) £000	Education Resources (Restated) £000	Assessment and Data Services (Restated) £000	Total (Restated) £000
Revenue	263,699	63,881	19,337	346,917
Adjusted operating profit*	8,037	7,072	2,556	17,665
Investment income (note 3)				1,192
Finance costs (note 4)				(947)
Adjusted profit before tax*				17,910
Amortisation of acquisition related intangible assets				(1,483)
Acquisition integration costs				(89)
Amortisation of acquisition related intangible assets - associate				(19)
Profit before tax				16,319
Group profit before tax				16,316
Share of associate result				3
Profit before tax				16,319

*before amortisation of acquisition related intangible assets; exceptional costs relating to the curtailment of the BSF  programme; and an exceptional pension credit on the Group's defined benefit pension scheme, shown net of related costs (2009: amortisation of acquisition related intangible assets and acquisition integration costs).

Comparative prior year segmental results have been restated to reflect certain changes to the measurement of their performance. Changes include the movement of £1.0m of investment income from previously stated divisional profit to investment income which aligns segmental profit with adjusted operating profit; and a basis change for the allocation of corporate costs between segments (which reduces adjusted operating profit of Learning Technologies by £1.2m and increases adjusted operating profit of Education Resources and Assessment and Data Services by £0.8m and £0.4m respectively).

Segmental assets

Segmental assets include all assets except for tax balances and cash and cash equivalents which are shown as non-segmental balances:

	Learning Technologies £000	Education Resources £000	Assessment and Data Services £000	Total £000
2010 Total assets - Segmental	111,146	63,579	11,355	186,080
- Other				19,550
				205,630
2009 Total assets - Segmental	103,532	60,088	6,190	169,810
- Other				18,524
				188,334

 

2. Operating segments (continued)

The Group's operations are predominately located in the United Kingdom, with operations also in the United States of America, India and Australia. The Group sells to the markets of these countries and also the European, North American, Asian and Australasian continents. Revenues of £49.6m (2009: £41.5m) were earned on non-UK sales and include RM Learning Technologies sales of £34.0m (2009: £30.7m) largely in the United States of America, £14.3m (2009: £10.8m) of RM Education Resources sales largely in Europe and £1.3m (2009: £nil) of RM Assessment and Data Services sales largely in Europe.

3. Investment income

	2010 £000	2009 £000
Bank interest	92	226
Income from sale of finance lease debt	795	622
Other finance income	204	344
	1,091	1,192

4. Finance costs

	2010 £000	2009 £000
Interest on bank overdrafts and loans	627	464
Interest on loan notes	64	67
Net finance costs on defined benefit pension scheme	630	416
	1,321	947

5. Tax

a) Income statement

Analysis of tax charged in income statement:

	2010 £000	2009 £000
Current taxation
UK corporation tax	4,185	3,558
Adjustment in respect of prior years	(620)	(995)
Overseas tax - current year	(374)	1,111
Total current tax	3,191	3,674
Deferred taxation
Temporary differences	2,491	(311)
Adjustment in respect of prior years	78	(2)
Total deferred tax	2,569	(313)
Total income statement tax charge	5,760	3,361

In addition to the amount charged to the income statement, £2,209,000 of tax has been credited to equity through the statement of comprehensive income (2009: £3,924,000).

Further analysis of the Group's deferred tax assets and liabilities is shown below.

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:

	2010 £000	2009 £000
Profit on ordinary activities before tax	23,919	16,319
Tax at 28% (2009: 28%) thereon:	6,697	4,569
Effects of:
- impact of change in tax rate on carried forward deferred tax asset	165	-
- other expenses not deductible for tax purposes	340	296
- other temporary timing differences	335	144
- research and development tax credit - current year	(890)	(680)
- research and development tax credit - prior period adjustment	(548)	(672)
- effect of profits/losses in various overseas tax jurisdictions	(345)	30
- prior period adjustments - other	6	(326)
Tax	5,760	3,361

5. Tax (continued)

c) Effective tax rate

The Group's effective tax rate of 23.4% (2009: 21.3%) has been calculated excluding the impact of amortisation of acquisition related intangible assets; exceptional costs relating to the curtailment of the BSF programme; and an exceptional pension credit on the Group's defined benefit pension scheme, shown net of related costs (2009: amortisation of acquisition related intangible assets and acquisition integration costs) from profit before tax:

	Adjusted £000	Adjustments £000	2010 Total £000	Adjusted £000	Adjustments £000	2009 Total £000
Profit before tax	19,638	4,281	23,919	17,910	(1,591)	16,319
Tax charge/(credit)	4,602	1,158	5,760	3,809	(448)	3,361
Effective rate	23.4%	27.0%	24.1%	21.3%	28.2%	20.6%

The tax rate on adjusted profit for 2010 benefitted by 2.8% (2009: 3.7%) from finalising prior year Research and Development tax credits and would have been 26.2% (2009: 25.0%) without this benefit.

d) Deferred tax

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting year.

