Final Results

RM PLC 21 November 2005 21 November 2005 RM announces Preliminary Results for the year to 30 September 2005 RM plc, the leading supplier of information and communications technology (ICT) and other services to education announces results for the year to 30 September 2005. Strong performance â€¢ 11% growth in profit before goodwill charges* â€¢ Order growth: up 15% on last year â€¢ Successful education project delivery â€¢ Customer satisfaction continues to increase Financial highlights â€¢ Turnover unchanged: Â£263 million â€¢ Profit before tax (before goodwill charges*): up 11% to Â£12.8 million (2004: Â£11.6 million) â€¢ Profit before tax (after goodwill charges*): Â£5.5 million (2004: Â£7.1 million) â€¢ Diluted EPS (before goodwill charges*): up 12% to 10.5p (2004: 9.4p) â€¢ Net funds: Â£21.8 million (2004: Â£25.8 million) - after Â£10.4 million of PFI capex during the year â€¢ Dividend per share up 5% to 4.85p (2004: 4.6p) *Goodwill amortisation and impairment of Â£7.4 million (2004: Â£4.5 million); under UK GAAP RM amortises goodwill arising from acquisitions over five years, under IFRS goodwill amortisation will cease and be replaced by annual impairment tests Commenting, Tim Pearson, CEO of RM, said: 'RM has delivered a strong performance in 2005 - particularly so against a background of tough market conditions. Underlying growth in the business has replaced the 'one-off' turnover which was a feature of last year and we have both increased profit before tax and goodwill charges and funded an additional Â£1.8 million investment in BSF business development. 'The start of the new financial year has been mixed for RM. We have been appointed preferred bidder for a Â£6.4 million BSF ICT contract - the first to be announced. However, the budget pressures evident in our individual schools market since the start of the new academic year have continued. As previously indicated, we are choosing to increase investment in the BSF programme this year; we believe this is in the long-term interests of shareholders, with returns expected to start in the 2007 financial year. 'Looking ahead, the educational ICT landscape is evolving more rapidly than it has for many years: new and innovative uses for educational ICT are emerging and, through our education project activity, RM is leading the world in many of these areas. The education market provides opportunities for further growth, which RM is uniquely well positioned to address.' - Ends- For further information, please contact: Tim Pearson, CEO RM plc 08709 200200 Mike Greig, Group Finance Director Phil Hemmings, Director of Corporate Affairs Andrew Fenwick Brunswick 020 7404 5959 Fiona Laffan Mark Antelme A briefing to analysts will take place at 9.30 am on Monday 21 November 2005 at Brunswick, 16 Lincoln's Inn Fields, London WC2A 3ED. A live audio feed will be available to those analysts and shareholders who are unable to attend this meeting in person. To access this facility: +44 (0) 1452 561 263. A copy of the presentation will be available at 8:30am here: www.rm.com Operating review RM has delivered a strong performance in 2005 - particularly so against a background of budget pressures in schools and falling selling prices in the PC hardware market. Financial results for the year show good progress compared with last year and customer satisfaction levels continue to improve. Looking ahead, the educational landscape is evolving more rapidly than it has for many years: new and innovative uses for educational technology are emerging and RM, through our education project activity, is leading the world in many of these areas. The education market continues to provide opportunities for further growth, which RM is uniquely well positioned to address. Results Profit before tax (before goodwill charges) increased by 11% to Â£12.8 million (2004: Â£11.6 million). This increase is after Â£1.8 million of business-development expenditure related to the Building Schools for the Future (BSF) programme. Operating profit margin (before goodwill charges) showed further progress, increasing to 4.4% (2004: 4.0%). Group turnover was unchanged at Â£263 million, however this masks underlying growth in the Group's business: the 'one-off' turnover which we reported last year (Â£15 million, arising largely from hardware sales related to a specific education project) has been replaced by a combination of long-term project turnover and full-year contributions from the businesses which we acquired during 2004. Group order intake was 15% higher than in 2004 and significantly exceeded shipments in the year. Cash management during the year was excellent: at 30 September 2005 net funds stood at Â£21.8 million (2004: Â£25.8 million). This is after PFI project capital expenditure in the year of Â£10.4 million (which is now completed). After goodwill charges of Â£7.4 million, profit before tax was Â£5.5 million (2004: Â£7.1 million). The Board is proposing an increased final dividend per share of 3.8p (2004: 3.6p), making the total dividend per share for the year 4.85p (2004: 4.6p). Subject to approval at