Rm Regulatory News (RM.)

9 July 2012

Change in year end

RM changed its financial year end in 2011 from 30 September to 30 November. As a result, the prior year periods were for the 6 months to 31 March 2011 and 14 months to 30 November 2011. However, to aid period to period comparisons, proforma information for the 6 months to 31 May 2011 and the 12 months to 30 November 2011 is also provided.

Headlines

·; Revenue from retained operations increased by 3.7% to £122.0m (2011 for the 6 months to May: £117.5m), benefitting from the Building Schools for the Future programme (BSF). Total revenues including exited operations decreased to £124.7m (2011: £133.0m for the 6 months to March; £128.5m for the 6 months to May)

·; Adjusted* operating profit of £3.9m benefitting from the disposal of loss-making operations (2011: profit of £1.6m for the 6 months to March; £1.7m for the 6 months to May)

·; Adjusted* profit before tax of £3.4m (2011: £1.6m for the 6 months to March; £1.7m for the 6 months to May). Profit before tax of £0.6m (2011: loss of £1.8m for the 6 months to March; loss of £1.5m for the 6 months to May)

·; Strong cash flow with cash generated from operations of £11.6m

·; Net cash of £25.3m compared to net funds less deferred consideration of £(7.6)m at 31 May 2011. Net cash position highest since September 2007

·; Pension deficit increased to £29.5m (2011: £7.4m at 31 March; £11.7m at 31 May; £21.2m at 30 November). Deficit net of deferred tax was £22.6m

·; Adjusted* EPS: 2.9p (2011: 1.3p for the 6 months to March; 1.7p for the 6 months to May)

·; Interim dividend per share 0.75p (2011: 1.47p)

·; New business initiatives launched

·; Disposals programme completed following September 2011 Strategic Review

Due to the seasonality of RM's business, interim results are not a good indicator of full year performance.

* Adjusted profit / (loss) and EPS are before amortisation of acquisition related intangible assets; share-based payment charges; restructuring costs; impairment of goodwill, acquisition related intangible assets, other intangible assets and investments; the loss on sale of operations; and the increase/(decrease) in provision for dilapidations on leased properties and onerous lease contracts.

RM plc

Interim Results for the 6 Month Period ended 31 May 2012

Following the restructuring at the end of the last financial year, the first half of 2012 has been a period with three primary objectives:

·; Completion of the restructuring programme, including the disposals of non-core business operations,

·; Stabilisation following the restructuring programme, and

·; Innovation and development of new offerings

Progress against the Board's objectives has been very positive. The disposal of loss-making and non-core business activities has been completed and the redundancy programme achieved the necessary streamlining of the Group, reducing headcount from 2,747 in May 2011 to 2,280 in May 2012. The Group is trading profitably and cash flow has been strong, enhanced by the disposal programme, such that net funds at 31 May 2012 increased substantially to £25.3m the highest level since September 2007 (31 May 2011: net funds less deferred consideration of £7.6m).

Operational delivery will be a major focus for the second half, with 2012 being the most significant year in terms of new school openings under the BSF programme. Thereafter, the Board anticipates Group revenue will continue to decline for some period due to the phased conclusion of the BSF programme and the continued pressure on hardware and IT infrastructure. Furthermore, the education sector remains challenging with continued budgetary pressure and uncertainty due to Government policy changes (including School Funding Reform and Curriculum and Examination changes), an environment that the Board anticipates will continue for the foreseeable future.

However, over the past 6 months, the focus of the Group has evolved from operational restructuring to reinvigorating innovation to develop new offerings for the education sector. The future strategy of the Group will be based around RM's unparalleled distribution channel into UK schools, comprising both a direct marketing and a direct sales capability. Through these channels, RM will launch three new initiatives in the second half of the year: RM Books, RM Unify and RM At Home. While all costs associated with the development of these offerings have been expensed, continued investment will be required in the next few years to build on these opportunities. In the medium term, RM's new offerings potentially provide an exciting channel for distribution of digital content and applications. Building on the Group's leading position in the UK education sector, these new revenue streams reposition RM at the forefront of providing innovative solutions to the education market.

Financial Summary

Due to the normal seasonality of RM's business, interim results are not a good indicator of full year performance.