	Accelerated tax depreciation £000	Retirement benefit obligations £000	Share-based payment £000	Short-term timing differences £000	Acquisition related intangible assets £000	Total £000
At 1 October 2008	1,129	157	839	612	(1,288)	1,449
(Charge)/credit to income	142	(660)	(4)	455	380	313
(Charge)/credit to equity	-	4,083	(190)	-	-	3,893
Acquisition of subsidiaries in the year	-	-	-	5	(484)	(479)
At 1 October 2009	1,271	3,580	645	1,072	(1,392)	5,176
(Charge)/credit to income	(195)	(2,454)	(75)	(203)	358	(2,569)
(Charge)/credit to equity		2,216	10	-	(8)	2,218
At 30 September 2010	1,076	3,342	580	869	(1,042)	4,825

Deferred tax assets have been recognised at the rate which has been substantively enacted at balance date. In the UK this is the standard rate of corporation tax which from 1 April 2011 will reduce from 28% to 27%. This reduction in rate has resulted in a credit to deferred tax of £164,000.

Certain deferred tax assets and liabilities have been offset above.  The following analysis shows the deferred tax balances before offset, as shown in the balance sheet:

	2010 £000	2009 £000
Deferred tax assets	4,859	5,227
Deferred tax liabilities	(34)	(51)
	4,825	5,176

e) Tax assets/liabilities

Corporation tax balances are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities. The following is an analysis of the current tax assets and liabilities for financial reporting purposes:

	2010 £000	2009 £000
Current tax assets	877	-
Current tax liabilities	(1,878)	(1,320)
	(1,001)	(1,320)

6. Earnings per ordinary share

The calculation of basic and diluted earnings per ordinary share is shown below: As explained in note 1, adjusted earnings per share have also been presented.

Basic earnings per ordinary share:

	Profit after tax £'000	2010 Weighted average number of shares '000	Pence per share	Profit after tax £'000	2009 Weighted average number of shares '000	Pence per share
Basic earnings per ordinary share	18,159	92,121	19.7	12,958	92,408	14.0
Effect of adjustments*	(3,123)	-	(3.4)	1,143	-	1.3
Adjusted basic earnings per ordinary share*	15,036	92,121	16.3	14,101	92,408	15.3

Diluted earnings per ordinary share:

	Profit after tax £'000	2010 Weighted average number of shares '000	Pence per share	Profit after tax £'000	2009 Weighted average number of shares '000	Pence per share
Basic earnings per ordinary share	18,159	92,121	19.7	12,958	92,408	14.0
Effect of dilutive potential ordinary shares: share options	-	92	-	-	240	-
Diluted earnings per ordinary share	18,159	92,213	19.7	12,958	92,648	14.0
Effect of adjustments*	(3,123)	-	(3.4)	1,143	-	1.2
Adjusted diluted earnings per ordinary share*	15,036	92,213	16.3	14,101	92,648	15.2

During 2010 and 2009 the Group benefited from finalising claims in respect of prior year UK Research and Development tax credits. The following basic earnings per share workings show this impact:

	Profit after tax £'000	2010 Weighted average number of shares '000	Pence per share	Profit after tax £'000	2009 Weighted average number of shares '000	Pence per share
Basic earnings per ordinary share	18,159	92,121	19.7	12,958	92,408	14.0
Effect of prior year Research and Development tax credit benefits	(548)	-	(0.6)	(672)	-	(0.7)
Basic earnings per ordinary share before effect of prior year Research and Development tax credit benefits	17,611	92,121	19.1	12,286	92,408	13.3
Effect of other adjustments*	(3,123)	-	(3.4)	1,143	-	1.2
Adjusted basic earnings per ordinary share before effect of prior year Research and Development tax credit benefits*	14,488	92,121	15.7	13,429	92,408	14.5

* Adjustments made to profit after tax are explained within the income statement.