the AGM, the final dividend will be paid on 3 February 2006 to shareholders on the register on 6 January 2006. Individual schools Individual schools customers continued to contribute the majority of RM's turnover during 2005. The average annual amount spent by RM's primary and secondary school customers increased during the year and more schools are choosing to use our flagship Community Connect 3 infrastructure product. Although a strong year overall, the individual schools market is not without challenges, with the last month of our 2005 financial year (which is also the first month of the academic year) being below our expectations. Head teachers in England are experiencing budget pressures, linked to both the workforce remodelling programme and the introduction of teaching and learning responsibility payments for teachers. The education software market was challenging, with evidence that some of the dedicated funding provided by the Department for Education and Skills is 'leaking' out of the market. Education project delivery We entered 2005 having won several major education projects. These projects represent significant educational transformation for our customers; each of them is providing a high-quality service and all of them serve as reference sites for future bids. Delivery highlights include: â€¢ QCA: 47,000 pupils taking examinations online, compared with 1,200 in 2004 â€¢ Cambridge Assessment: 225,000 exam scripts processed electronically â€¢ Warwickshire LEA: 1,500 teachers using Tablet-PC based teacher toolkits â€¢ Newham LEA: 4,200 laptop computers available for pupils to take home â€¢ Lambeth LEA: Full managed service supporting over 6,000 users â€¢ South Lanarkshire Council: 9,000 computers over 200 sites â€¢ South Yorkshire eLearning Programme: 10,500 new ICT qualifications achieved so far â€¢ Dudley Grid for Learning: 8,000 computers updated in over 100 schools Education projects made an increased contribution to turnover during the year. Also important is the reputation we are developing for delivering successful outcomes for our customers, which increasingly differentiates us from our competition. During the year we won two further education projects (Scottish Schools Digital Network and Lambeth PFI) worth, in total, Â£54.5 million, as well as securing the renewal of our contract with the South West Grid for Learning, which is expected to be worth Â£10 million per year for up to five years. Scottish Schools Digital Network In September 2005 we were awarded a Â£37.5 million contract to deliver the Scottish Schools Digital Network National Intranet (SSDN). This was a fiercely contested contract and we won it in competition against some of the world's largest technology companies. RM was successful because we were able to demonstrate an unrivalled combination of technical delivery capability and educational focus. When the first stage of SSDN is complete, more than 800,000 learners, teachers and educational managers in Scotland will have secure, personalised access to a single intranet. Over time this intranet will be extended to embrace parents as well. The SSDN project will drive whole new ways of using technology in education, which will both save time for teachers and improve facilities for learners. Functions available will include curriculum-planning and delivery for teachers, innovative educational content for learners and sophisticated management information systems for education managers; as well as collaboration and communication tools (including email, video conferencing and chat) for all users. A reputation for innovation We see technical capability as one of our key competitive advantages and, during 2005, we have continued to build our reputation for innovation. The education projects which we are delivering require technical innovation; they also play a key role in developing the Group's intellectual property. Each of these education projects individually has built the knowledge, skills and experience the Group has access to, together they provide us with a rich and deep understanding of designing and delivering technology that makes a genuine contribution to educational outcomes. Several of our products and services have been recognised for their innovation during 2005. We won four awards at BETT 2005 (the annual educational ICT trade show), two Education Resources Awards at the annual Education Show, and awards at the Nursery World show. These awards cover all aspects of our product range including PC hardware, educational software and general educational resources (produced by the recently acquired TTS subsidiary). Hardware and distribution Our innovative, educationally differentiated PC, the RM ONE, has been extremely well received by schools. Schools value the RM ONE's educational features and robust, space-saving design, demonstrating the benefit of customer-driven innovation - even in commodity product areas. The RM ONE range has now been extended with the RM Mobile ONE, which brings educational benefits to the laptop computer. The commodity PC hardware market has continued to be extremely