\* Throughout this statement, adjusted profit / (loss) and EPS are before amortisation of acquisition related intangible assets; share-based payment charges; restructuring costs; impairment of goodwill, acquisition related intangible assets, other intangible assets and investments; the loss on sale of operations; and the increase/(decrease) in provision for dilapidations on leased properties and onerous lease contracts.

Revenue from retained operations rose 3.7% to £122.0m compared with £117.5m for the same period last year, due to the anticipated benefit from the Building Schools for the Future ('BSF') programme being offset by declines in the Education Technology and Education Software divisions. On a statutory basis, including businesses sold/exited, Group revenue declined to £124.7m (2011: £133.0m for the 6 months to 31 March; £128.5m for the 6 months to 31 May).

Adjusted* profit before tax was £3.4m (2011: profit of £1.6m for the 6 months to March; £1.7m for the 6 months to May). Adjusted* operating profit from retained operations was £4.5m (2011: profit of £6.0m for the 6 months to March; £5.5m for the 6 months to May) although comparison is affected by one-off factors. Further comments are provided in the operational overview. Profit before tax was £0.6m (2011: loss of £1.8m for the 6 months to March; loss of £1.5m for the 6 months to May).

Balance sheet management has improved significantly. For example, inventory (excluding that held by exited businesses) reduced by 14% year on year. As a result, cash generated from operations was strong and, including the cash generated from the disposal programme, net cash at 31 May 2012 was £25.3m (2011: £8.0m at 31 March; net debt of £(6.9)m at 31 May). The Group's new £30m Barclays committed debt facility has not been utilised since it was signed in January 2012. The former HSBC acquisition facility, from which £13.0m had been drawn, was repaid in the period.

The IAS 19 deficit related to RM's defined benefit pension scheme has increased to £29.5m primarily due to changes in market derived actuarial assumptions, particularly bond yields (2011: £7.4m at 31 March; £11.7m at 31 May and £21.2m at 30 November). The deficit net of deferred tax was £22.6m. The next triennial valuation of the pension scheme, which determines the level of future deficit reduction payments, will be based on the position at 31 May 2012. It is expected that the scheme deficit under this statutory valuation basis will have increased materially since the last valuation at 31 May 2009. Consultation with the trustees with respect to closure of the scheme to future accrual of benefits is continuing in conjunction with discussion regarding the deficit reduction plan associated with the triennial valuation. It is anticipated that the level of cash payments required to recover the deficit, once it is agreed, will increase materially.

Adjusted* earnings per share was 2.9p (2011: 1.3p for the 6 months to March; 1.7p for the 6 months to May).

In line with the realignment of the dividend policy in 2011, the interim dividend per share has been reduced to 0.75p (2011: 1.47p). The dividend will be payable on 14 September 2012 to shareholders on the register on 17 August 2012.

Operational Overview

Since 1 December 2011, RM has been structured in four operating divisions. In order to maximise the benefits of the Group's operational scale, the four divisions are supported by shared service functions located in the UK and India.

Education Technology

The Education Technology division is a UK focused business supplying IT hardware, networks, internet services and related installation and support. This division provides a material sales channel for some of the other operating businesses.

As anticipated given public sector budgetary constraints, overall revenue in the Education Technology Division declined by 3.6% to £47.6m (2011: £49.3m for the 6 months to May). Revenue from the UK classroom technology and implementation services businesses declined compared to the same period in 2011 with the networks and internet hosting activities remaining broadly flat on the prior year.

However, the business returned to profitability due to the restructuring actions taken following the Strategic Review in 2011, reporting an adjusted operating profit of £0.9m (2011: loss of £(0.3)m for the 6 months to May). Adjusted operating margins improved from a (0.5)% loss for the 6 months to May 2011 to a 1.8% operating profit.

While the competitive environment remains challenging, the Board considers that RM has maintained its market share in these activities, winning c.25-30% of new Academies and Free Schools. As such, despite the market environment and the restructuring over the past year, RM has maintained its position as a leading supplier of ICT products and services to schools in the UK.

Managed Services

The Managed Services division comprises implementation, management and support of IT infrastructure within schools and colleges, including the Building Schools for the Future ('BSF') contracts.

