Interim Results

RM PLC 21 May 2001 21 May 2001 Results for the Six Months Ended 31 March 2001 RM plc ('RM'), the leading supplier of IT software, services and systems to UK education, announces results for the six months ended 31 March 2001. * Turnover up 46% at £113.7 million (2000: £78.1 million) * Profit before tax (before amortisation of goodwill) increased 36% to £2.1 million (2000: £1.5 million, after an exceptional provision of £2.15 million) * Diluted earnings per share (before amortisation of goodwill) up 42% at 1.7p (2000: 1.2p) * Interim dividend up 19% to 0.95p (2000: 0.8p) * Growth in core managed solutions products - RM Window Box increased by 43% and RM Community Connect increased by 49% * 125,000 teachers have now signed up to the Learning School Programme, representing over 25% of UK teachers Commenting today, Richard Girling, Chief Executive, said: 'Our market offers exceptional growth opportunities. Education funding is increasing 9% year-on-year and our products are offering increasing benefits to our customers. 'The last six months have seen strong growth - particularly in our core schools business. And we've invested to ensure that we're well positioned to take advantage of the opportunities ahead. 'As is usual, the first six months of RM's year is not a good indicator of performance for the full year. Nonetheless, we're confident that RM's revenue will continue to reflect the market growth and that results for the full year will show good progress.' Enquiries to: Richard Girling, Chief Executive RM plc 020 7404 5959 on 21/05/01 Mike Greig, Finance Director and thereafter on 01235 826 000 Andrew Fenwick Brunswick 020 7404 5959 Deborah Done Interims FY 2001 - Chairman's Statement The educational ICT market continues to offer exceptional opportunities for growth. Education funding is a key priority for governments throughout the world and the proportion of this funding being spent on ICT products is increasing. In the first half of 2001 RM has continued to lead the UK market through a combination of technical innovation, education understanding and operational focus. Results The six months to 31 March 2001 saw excellent growth for RM with Group turnover up 46% at £113.7 million (2000: £78.1 million). This reflects both a very strong performance in the Group's core schools business (which grew by 37%) and a particularly large contribution from the Learning Schools Programme (LSP - the Group's teacher training joint venture with the Open University). Profit before tax and amortisation of goodwill was £2.1m - up 36% on last year's figure of £1.5 million (which included a £2.15 million provision associated with the Classroom 2000 project in Northern Ireland). Operating profit, on the same basis, was up 70% at £2.2 million (2000: £1.3 million). Diluted earnings per share were up 42% at 1.7p (2000: 1.2p). Gross profit was up 30% at £25.4 million (2000: £19.6 million). Gross profit percentage was 22.3% compared to 25.1% last year. This is a result of three main factors: the increase in contribution from LSP, which trades at a lower gross margin than average for the Group; the price reductions implemented twelve months ago on RM Window Box and RM Community Connect - the Group's core managed solution products; and the one-off impact of additional investment during the period to ensure that the Group continues to provide market-leading levels of customer service. Operating expenses for the period were up 27% at £23.2 million - this compares to £18.3 million in 2000 including the Classroom 2000 costs. This year's figure includes the impact of the decision to retain some of the additional resource that had been recruited to work on the Classroom 2000 project in order to accelerate R&D and business development. As a result of the longer payment terms associated with LSP, and unusually high levels of stock at the end of last financial year, average daily borrowings for the period were £1.6 million (compared to average cash balances of £10.7 million over the equivalent period last year). This led to interest payable in the period of £0.11 million, compared to interest income of £0.24 million a year ago. By the end of the period working capital levels were good and cash balances were £17.2 million (2000: £16.5 million). The Board is proposing a 19% increase in dividend to 0.95p (2000: 0.8p), payable on 29 June 2001 to shareholders on the register at 8 June 2001. Markets During the period RM maintained its leadership in a growing educational ICT marketplace. Education remains a key priority for government. The March 2001 Budget included additional education