competitive and this year has seen a significant decline in average selling prices. This effect has been most evident in our universities business; however, we believe we have retained our market share here, despite reducing the level of sales and marketing resource deployed. TTS, the general education resources supplier which we acquired during 2004, has made an excellent first-year contribution to the Group. Working in partnership with RM's hardware division, TTS has begun to develop a highly innovative range of technology products. The first of these - Bee-Bot - has been a sales success and further products will be introduced at BETT 2006. Online assessment More than 50 million exam scripts circulate around the UK examination system each year, typically in the form of physical pieces of paper. There is a clear opportunity for ICT to improve the effectiveness and efficiency of these processes and it's an area in which we have made good progress. Our project with the Qualifications and Curriculum Authority to deliver an online Key Stage 3 (13-14 year olds) examination for the curriculum subject of ICT is progressing well. The examination went through volume-testing this summer and will be used next year by a high proportion of all English Key Stage 3 pupils. As well as providing an innovative new way of testing ICT, this project has also created a national ICT infrastructure for delivering, administering and marking tests for other subjects as well. We are also working with Cambridge Assessment (formerly UCLES) to streamline the process of managing traditional, paper-based exams. DOMS, our Digital Online Marking Software, improves the efficiency and increases the accuracy of marking. Through a sophisticated workflow engine, completed exam scripts are scanned at the earliest possible point, with the distribution, marking and reporting then managed electronically. These two projects both have wider relevance and we are exploring a range of further business opportunities. Building Schools for the Future BSF is a 15-year programme which is intended to rebuild or substantially refurbish every secondary school in England. Partnerships for Schools (P4S), the agency tasked with driving the programme forward, has indicated that over the life of the programme capital investment could reach Â£45 billion. Technology will be a fundamental part of the 'school of the future' - indeed, educational ICT is being seen as one the key drivers of educational transformation. With as much as Â£5 billion of the investment being focused on educational technology, the BSF programme is an unprecedented opportunity for RM. The potential benefits go beyond an increase in market size. P4S has provided strong guidance that BSF projects should procure ICT in the form of multi-year, managed services. This would allow us to build even deeper partnerships with our customers, as well as providing greater long-term visibility of revenues. As with any major market change, there are, of course, risks associated with the BSF programme. In particular, the requirement to bid for projects as part of a consortium means that decisions will not be made entirely on the quality of an ICT proposition. The track record of education-project delivery, which we have built up in recent years, is directly relevant to the kind of business which is likely to be available under BSF. We have made some early progress, being appointed as preferred bidder for a Â£6.4 million ICT contract with Solihull Local Education Authority. We have chosen to increase our expenditure on business development related to the BSF programme from the Â£1.8 million that was spent in 2005 to approximately Â£4 million in 2006, with the target of securing the position of leading ICT partner to the programme. We view this expenditure as a strategic investment which will yield shareholder benefits over the next three to five years as an increasing number of BSF contracts is awarded. International The UK leads the world in the deployment of interactive whiteboards in classrooms and RM has responded to the growing use of this kind of technology with the further development of the Easiteach product range. Easiteach - a suite of interactive whole-class teaching software - is equally as useful in international markets as it is in the UK and, during 2005, we have made progress in establishing a customer base for the product range in the USA. By working in partnership with four of the leading interactive whiteboard suppliers in America, we have established a presence for Easiteach in American schools. Our partners bundle Easiteach Studio - the core of the product range - with the whiteboards which they sell to the US education market. We are establishing a distribution channel to sell 'add-on' modules to those schools which experience the bundled product. Customer satisfaction A key part of our strategy is to focus on continual improvement of customer satisfaction levels. In 2006 every permanent staff member in our principal operating subsidiary will have some element of their remuneration linked to customer satisfaction. We