7. Dividends

Amounts recognised as distributions to equity holders in the year:

	2010 £000	2009 £000
Final dividend for the year ended 30 September 2009 of 4.85p (2008: 4.55p) per share	4,492	4,206
Interim dividend for the year ended 30 September 2010 of 1.39p (2009: 1.32p) per share	1,272	1,219
	5,764	5,425

The proposed final dividend of 5.25p per share was approved by the Board on 19 November 2010. The dividend is subject to approval by shareholders at the Annual General Meeting and the expected cost of £4.8m has not been included as a liability as at 30 September 2010.

8. Trade and other receivables

	2010 £000	2009 £000
Current
Trade receivables	75,076	64,826
Long-term contract balances	13,856	13,222
Other receivables	1,914	1,302
Derivative financial instruments: forward foreign exchange contracts	73	160
Accrued income	1,636	1,173
Prepayments	5,283	5,481
	97,838	86,164

9. Trade and other payables

	2010 £000	2009 £000
Current
Trade payables	34,379	27,239
Other taxation and social security	12,341	10,202
Other payables - other	2,780	3,097
Derivative financial instruments:
- Forward foreign exchange contracts	73	-
- Interest rate swap	189	61
Accruals	30,623	29,217
Long-term contract balances	541	-
Loan notes	1,379	2,220
Deferred consideration	195	1,535
Deferred income	24,054	23,258
	106,554	96,829
Non-current
Other payables - deferred consideration	195	585
Loan notes	-	1,386
Deferred income:
- due after one year but within two years	3,014	3,840
- due after two years but within five years	2,633	1,843
- due after five years	76	-
	5,918	7,654

10. Retirement benefit obligation

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. Following the formation of RM Education's trading division: Lightbox Education, 3T Productions Ltd and Softease Ltd ceased to have any qualifying employees in the scheme, with staff moving to the employment of RM Education plc. Under the scheme employees are entitled to retirement benefits of 1/60^th 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 2009 by a qualified independent actuary. IAS 19 Employee Benefits liabilities have been rolled forward based on this valuation's base data. Plan assets are measured at bid-price at 30 September 2010. The present value of the defined benefit obligation and the related current service cost was measured using the projected unit credit method.

In concluding the 31 May 2009 triennial valuation the Group undertook a strategic review of the pension benefits offered to employees. As part of this review, active members of the Scheme were consulted over a proposal to lower the cap applied to their pension contribution salaries from 5.0% to 2.5% per annum and an increase in the amount they contribute (normally via salary sacrifice) for this benefit by 1% of pension contribution salary. Members agreed to the proposals and following conclusion of the consultation on 1 September 2010 benefits were amended. The result of lowering the cap was a £7.3m reduction in IAS 19 Employee Benefits liabilities, which is shown as a credit in the income statement net of £0.2m costs relating to the exercise. The roll forward for IAS 19 Employee Benefits and the triennial valuation liabilities at 31 May 2009 include the impact of the cap reduction.

As at 31 May 2009, taking into account the impact of the contribution salary cap reduction to 2.5% per annum, the triennial valuation for statutory funding purposes showed a deficit of £16.6 million (31 May 2006: £12.7 million). The Group agreed with the Scheme Trustees to repay this amount via deficit catch up payments of £1.7 million per annum until 31 May 2017.

10. Retirement benefit obligation (continued)

The cost of future provision, on a valuation basis as a percentage of pension contribution salary, is 19.0% for Normal Retirement Age 60 (2009: 20.9%, 2006: 21.4%, 2003: 20.4%) and 13.0% for Normal Retirement Age 65 (2009: 15.1%, 2006: 15.3%, 2003: 13.1%). The costs post 2006 and pre 2010 take into account the benefit of the implementation of the earlier contribution salary cap at 5% per annum.

IAS 19 valuation

Defined benefit pension scheme charges/(credits) recognised in income are as follows:

	2010 £000	2009 £000
Current service cost, recognised within operating profit	3,247	2,579
Curtailment gain	(7,267)	-
Operating profit (income)/charge	(4,020)	2,579
Interest cost	5,716	5,200
Expected return on scheme assets	(5,086)	(4,784)
Expense recognised within finance cost	630	416
	(3,390)	2,995

Of the £3.2m (2009: £2.6m) current service cost, £1.7m (2009: £1.6m) is included in cost of sales and £1.5m (2009: £1.0m) in operating expenses.

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:

	2010		2009
	%	£000	%	£000
Equities	7.20%	51,109	7.20%	46,585
Bonds	3.90%	51,183	4.00%	43,295
Total fair value of scheme assets		102,292		89,880
Present value of defined benefit obligations		(114,672)		(102,666)
Deficit in scheme and liability recognised in balance sheet		(12,380)		(12,786)
Related deferred tax asset		3,342		3,580
Net pension deficit		(9,038)		(9,206)

The actual return on scheme assets in the year was a gain of £8.8 million (2009: gain of £9.3 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.