spending increases and, as a consequence, UK education funding is set to increase by approximately 9% (in nominal terms) in each of the three government years 2001/02, 2002/03 and 2003/04. There is also a commitment to continuing to increase the percentage of the total education budget that is delegated to individual schools. This results in an open and competitive marketplace with rational decisions being made based on individual schools' views of the real educational benefits offered by ICT. As well as the overall growth of schools funding, the proportion spent on ICT also continues to increase with, for example, a further £710 million dedicated ICT funding in the two government years 2002/2004 announced in September 2000. This is driven by the recognition, both at central government and at individual school level, that there are ever more opportunities for ICT to contribute to improving educational standards. Managed Solutions Demand for the Group's core managed solution products - RM Window Box and RM Community Connect - was strong during the period, with a 43% increase in RM Window Box units and a 49% increase in RM Community Connect client licence (station) shipments during the period. These products remain at the core of the Group's schools proposition and the market access they offer provides a strong platform for RM's other businesses. The opportunities offered by ICT mean that RM's school customers require ever-increasing levels of sophistication in their ICT infrastructure. Most secondary schools - and many primary schools - are moving to complex networked environments, spanning several buildings and with broadband connections. This complexity, combined with an extremely high level of demand for ICT infrastructure products during the Summer of 2000, led to a greater than usual demand for customer service during the period. RM has always been committed to providing high quality support and customer satisfaction levels are a significant determinant of future business. The Group has invested during the period to ensure RM continues to offer market- leading levels of customer service. The growing complexity of ICT infrastructure is not typically matched by the availability of highly skilled technical staff, and schools and colleges are increasingly looking for partners to work with them to manage their ICT infrastructure. This managed service business - which ranges from providing contracted support or network management to fully outsourcing an establishment's ICT - offers an excellent opportunity for RM to differentiate itself and to provide genuine value for customers. The Group now actively manages more than 25,000 desktops (2000: 13,500) in over 460 establishments and growth in this area is coming from individual establishments as well as groups of schools procuring jointly. Learning Schools Programme Learning Schools Programme, the Group's joint venture with the Open University to provide training under the government's £230 million lottery- funded ICT teacher training initiative, made an exceptional contribution during the period. The lottery funded training initiative will provide all of the UK's serving teachers with an appreciation of how to most effectively use ICT in teaching and learning. The Board believes that one consequence of this training will be a significantly better informed and more receptive marketplace. Revenue from LSP was up 175% on the equivalent period last year. By the end of the period 125,000 teachers had signed up to receive LSP training and of these 84,000 had started training. This represents over 25% of the UK's teachers and the Group expects that, by the end of the initiative, it will have achieved approximately 30% market share. Learning Content and Software All of the Group's content activities are converging on an Internet-enabled model. They are also increasingly becoming learning services rather than discrete items of content. This strategy, which RM has branded as Learning Alive!, will be the core of our RM Learning business moving forward. Easiteach, a whole-class teaching product that exploits the capabilities of interactive white boards, now includes a range of learning resources provided by Reed Educational and Professional Publishing (REPP) in addition to RM's own content. mathsALIVE!, the pilot Key Stage 3 maths learning service that RM is developing for the DfEE, is progressing well. The response from teachers and pupils in pilot schools has been encouraging and we firmly believe that mathsALIVE! shows a direction for the future development of online learning services. The Group's learning systems