view our externally audited customer satisfaction score as our most important non-financial measure. In 2005 this score increased again, exceeding our target and reaching 7.21 on a scale of 0 to 10 (2004: 7.0), with more than 58% of customers giving us a score of 8, 9 or 10. The customer satisfaction target has been set higher again for 2006. If we achieve our 2006 target, we will have seen year-on-year increases each year since we first started measuring customer satisfaction in 2003. Independent analysis (by the American Customer Satisfaction Index) of US companies which measure customer satisfaction suggests that very few companies increase their score in two consecutive years. The quality of service which we deliver for our customers has received external validation during 2005. Support Online, our Web support service, was identified by the Association of Support Professionals as one of the World's Ten Best Web Support Sites for the second consecutive year in 2005. Our telephone support team was a finalist in the Helpdesk Institute's Helpdesk Support Team Excellence Awards. We are now extending our focus to include customer success as well as customer satisfaction. By this we mean achieving a position where our customers not only view us as an exemplary supplier, but also consider that the products and services which we supply are an essential tool to improve teaching and learning. Our people RM has a growing international presence and we now employ 185 people outside the United Kingdom. In North America and Australia we have regional sales offices and our software development facility in Trivandrum, India is making an increasing contribution to product development. Employee satisfaction, based on our internal staff survey, increased during the year, with 80% of staff responding that they thought RM was a good organisation to work for (comparable companies: 58%). There are, as ever, areas for improvement, the most obvious this year being staff training. For 2006 we have increased our focus on staff development. Financial review Turnover and profits At the Group level, turnover for the year was unchanged at Â£262.7 million (2004: Â£263.3 million); however, this position masks significant developments in the Group's underlying business. In 2004 we reported 'one-off' turnover of approximately Â£15 million arising from the Classroom 2000 project in Northern Ireland. In 2005, this has been replaced, principally by a full year's contribution from TTS and Sentinel (the acquisitions made in 2004) and by an increase in the turnover recognised on long term education projects. 2005 also saw a decline in the proportion of turnover arising from PC hardware sales, which now accounts for less than one-third of the Group's revenues. This decline was driven by a reduction in average unit selling prices for PCs, an effect that was particularly noticeable in the university sector. The gross profit percentage increased to 28.1% (2004: 26.0%). This increase is primarily a result of the increasing breadth of activities inside the Group and their differing business models. This year gross profit percentage has been particularly impacted by the acquisition of TTS, which has higher than Group average gross margins, and by an increase in the contribution made by long term contracts. Total operating expenses (excluding goodwill charges) were up Â£4.2 million at Â£62.2 million (2004: Â£58.0 million), with the full year impact of last year's acquisitions accounting for Â£3.3 million of this increase. Investment in research and development increased by Â£2.3 million to Â£16.8 million (2004: Â£14.5 million) reflecting increased project supported developments. Selling and distribution costs increased by Â£1.4 million to Â£34.2 million, mainly as a result of increased business development expenditure relating to the Building Schools for the Future (BSF) contracts (Â£1.8 million in 2005, compared to Â£0.1 million last year). Operating profit (excluding goodwill charges) increased by 10% to Â£11.5 million. Operating profit margin (before goodwill charges) made further progress increasing to 4.4% (2004: 4.0%). Net interest receivable increased by 24% to Â£1.3 million. This includes Â£0.7 million of income arising from leasing activities (2004: Â£nil). The provision of lease finance options to customers had previously been outsourced but was brought in-house in 2005 in order to provide greater control and flexibility over our offer to customers. This change has resulted in a change in the way in which income related to leasing is included in the accounts. There was lower interest receivable on the lower average cash balances during the year. Profit before tax, excluding goodwill charges increased by 11% to Â£12.8 million. Goodwill charges increased from Â£4.5 million to Â£7.4 million, reflecting additional amortisation of Â£1.8 million on acquisitions made in 2004 and an impairment charge of Â£1.1 million made in relation to the closure of peakschoolhaus. Under UK GAAP, RM writes off goodwill arising from acquisitions over five years. Profit on ordinary