Amounts recognised directly in equity in respect of the defined benefit pension scheme are as follows:

	2010 £000	2009 £000
Actuarial gains and (losses)	(7,913)	(13,482)
Experience gains and (losses)	-	(1,100)
	(7,913)	(14,582)

Cumulative actuarial gains and losses recognised in the statement of recognised income and expense since 1 October 2004 are losses of £22.7m (2009: losses of £14.8m).

Key assumptions used:

	2010	2009
Rate of increase in salaries	2.40%	3.50%
Rate of increase of pensions in payment	3.20%	3.00%
Rate of increase of pensions in deferment	3.20%	3.00%
Discount rate	5.30%	5.60%
Inflation assumption	3.25%	3.00%

Mortality assumptions have been updated to align with the assumptions used in the triennial valuation and are the SAPS 03 Normal year of birth, medium cohort tables with a 1% mortality improvement underpin (2009: PA 92 medium cohort tables). These give average life expectancies as follows:

	2010		2009
	Male	Female	Male	Female
Pensioner member age 65 (current life expectancy)	21.3	24.1	21.8	24.7
Non-pensioner member age 45 (life expectancy at 65)	23.2	26.0	23.0	25.8

10. Retirement benefit obligation (continued)

Movements in fair value of scheme assets were as follows:

	2010 £000	2009 £000
At 1 October	89,880	76,244
Expected return on scheme assets	5,086	4,784
Actuarial gains and (losses) - actual return less expected return	3,695	4,540
Contributions from sponsoring companies:
- In respect of current service cost	3,247	2,579
- In excess of current service cost	1,682	2,773
	4,929	5,352
Contributions from scheme members	18	24
Benefits paid	(1,316)	(1,064)
At 30 September	102,292	89,880

Movements in fair value of defined benefit obligations were as follows:

	2010 £000	2009 £000
At 1 October	102,666	76,805
Current service costs	3,247	2,579
Past service cost not yet recognised in balance sheet	-	-
Exceptional credit from lowering inflation cap to 2.5% per annum	(7,267)	-
Interest cost	5,716	5,200
Contributions from scheme members	18	24
Actuarial (gains) and losses	11,608	19,122
Benefits paid	(1,316)	(1,064)
At 30 September	114,672	102,666

Costs of £0.2 million have been offset against the exceptional credit within the income statement, being the costs of the strategic review and consultation exercise.

The history of experience adjustments is as follows:

	2010 £000	2009 £000	2008 £000	2007 £000	2006 £000
Difference between expected and actual return on scheme assets:
- amount (£'000)	3,695	4,540	(15,189)	1,102	2,025
- as a percentage of scheme assets	4%	5%	(20)%	1%	3%
Experience gains and (losses) on scheme liabilities:
- amount (£'000)	-	(1,100)	-	-	1,813
- as a percentage of scheme liabilities	-	(1)%	-	-	2%

The amounts of contributions expected to be paid to the scheme during the financial year ending 30 September 2011 are approximately £4.9 million.

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 owing to the long duration of the liabilities.

Sensitivity to these assumptions are shown in the table below:

	Current assumption	Increase/(decrease)  in pre-tax deficit £000
Discount rate increase of 0.1%	5.30%	(2,732)
Inflation increase of 0.1%	3.25%	1,644
1 year additional life expectancy	SAPS normal with 1% mortality improvement underpin	2,003

If the above assumptions were decreased by 0.1%, this would result in an equal and opposite effect on the pre-tax deficit.

11. Related party transactions

The remuneration of the key management personnel of the Group, recognised in the income statement, is set out below in aggregate. Key management are defined as the executive and non-executive directors of the Company and other persons classified as "persons discharging management responsibility under the rules of the Financial Services Authority".

	2010 £000	2009 £000
Short-term employee benefits	3,280	2,692
Post-employment benefits	283	214
Other long-term benefits	610	296
Share-based payments	91	115
	4,264	3,317

There were no other significant related party transactions which have not been eliminated on consolidation.

12. Subsequent events disclosure

Following a detailed review and consultation with major shareholders, on 20 October 2010 the Board agreed to the change of year end from 30 September to 30 November for the Company and Group which is applicable to the accounting period beginning 1 October 2010.

 

END

 

 

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