business has continued to perform well during the period. Revenue growth in this business was 24% and there are now in excess of 250,000 students in over 5,000 establishments using the Group's SuccessMaker, Destinations and RM Maths integrated learning systems products. Localisation for RM Maths Quest, a maths learning software product for 14-16 year olds licensed as a result of RM's strategic alliance with Riverdeep, is now complete. The product has been well received during initial pilot testing and will ship during the second half. The recently published Department for Education and Employment (DfEE) consultation paper Curriculum Online is intended to help frame the government's strategy for the next phase of the National Grid for Learning. It is clear from this consultation that a key strand of this strategy will be to put in place mechanisms - including funding - to drive forward the creation and use of innovative interactive learning content. The Board believes that the rapid development of RM's learning content and software activities will position the Group well to benefit from emerging government policy. Board John Netherton (previously Customers and Markets Director) stepped down from the Board in March. John played a key role in developing the new organisational structure announced in November 2000, and this structure has allowed him to move to a role in RM that will enable him to secure his desired balance of commitment to the Group and his family. On behalf of the Board, I would like to take this opportunity to thank John for his outstanding contribution to the Group over the last sixteen years and to wish him continued success. Prospects The new Group structure is now established and is starting to deliver benefits. The creation of three separate businesses - with their own senior management teams - has given a strong, market-centred focus to day-to-day operations. This structure - combined with the termination of the Classroom 2000 project in Northern Ireland - has enabled RM's management to focus on further improving customer satisfaction and delivering excellent levels of product innovation. Looking ahead, education is a key public policy area and the educational ICT market continues to offer excellent opportunities for growth. The Group's core schools market is seeing increasing levels of funding and there are also good opportunities for growth in the higher and further education marketplace. This year, gross margin is expected to follow a more favourable seasonal pattern following the impact of unusually low PC margins in the second half of last year. In addition, operating expenses for the second half are expected to grow less rapidly than in the first half, reflecting the completion of expenditure on the Classroom 2000 project. As is usual, the first six months of RM's year are not a good indicator of performance for the full year. Nonetheless, the Board is confident that RM's growth will continue to reflect the growth of the Group's market as a whole and that results for the full year will show good progress. CONSOLIDATED PROFIT AND LOSS ACCOUNT Half year ended Year ended 30 31 March 31 March September £000 2001 2000 2000 Turnover 113,716 78,074 207,560 Operating Profit analysed between: Ordinary activities before 2,166 3,428 15,046 exceptional cost of sales Exceptional cost of sales - (2,151) (5,359) _______________________________ ________ ________ ________ Operating profit for ordinary activities 2,166 1,277 9,687 Amortisation of goodwill (523) (87) (610) _______________________________ ________ ________ _________ Total Operating Profit 1,643 1,190 9,077 Net interest (payable)/receivable (107) 242 451 _______________________________ ________ ________ _________ Profit on Ordinary Activities 1,536 1,432 9,528 before Taxation _______________________________ _ ________ _ ________ _ _________ Profit on ordinary activities before taxation analysed between: Profit on ordinary activities before taxation, amortisation of goodwill and exceptional cost of sales 2,059 3,670 15,497 Exceptional cost of sales - (2,151) (5,359) ______ _ _______ _ __________ Profit on ordinary activities 2,059 1,519 10,138 before taxation and amortisation of goodwill Amortisation of goodwill (523) (87) (610) _______ _ _______ _ __________ 1,536 1,432 9,528 _______________________________ _ ________ _ ________ _ _________ Tax charge on profit on ordinary (412) (358) (2,019) activities _______________________________ _ ________ _ ________ _ _________ Profit on Ordinary Activities 1,124 1,074 7,509 after Taxation Dividends paid and proposed (891) (745) (3,273) _______________________________ _ ________ _ ________ _ _________ Retained Profit 233 329 4,236 _______________________________ _ ________ _ ________ _ _________ Earnings per ordinary share Basic 1.2p 1.2p 8.1p Diluted 1.2p 1.1p 7.9p Diluted - before amortisation of 1.7p 1.2p 8.5p goodwill Diluted - before amortisation of 1.7p 3.5p 13.0p goodwill and exceptional cost of sales CONSOLIDATED BALANCE SHEET _______________________________ _ _______ _ ________ _ __________ As at As at As at 31 March 31 March 30 September £000 2001 2000 2000 Fixed Assets Intangible fixed assets 10,447 12,483 11,465 Tangible fixed assets 26,236 24,809 26,093 _______________________________ _ _______ _ ________ _ _________ 36,683 37,292 37,558 Current Assets Stocks 8,751 10,822 20,817 Debtors 51,761 35,652 67,754 Cash at bank and short term 17,217 16,536 19,182 deposits _______________________________ _ _______ _ ________ _ _________ 77,729 63,010 107,753 Creditors Amounts falling due within one year (62,598) (52,102) (93,203) _______________________________ _ ________ _ ________ _ _________ Net Current Assets 15,131 10,908 14,550 _______________________________ _ ________ _ ________ _ _________ Total Assets Less Current 51,814 48,200 52,108 Liabilities Creditors Amounts falling due after more than one year (4,589) (6,372) (5,375) Provision for Liabilities and Charges (1,601) (1,130) (1,601) _______________________________ _ ________ _ ________ _ ________ Net Assets 45,624 40,698 45,132 _______________________________ _ ________ _ ________ _ ________ Capital and Reserves Called up share capital 1,878 1,863 1,873 Share premium account 17,888 9,334 16,368 Other reserve - 500 500 Profit and loss account 25,858 29,001 26,391 _______________________________ _ ________ _ ________ _ _________ Equity Shareholders' Funds 45,624 40,698 45,132 _______________________________ _ ________ _ ________ _ _________ CONSOLIDATED CASH FLOW STATEMENT ________________________________ _ ________ _ ________ _ _________ Half year ended Year ended 31 March 31 March 30 September £000 2001 2000 2000 Net Cash Inflow From Operating Activities 4,605 4,976 13,778 Returns on investments and (107) 242 451 servicing of finance Taxation (149) (452) (1,742) Capital expenditure and financial (3,990) (4,710) (9,591) investment Acquisition of subsidiary - (325) (296) Equity dividends paid (2,528) (2,026) (2,770) ________________________________ _ ________ _ ________ _ _________ Net Cash Outflow before use of Liquid Resources and Financing (2,169) (2,295) (170) Management of liquid resources 2,201 4,734 (3,364) Financing 208 1,037 1,558 ________________________________ _ ________ _ ________ _ _________ Increase/(Decrease) in Cash in 240 3,476 (1,976) the Period ________________________________ _ ________ _ ________ _ _________ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Increase/(Decrease) in Cash in the 240 3,476 (1,976) Period Decrease in lease financing - - 6 Change in liquid resources (2,201) (4,734) 3,364 Settlement of loan notes 55 - - _________________________________ _ _______ _ ________ _ _________ Change in net cash resulting from cash flows (1,906) (1,258) 1,394 New finance leases (2) - (58) Issue of loan notes - (2,278) (2,278) Exchange translation (4) - - _________________________________ _ _______ _ ________ _ _________ Movement in Net Funds in the Period (1,912) (3,536) (942) Net funds brought forward 16,852 17,794 17,794 _________________________________ _ _______ _ ________ _ _________ Net Funds Carried Forward 14,940 14,258 16,852 _________________________________ _ _______ _ ________ _ _________ NOTES TO THE INTERIM STATEMENTS 1. Basis of Preparation The financial information contained in this statement does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The unaudited consolidated profit and loss account and balance sheet for the half years ended 31 March 2000 and 31 March 2001 have been prepared on a basis consistent with the statutory accounts for the year ended 30 September 2000. Those accounts received an unqualified auditor's report and have been filed with the Registrar of Companies. For the half year to 31 March 2000, the costs incurred relating to Trilith, RM's joint venture bidding for the Classroom 2000 project in Northern Ireland, have been reclassified as exceptional cost of sales in the Consolidated Profit and Loss account and accompanying notes. 2. Cost of Sales, Gross Profit and Other Operating Expenses Half year ended Year ended 31 31 March 30 Sept March £000 2001 2000 2000 Cost of sales before exceptional item 88,307 58,486 155,364 Exceptional cost of sales - 2,151 5,359 ______________________________________________ _______ _______ _______ Total cost of sales 88,307 60,637 160,723 ______________________________________________ _______ _______ _______ Gross profit before exceptional item 25,409 19,588 52,196 Exceptional cost of sales - (2,151) (5,359) _____________________________________________ _______ _______ _______ Gross profit 25,409 17,437 46,837 ______________________________________________ _______ _______ _______ Operating expenses (excluding amortisation of goodwill) Selling & distribution 13,886 9,763 23,377 Research & development 6,013 3,411 7,365 Administration 3,344 2,986 6,408 ______________________________________________ _______ _______ _______ 23,243 16,160 37,150 ______________________________________________ _______ _______ _______ Operating expenses for the half year ended 31 March 2000 were originally presented as £18,311,000; this included the provision for costs incurred in relation to Classroom 2000 of £2,151,000. 3. Tax Charge on Profit on Ordinary Activities The tax charge for the half year ended 31 March 2001 has been provided at the estimated effective rate for the full year. 4. Dividend The proposed interim dividend of 0.95p per ordinary share (2000: 0.80p) will be paid on 29 June 2001 to shareholders on the register on 8 June 2001. NOTES TO THE INTERIM STATEMENTS CONTINUED ________________________________________________________________________ 5. Earnings per Share Earnings per share for the half year ended 31 March 2001 are based on earnings of £1,124,000 (2000: £1,074,000). Basic earnings per share is based on 93,744,041 ordinary shares (2000: 92,833,654), being the weighted average number of ordinary shares in issue during the half year ended 31 March 2001. The diluted earnings per share is based on a weighted average of 95,758,223 (2000: 95,521,435) ordinary shares issued and issuable. A reconciliation of basic earnings per share with diluted earnings per share is as follows: Half year ended 31 Half year ended 31 March 2001 March 2000 Profit No. of Pence Profit No. of Pence after Shares per after Shares per tax share tax share £000 ('000) £000 ('000) Basic earnings per 1,124 93,744 1.2 1,074 92,834 1.2 share Impact of share options - 2,014 - - 2,688 (0.1) ______________________ ______ ______ _____ ______ ______ ______ Diluted earnings per 1,124 95,758 1.2 1,074 95,522 1.1 share __________________________________________________________________________ Supplementary earnings per share before amortisation of goodwill and exceptional cost of sales: Diluted earnings per 1,124 95,758 1.2 1,074 95,522 1.1 share Effect of amortisation 523 - 0.5 87 - 0.1 of goodwill ______________________ ______ ______ ______ ______ ______ ______ Diluted earnings per 1,647 95,758 1.7 1,161 95,522 1.2 share before amortisation of goodwill Effect of exceptional - - - 2,151 - 2.3 cost of sales ______________________ ______ ______ ______ ______ ______ ______ Diluted earnings per 1,647 95,758 1.7 3,312 95,522 3.5 share before amortisation of goodwill and exceptional cost of sales ______________________ ______ ______ ______ ______ ______ ______ 6. Reserves and Reconciliation of Movements in Shareholders' Funds Half year ended 31 March 2001 Share Other Profit Total Share Premium Reserve and Loss Shareholders' £000 Capital Account Account Account Funds Beginning of the 1,873 16,368 500 26,391 45,132 period Retained profit for - - - 233 233 the period Share issues 3 260 - - 263 Transfer in respect - 762 - (762) - of issue of shares to employee trusts Exchange translation - - - (4) (4) differences Other 2 498 (500) - - __________________ _______ _______ _______ _______ _____________ End of the period 1,878 17,888 - 25,858 45,624 The Other Reserve Account movement represents consideration paid with regard to the acquisition of 3T Productions, which was dependent upon short- term post-acquisition profit meeting performance targets. NOTES TO THE INTERIM STATEMENTS CONTINUED 7. Reconciliation of Operating Profit to Operating Cash Flows Half year ended Year ended 31 March 31 March 30 Sept £000 2001 2000 2000 Operating profit 1,643 1,190 9,077 Depreciation charge 3,915 3,146 6,788 Amortisation of intangible assets 1,018 582 1,600 Profit on disposal of fixed assets (68) (110) (156) Decrease/(increase) in stock 12,066 (651) (10,646) Decrease/(increase) in debtors 15,994 721 (31,381) (Decrease)/increase in creditors (29,963) 98 38,496 ___________________________________ __________ _ ________ _______ Net cash inflow from operating 4,605 4,976 13,778 activities ___________________________________

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