The Managed Services Division reported revenue of £29.9m (2011: £22.2m for the 6 months to May), reflecting the increased BSF activity in the current year, which, as previously reported, is expected to be the peak of BSF revenues. These are expected to decline materially in 2013 and beyond as the BSF programme winds down.

Adjusted operating profit was £1.0m (2011: profit of £3.0m for the 6 months to May). The decline in profit reflects a strong performance in 2011, benefitting from a customer whose original contract ended last year with lower margins now being recognised in the early stages of the new follow-on contract. A few contracts had the benefit of small scope extensions offset by higher costs to complete forecast for others.

Education Resources

Following the restructuring of the Group and the subsequent disposals, the Education Resources division comprises two operating businesses: TTS and RM SpaceKraft. TTS is a value-added distribution business offering a wide range of curriculum products and materials to schools for both general and departmental use. RM SpaceKraft supplies products and installation services for the Special Educational Needs market.

The Education Resources Division reported revenue of £28.6m, an increase of 1.6% over the comparable period last year (2011: £28.2m for the 6 months to May). TTS, the curriculum resources business, had a very satisfactory first half, growing revenue by 3.9% against the background of a continued UK market decline. TTS's international growth from a modest base was recognised by receiving a Queen's Award for Export. RM SpaceKraft reported a decline in revenue but maintained stable margins and profitability.

Adjusted operating margins increased strongly to 13.8% compared with 6.5% for the 6 months to May 2011, reflecting the benefits of new systems implemented in TTS last year, reduced overheads and the continuous operational improvement programme.

Working capital utilisation in TTS also improved with inventory levels 9% lower at 31 May 2012 compared with the prior year while increasing revenue and improving on-time delivery performance.

During the period, TTS continued to extend its marketing reach outside of its core UK primary and early years' market with new initiatives including the launch of a new Key Stage 3 catalogue aimed at the secondary school market. In addition, a new 'RM At Home' website was launched in June 2012 initially offering a focused range of products directly to parents and a free online service, RM Schoolfinder, has been launched to help parents evaluate prospective schools for their children. A number of other extensions to the Education Resources product offerings are currently being evaluated.

Education Software

The Education Software division comprises Assessment Services, Data Solutions, School Management Systems ("SMS"), Learning Platforms, Software Publishing (including Easiteach and RM Easimaths) and other software (excluding network-related software which is within the Education Technology division).

The market for education software is changing rapidly and overall revenue in this division declined by 10.9% from the comparable period in 2011 to £15.9m (2011: £17.8m for the 6 months to May). Adjusted operating profit decreased from a profit of £2.6m for the 6 months to May 2011 to a loss of £0.1m. The comparable period in 2011 benefited from high margins realised at the end of a long term ADS contract and there has been a significant decline in revenues in other areas.

Revenue in the Assessment (e-marking and e-testing) business grew over 20% due to the increase in examination volumes processed. While RM is progressing a number of international opportunities in this business, the Board anticipates a period of uncertainty as the Government reviews the policy on GCSE examinations and Examining Boards.

Revenue from School Management Systems declined by 8% following customer losses in 2011, although RM has increased the customer base in 2012. The Learning Software and other business declined by more than 50% reflecting the significant changes in this market.

The UK market for Learning Platform software is changing rapidly in the current budgetary environment, and there is a trend away from adoption of large, integrated Learning Platform applications which are expensive to deploy and maintain. As a result, this product line experienced further revenue decline in the period, a trend that is anticipated to continue, although a 15 month extension has been awarded to RM by the Scottish Government to extend the Glow platform until December 2013. However, schools and other educational establishments do still require the benefits of a single secure point of access to their systems and resources and RM Unify, a new product being developed by RM, provides an exciting opportunity for a cloud-based service to enable technology solutions to replace Learning Platforms. RM Unify provides a 'launchpad' and secure single sign on to a wide variety of applications, including cloud-based offerings. As part of the Glow extension, RM Unify will be made available to schools in Scotland over the winter and will be available more widely across the UK from 2013.