activities before taxation was Â£5.5 million (2004: Â£7.1 million), primarily as a result of this increase in goodwill charges. Cash flow Cash generation continues to be strong with Â£17.2 million of operating cash flow generated in the year (2004: Â£22.4 million). Net capital expenditure was Â£14.5 million (2004: Â£9.7 million), comprising additions of Â£15.7 million, less proceeds from sales of Â£0.7 million. Â£10.4 million was invested in the year in the PFI contract asset bases for the mid-contract refresh of the existing Dudley contract and in the new Warwickshire, Newham and Lambeth PFI contracts. Net funds of Â£21.8 million comprise cash and investments of Â£22.9 million, less issued loan notes of Â£1.1 million. In addition, there is deferred consideration of Â£3.6 million comprising loan notes of Â£1.2 million that are issuable in 2007 and included in provisions, and deferred cash consideration of Â£2.4 million that is payable in December 2006 and included in creditors falling due after more than one year. The Group's core business is seasonal and average net funds during the year were Â£8.0 million (2004: Â£27.2 million), with a minimum for the year of (Â£1.2) million (2004: Â£7.1 million). The reduction in average net funds reflects the timing of the 2004 acquisitions, the investment in fixed assets for long-term PFI contracts and an increase long term work in progress. Balance sheet Tangible fixed assets increased by Â£6.2 million to Â£26.4 million, arising from additions at a cost of Â£15.7 million, net disposals of Â£0.8 million and depreciation charged of Â£8.7 million. Intangible fixed assets represent the net book value of goodwill arising on acquisitions and amounts to Â£17.3 million. Stocks increased by Â£1.2 million to Â£17.7 million, as a result of an increase in long-term contract balances of Â£3.8 million. Debtors decreased by Â£2.1 million to Â£49.5 million, mainly due to reductions in trade debtors and prepayments. Creditors decreased by Â£3.2 million to Â£83.3 million mainly due to reductions in trade creditors and accruals, offset by an increase in payments on account related to a long term contract. International Accounting Standards This report for the year ending 30 September 2005 is the last prepared under UK GAAP. In common with all listed companies within the European Union, the next consolidated report and accounts RM will prepare will be in accordance with International Financial Reporting Standards. The Group intends to make a transition announcement on the impact of moving to IFRS in December 2005 with a presentation being made available on our website (www.rm.com/investors). Prospects The recent education white paper, Higher Standards, Better Schools for All, identifies a central role for ICT in education; this follows on from the publication of the DfES' eLearning Strategy early this year and the appointment of the first ever Director of Technology to the DfES Board. RM remains a seasonal business, with more than half of our revenues - and an even greater proportion of profits - occurring in the second half of the year (reflecting the peak in schools demand in preparation for the start of the academic year in September). While we have improved the visibility of our revenues, we still have almost two-thirds of the year's business to win and deliver. As always at this time of our financial year, it is too early in the year to make any meaningful comment on RM's performance in 2006. However, with English head teachers facing budget pressures as a result of the workforce remodelling programme and the introduction of teaching and learning responsibility payments for teachers, the weakness in the market that was evident at the start of the new academic year has continued into the current financial year. As previously mentioned, we are choosing to increase our investment in business-development expenditure to prepare for the opportunities presented by BSF. We believe that this is in the long-term interests of shareholders; however, it will hold back profit growth in 2006. In the longer term, RM is very well positioned to deliver innovative ICT products and services that will help teachers to teach and learners to learn. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2005 2005 2004 Â£000 Â£000 Turnover 262,707 263,264 Cost of sales (188,999) (194,757) ----------------------------------------------- -------- -------- Gross profit 73,708 68,507 ----------------------------------------------- -------- -------- Operating expenses: Selling and distribution (34,224) (32,746) Research and development (16,812) (14,546) Administrative expenses (18,536) (15,232) ----------------------------------------------- -------- -------- (69,572) (62,524) ----------------------------------------------- -------- -------- Operating profit 4,136 5,983 ----------------------------------------------- -------- -------- Operating profit analysed: - before goodwill charges 11,522 10,502 - goodwill charges (7,386) (4,519) ----------------------------------------------- -------- -------- Total operating profit 4,136 5,983 ----------------------------------------------- -------- -------- Net interest receivable 1,323 1,071 ----------------------------------------------- -------- -------- Profit on ordinary activities before taxation 5,459 7,054 ----------------------------------------------- -------- -------- Profit on ordinary activities before taxation analysed between: - profit on ordinary activities before taxation and goodwill charges 12,845 11,573 - goodwill charges (7,386) (4,519) ----------------------------------------------- -------- -------- 5,459 7,054 ----------------------------------------------- -------- -------- Tax charge on profit on ordinary activities (3,455) (3,162) ----------------------------------------------- -------- -------- Profit on ordinary activities after taxation 2,004 3,892 ----------------------------------------------- -------- -------- Dividends paid and proposed (4,331) (4,075) ----------------------------------------------- -------- -------- Retained loss for the year (2,327) (183) ----------------------------------------------- -------- -------- Earnings per ordinary share Basic 2.3p 4.4p Diluted 2.2p 4.3p Diluted - before goodwill charges 10.5p 9.4p All material activities relate to continuing operations. CONSOLIDATED BALANCE SHEET As at 30 September 2005 2005 2004 Â£000 Â£000 Fixed assets Intangible fixed assets 17,304 24,737 Tangible fixed assets 26,357 20,202 --------------------------------------------- --------- --------- 43,661 44,939 Current assets Stocks 17,658 16,492 Debtors 49,456 51,538 Investments - short term cash deposits 500 5,000 Cash at bank and in hand 22,442 22,480 --------------------------------------------- --------- --------- 90,056 95,510 Creditors Amounts falling due within one year (83,273) (86,442) ------------------------------------ --------- --------- Net current assets 6,783 9,068 --------------------------------------------- --------- --------- Total assets less current liabilities 50,444 54,007 Creditors Amounts falling due after more than one year (9,759) (11,086) Provisions for liabilities and charges (2,170) (2,320) --------------------------------------------- --------- --------- Net assets 38,515 40,601 --------------------------------------------- --------- --------- Capital and reserves Called-up share capital 1,815 1,794 Share premium account 22,151 20,349 Capital redemption reserve 94 94 ESOP shareholding (1,386) (1,010) Profit and loss account 15,841 19,374 --------------------------------------------- --------- --------- Equity shareholders' funds 38,515 40,601 --------------------------------------------- --------- --------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2005 2005 2004 Â£000 Â£000 Net cash inflow from operating activities 17,204 22,399 Returns on investments and servicing of finance 1,032 1,071 Taxation (3,743) (3,532) Capital expenditure and financial investment (14,506) (9,691) Acquisitions - (16,873) Equity dividends paid (4,127) (3,909) --------------------------------------------------- ------- -------- Net cash outflow before use of liquid resources and financing (4,140) (10,535) Management of liquid resources 4,500 8,125 Financing (403) (2,607) --------------------------------------------------- ------- -------- Decrease in cash in the year (43) (5,017) --------------------------------------------------- ------- -------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS For the year ended 30 September 2005 2005 2004 Â£000 Â£000 Decrease in cash in the year (43) (5,017) Cash outflow from change in liquid resources (4,500) (8,125) Settlement of loan notes 600 2,208 --------------------------------------------------- ------- -------- Change in net cash resulting from cash flows (3,943) (10,934) Issue of loan notes - (1,699) Exchange translation 5 (3) --------------------------------------------------- ------- -------- Movement in net funds in the year (3,938) (12,636) Net funds brought forward 25,781 38,417 --------------------------------------------------- ------- -------- Net funds carried forward 21,843 25,781 --------------------------------------------------- ------- -------- PRELIMINARY ANNOUNCEMENT 1. Report and Accounts 2005 and AGM 2006 The financial information set out in this preliminary results announcement has been prepared on a basis that is consistent with the statutory accounts for the year ended 30 September 2005. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 30 September 2005 or 30 September 2004 but is derived from those accounts. Statutory accounts for the year ended 30 September 2004 contained an unqualified audit report, did not contain statements under section 237 (2) or (3) of the Companies Act 1985 and have been filed with the Registrar of Companies. The Company will hold its Annual General Meeting on 23 January 2006, following which the statutory accounts for the year ended 30 September 2005, will be filed with the Registrar of Companies. The Auditors have reported on these accounts and their report was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. 2. Taxation The tax charge for the year represents a rate of 27% of profit before goodwill charges (2004: 27%), lower than the standard 30% rate mainly reflecting the benefit of an enhanced deduction for qualifying expenditure under the Group's research and development programme. The tax charge of Â£3.5 million (2004: Â£3.2 million) comprises current tax Â£3.3 million (2004: Â£3.4 million) and deferred tax charge Â£0.2 million (2004: credit Â£0.2 million). 3. Dividends per share The Directors have recommended the payment of a final dividend of 3.8p per share (2004: 3.6p) bringing the total dividend for the year to 4.85p per share (2004: 4.6p). The final dividend is payable on 3 February 2006 to shareholders on the register on 6 January 2006. 4. Earnings per share A reconciliation of the basic earnings per share with diluted earnings per share is as follows: 2005 2005 2005 2004 2004 2004 Profit No. of Pence Profit No. of Pence after tax shares per after tax shares per Â£000 ('000) share Â£000 ('000) share Basic earnings per share 2,004 88,924 2.3 3,892 88,894 4.4 Impact of share options - 434 (0.1) - 779 (0.1) --------------------- ------- ------- ------- ------- ------- ------- Diluted earnings per share 2,004 89,358 2.2 3,892 89,673 4.3 --------------------- ------- ------- ------- ------- ------- ------- Supplementary earnings per share before goodwill charges Diluted earnings per share 2,004 89,358 2.2 3,892 89,673 4.3 Effect of goodwill charges 7,386 - 8.3 4,519 - 5.1 --------------------- ------- ------- ------- ------- ------- ------- Diluted earnings per share before goodwill charges 9,390 89,358 10.5 8,411 89,673 9.4 --------------------- ------- ------- ------- ------- ------- ------- 5. Reconciliation of movements in shareholders' funds Share Share Capital Profit capital premium redemption ESOP and loss 2005 2004 account reserve s'holding account Total Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Beginning of the year 1,794 20,349 94 (1,010) 19,374 40,601 41,215 Retained loss for the year - - - - (2,327) (2,327) (183) Share issues 21 745 - - - 766 - Transfer in respect of issue of shares to employee trusts - 1,057 - - (1,057) - - Purchase of shares - - - (569) - (569) (399) ESOP shareholding transfer - - - 193 (193) - - Currency translation differences - - - - 44 44 (32) --------------- ------ ------- ------- ------ ------ ------ ------ End of the year 1,815 22,151 94 (1,386) 15,841 38,515 40,601 --------------- ------ ------- ------- ------ ------ ------ ------ 6. Net cash flow from operating activities 2005 2004 Â£000 Â£000 Operating profit 4,136 5,983 Depreciation charge 8,682 7,805 Goodwill charges 7,386 4,519 Profit on sale of fixed assets (260) (205) Increase in stocks (1,166) (1,952) Decrease/(Increase) in debtors 1,992 (5,168) (Decrease)/Increase in creditors (3,566) 11,417 ------------------------------------------- -------- -------- Net cash inflow from operating activities 17,204 22,399 ------------------------------------------- -------- -------- 7. Pension scheme The Group has continued to account for its defined benefit pension scheme using SSAP 24 'Accounting for pension costs'. The latest triennial actuarial valuation was carried out at 31 May 2003, with another due in May 2006. At 30 September 2005, under FRS 17 'Retirement benefits', the scheme's assets were Â£56.5 million and its liabilities were Â£72.4 million; this is a deficit before tax of Â£15.9 million (2004: Â£14.9 million), or Â£11.1 million deficit after tax (2004: Â£10.4 million). In 2005, the Group has adopted more prudent mortality assumptions - PMA92(-4) and PFA92(-4) - which in summary added an extra year's life expectancy and increased liabilities by Â£1.4 million. Over the year the yield on 'AA' rated corporate bonds, which is used to discount the scheme's liabilities, has fallen by 0.55% to 5.05% and the assumption for future salary increases has been reduced by 0.4% to 3.8%. The impact of these changes in assumptions is an increase in liabilities of Â£8.2 million and this more than offset the investment return on the scheme assets during the year. The recent introduction of the Pension Protection Fund and the, as yet unclear, mechanisms for calculating future years payments (which will include the solvency of participating Group companies and the scheme's PPF deficit) might mean significant unplanned costs for the Group. The charge made for 2005, on a different basis from that going forward, was Â£0.02 million. The Group continues to closely monitor the position of the pension scheme, taking appropriate and prudent action when it deems necessary. Copies of the Annual Report and Accounts may be obtained after the posting date of 16 December 2005 from the registered office of the Company at: New Mill House, 183 Milton Park, Abingdon, Oxfordshire OX14 4SE. A copy of this announcement is available at RM's internet site www.rm.com and a copy of the Annual Report and Accounts will be available at the same site from 16 December 2005. This information is provided by RNS The company news service from the London Stock Exchange

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