RM is also launching another new growth initiative, RM Books, a new cloud-based channel for accessing electronic text books for schools. RM Books will be available across the UK from September 2012 and provides the first e-book solution designed for UK schools. The Publishers Association reports that e-book adoption in schools is currently just 2% compared to the wider market where adoption is currently around 8% and increasing rapidly. With the many benefits to be derived from digital textbooks, demand in schools for this exciting technology change is anticipated to accelerate; for example, some States in the USA are targeting 100% e-books adoption by 2015. However, there are a number of inhibitors to this transition in the UK education market, and RM has used its experience to develop a differentiated solution that could enable a more rapid transition to digital format. As part of the service offering, RM is providing all schools that register for RM Books, access to several hundred free e-books, including English Literature classics.

RM Books and RM Unify are exciting new opportunities for RM, where medium term success will be dependent on near-term investment to maximise adoption of these offerings. The costs to date of developing RM Unify and RM Books have been expensed in the period and the Board anticipate continuing to invest in these new business opportunities over the next few years.

Exited operations

The disposal programme announced as part of the Strategic Review in September 2011 has been completed in the period with transactions related to the Lego joint venture, the remaining element of the DACTA business, AMI (Easytrace) and ISIS.

Total cash receipts received and expected from the six disposals, including the sale of the US hardware and Australian businesses last year were £6.1m.

The trading results of all exited businesses included in operating results for the period were £2.7m revenues and adjusted operating losses of £(0.6)m (2011: £(3.8)m loss on £11.0m revenues for the 6 months to May including US hardware and Australian results).

Statement on Principal Risks and Uncertainties

Pursuant to the requirements of the Disclosure and Transparency Rules the Group provides the following information on its principal risks and uncertainties. The Group considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are updated at least annually. The principal risks and uncertainties detailed within the Group's 2011 Annual Report remain applicable. The Group's 2011 Annual Report is available from the RM website: www.rm.com.

Related party transactions during the period are disclosed in Note 12.

In addition, new risks to RM include:

Medium-term investments - RM has invested in new initiatives such as RM Books, RM At Home and RM Unify. Since these products are being launched in unproven markets, there is a risk that these do not produce returns sufficient to make these activities profitable.

Board Structure

After 9 years of service, Sir Bryan Carsberg retired from the Board as a non Executive Director and Chair of the Audit Committee at the 2012 Annual General Meeting. Ms Deena Mattar has succeeded him as Chair of the Audit Committee.

The Board announced the appointment of Mr David Brooks as Chief Operating Officer and a Director of RM plc, with effect from 1 July 2012. David Brooks originally joined RM as a graduate and has gained extensive experience in the education sector across many parts of the RM Group. Most recently, he has been the Managing Director of the Education Software Division and has worked closely with Martyn Ratcliffe, Chairman, on the Group's new initiatives.

Outlook

Due to the seasonality of RM's business, interim results are not a good indicator of full year performance. Operational delivery will be a major focus area for the second half, with 2012 being the most significant year in terms of new school openings under the BSF programme. Furthermore, the education sector remains challenging with continued budgetary pressure and uncertainty due to Government policy changes (including School Funding Reform and Curriculum and Examination changes), an environment that the Board anticipates will continue for the foreseeable future.

However, following the Strategic Review in September 2011 and the resulting actions, RM is trading profitably and has a strong balance sheet, with cash at the highest level since September 2007. Over the past 6 months, the focus of the Group has evolved from operational restructuring to reinvigorating innovation to develop exciting new offerings for the education sector. While the Board anticipates Group revenue will continue to decline for some period due to the phased conclusion of the BSF programme and the continued pressure on hardware and IT infrastructure, in the medium term, RM's new offerings potentially provide an exciting channel for distribution of digital content and applications, built on the Group's leading position in the UK education sector.

Condensed consolidated income statement

for the half-year ended 31 May 2012

Results for the half-year ended 31 March 2011 have been restated to reflect current period treatment of restructuring costs and share-based payment charges as adjustments with costs of £1,693,000 and £1,235,000 being reallocated respectively, and is consistent with the treatment of the results for the 14 months ending 30 November 2011. These costs had previously been allocated to adjusted cost of sales (£340,000) or adjusted operating expenses (£2,588,000) according to the employee's role. The restatement is a reallocation only and there is no change to profit from operations, profit before tax or profit attributable to equity holders of the parent as a result.

Adjustments to profit have been presented to give a better guide to business performance.

Condensed consolidated statement of comprehensive income

for the half-year ended 31 May 2012

Total tax credited to equity was £1,731,000 (2011: half-year to 31 March debit of £1,180,000; 14 months ended 30 November 2011 credit of £1,982,000)

Condensed consolidated balance sheet

as at 31 May 2012

Condensed consolidated cash flow statement

for the half-year ended 31 May 2012

Group net funds

for the half-year ended 31 May 2012

for the half-year ended 31 May 2012

Notes to the condensed interim financial statements

RM plc is a company incorporated in the United Kingdom. The unaudited condensed consolidated interim financial statements as at 31 May 2012 and for the 6 months then ended comprise those of the Company and its subsidiaries (together the Group).

The information for the 14 months ended 30 November 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

Change of year end

The financial year end of the Company and its subsidiaries has changed from 30 September to 30 November in 2011. Following the change of accounting reference date, these interim financial statements disclose the financial performance and cash flows for the 6 months ended 31 May 2012 and the financial position as at 31 May 2012. As a result, the comparative financial information which is for the 6 months ended 31 March 2011 covers an indirectly comparable time period. Financial information for the 6 months ended 31 May 2012 and proforma financial information for the comparable 6 months ended 31 May 2011 and the 12 months ended 30 November 2011 has been included within an appendix to these interim financial statements. The decision to change the financial year end was made in order to separate both the annual financial year planning and financial year end activity from the busiest operational period of the Group's year.

Income statement presentation

The income statement for the half-year ended 31 May 2012 has been presented in three columns. This presentation is intended to give a better guide to business performance by separately identifying: the amortisation of acquisition related intangible assets; share-based payment charges; restructuring costs; impairment of goodwill, acquisition related intangible assets, other intangible assets and investments; the loss on sale of operations; and the increase/(decrease) in provision for dilapidations on leased properties and onerous lease contracts. The columns extend down the income statement to allow the tax and earnings per share impacts of these transactions to be understood.

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the 14 months ended 30 November 2011.

The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the 14 months ended 30 November 2011.

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 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 interim financial statements.

The Group's business is supplying products and services to the UK and international education markets.

Following the September 2011 Strategic Review, from 1 December 2011 the Group was restructured into four operating divisions: Education Technology, Managed Services, Education Resources and Education Software. The division for exited operations includes the results for businesses that were identified during the Strategic Review to be exited by the Group and which have subsequently been sold.

Historically, all central costs were allocated to the divisions. As disclosed in the 2011 Annual Report and Accounts, central costs that are not directly attributable to a division are now separately identified.

For results after 1 December 2011 the Group has moved to this basis of responsibility and reporting and segmental information for the Group is reported on this basis. Prior period financial performance and position for the half-year ended 31 March 2011 and the 14 months ended 30 November 2011 have been restated under the new basis of reporting.

Proforma information contained within the Appendix to these interim financial statements gives derived segmental performance under this new basis for the comparable periods for the half-years ended 31 May 2012 and 31 May 2011.

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

Results for the half-year ended 31 March 2011 have been restated to reflect current period treatment of restructuring costs and share-based payment charges as adjustments with costs of £1,693,000 and £1,235,000 being reallocated respectively. These costs had previously been allocated to adjusted operating profit according to the employee's role. The restatement has resulted in a corresponding change to adjusted operating profit. The restatement has no overall change to profit before tax.

* Adjustments to profit are as stated within the condensed consolidated income statement.

** Exited operations represent the results from operations sold following the September 2011 Strategic Review.

Segmental assets

Segmental assets include all assets except for tax balances, balances due from joint venture and investment undertakings and cash and cash equivalents which are shown as non-segmental balances:

** Exited operations represent the results from operations sold following the September 2011 Strategic Review.

Corporation tax for the interim period is charged at the expected effective tax rate for the full financial period, which is the year ending 30 November 2012, based upon adjusted profit/(loss) as explained within the condensed consolidated income statement. The charge incorporates both current and deferred taxation:

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

Basic earnings per ordinary share:

Diluted earnings per ordinary share: