Rm Regulatory News (RM.)

21 February 2013

RM plc

Preliminary Results for the year ending

30 November 2012

RM plc ("RM") reports its results for the year ending 30 November 2012. Comparator period of proforma 12 months to 30 November 2011 unless otherwise stated.

SUMMARY

·; Good execution of strategy with very strong cash performance. Disposals programme completed and new initiatives launched.

·; Revenue from retained operations increased 0.8% to £285.9 million (2011: £283.7 million). Total revenue of £288.7 million (2011: £310.1 million).

·; Profit before tax of £8.4 million, including losses on sale of operations, goodwill/intangible impairment, property related provisions and exceptional pension credit (2011: Loss before tax of £(18.5) million). Adjusted operating profit of £13.6 million (2011: £14.1 million).

·; Cash and cash equivalents at 30 November 2012 of £37.8 million (net funds less deferred consideration at 30 November 2011: £11.3 million). Cash generated from operations of £33.5 million (2011: £39.5 million).

·; Defined Benefit pension scheme closed to future accrual of benefits. Deficit at 30 November 2012 of £20.4 million (30 November 2011: £21.2 million). Plan agreed to recover the £53.5 million statutory scheme deficit from triennial valuation at 31 May 2012 over 15 years.

·; Diluted earnings per share of 5.4 pence (2011: Diluted loss per share of 21.2 pence).

·; Proposed final dividend of 2.25 pence per share (2011: 1.53 pence). Total dividend (paid and proposed) of 3.00 pence per share (2011: 3.00 pence).

·; David Brooks to be appointed Chief Executive 1 March 2013. Martyn Ratcliffe to step down as Chairman in the summer. Search for a new Non-Executive Chairman will commence shortly.

* References to adjusted profit exclude: amortisation charges relating to acquisition related intangible assets, losses on sale of operations, impairment of goodwill, intangible assets and investment, exceptional pension credits, restructuring costs, share-based payment charges, movements in property related provisions and other exceptional items. FY12 refers to the financial year ending 30 November 2012.

Chairman's Statement

The past year has been one of significant change within RM and the Board is pleased with the progress made, particularly in the context of public sector budget constraints. Following the restructuring in 2011, the increased focus on working capital resulting in a very strong cash position at the year end and the launch of some exciting new cloud-based products in 2012, RM now has an excellent platform for the future as a leading provider of products, solutions and services into the UK education market.

Despite the difficult market conditions, revenue from retained operations increased slightly to £285.9 million compared with £283.7 million for the same period last year, with the benefit from the Building Schools for the Future ('BSF') programme within the Managed Services division and a strong performance from the Education Resources division being offset by a decline in the Education Technology and Education Software divisions. Profit before tax was £8.4 million (2011: £(18.5) million loss for the 12 months to 30 November; £(23.4) million loss for the 14 months to 30 November) and adjusted profit before tax was £13.1 million compared to £14.6 million in the same period last year, a reduction in part due to the increased investment in new market opportunities. Further details are set out in the Chief Operating Officer's Report and Review of Operations. Earnings per share were 5.4 pence (2011: (21.2) pence loss for the 12 months to November; (25.3) pence loss for the 14 months to November). Furthermore, with a significant improvement in working capital management, cash flow has been particularly strong with net funds, including proceeds from disposals and after payment of an additional £5 million to the pension fund, at 30 November 2012 of £37.8 million (30 November 2011: £11.3 million). This cash balance is the highest since 2003.

Following last year's strategic review, the Board defined three primary objectives for 2012:

·; 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 was completed in the first half of the year, realising cash receipts of £6.3 million since the strategic review in September 2011. The redundancy programme achieved the necessary streamlining of the Group, reducing headcount from 2,699 in September 2011 before the strategic review, to 2,250 in November 2012.

The strategic focus of the Group has now evolved from operational restructuring to reinvigorating innovation to develop new offerings and opportunities for the education sector. The future strategy of the Group will be based around RM's unparalleled distribution channel into UK schools, which comprises both a direct marketing and a direct sales capability. Through these channels, RM launched three new initiatives in the year:

·; RM Unify: The market response to RM Unify, a cloud-based platform for application and content distribution, has been excellent, addressing the limitations of historic learning platforms through an innovative solution which provides schools with an increasing range of RM and third-party applications through a flexible business model.

·; RM Books: The innovative RM e-books service has also been well received and is increasingly being recognised as being the first e-books solution that satisfies the very different requirements of a school environment in managing e-book deployment. While the catalyst for the major transition from printed textbooks to e-books will probably be curriculum changes, many of the leading education publishers are now providing digital content to RM Books. RM Unify provides an ideal distribution channel into schools for RM Books.

·; RM At Home: While a more modest activity to extend the RM Education Resources channel distribution, the launch of RM Schoolfinder, a free service which consolidates information on schools for parents, and a number of associated key partner web links, are increasing the traffic to RM At Home.

While 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 and other new opportunities. In the medium term, RM's new offerings potentially provide exciting channels for distribution of digital content and applications. Building on the Group's leading position in the UK education sector, these new offerings reposition RM at the forefront of providing innovative solutions to the education market.

In line with the dividend policy, subject to shareholder approval, a final dividend of 2.25 pence per share is proposed, making a total dividend (paid and proposed) of 3.00 pence per share (2011: 3.00 pence). The dividend will be payable on 15 May 2013 to shareholders on the register on 19 April 2013.

Board Changes

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. Mr Brooks originally joined RM as a graduate and has gained extensive experience in the education sector across many parts of the RM Group. Having been successful in his role as Chief Operating Officer, the Board has now decided that Mr Brooks should be promoted to Chief Executive Officer with effect from 1 March 2013.

Mr Martyn Ratcliffe was appointed Non-Executive Chairman on 1 June 2011 and became Executive Chairman on 25 October 2011. Since that time Mr Ratcliffe has led the successful restructuring of the Group and the development and launch of the new initiatives. Mr Ratcliffe has advised the Board that it is now an appropriate time to effect a transition and that he will step down as Chairman and a Director in the summer. A search for a new Non-Executive Chairman will commence shortly.

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 succeeded him as Chair of the Audit Committee.

Sir Mike Tomlinson has advised the Board that, having been a Non-Executive Director for 9 years, he will be retiring from the Board and not therefore standing for re-election at the forthcoming annual general meeting. Ms Jo Connell will succeed him as Chair of the Remuneration Committee.

Summary

In summary, 2012 has been a challenging but very successful year for RM with significant progress achieved. The actions taken since the strategic review have stabilised the Group and have established a stronger platform for the future, with some innovative new offerings being launched. Furthermore, despite the market environment and the internal organisational changes, RM has maintained its unparalleled position in the UK education market which is a reflection of the resilience and commitment of the management and staff throughout the Group.

Looking forward, the Board anticipates that difficult market conditions will continue for the foreseeable future. The decline in the Group's BSF contract profile in 2014 and beyond, together with the anticipated decline in hardware/infrastructure revenue and margin, is not insignificant. As a result, and as previously stated, the Board anticipates Group revenue will continue to decline for some period. However, in the medium term, the investment in new offerings provides the potential to leverage the unique relationship between RM and its customer base, in higher value sectors of the education market. Such creativity and innovation, based on a more robust foundation and a leading market position, offers an exciting opportunity in the future as RM transitions to the digital education era. 

Martyn Ratcliffe

Chairman

Chief Operating Officer's Report and Review of Operations

For the year to November 2012, the Group has been structured in four operating divisions, each with a Managing Director and management team. Wherever appropriate, staff functions are provided by a central service in order to benefit from economies of scale and consistency across the Group. In addition approximately 23% of the Group headcount is based in India, providing support services and software development to the operating divisions.

In order to aid year on year comparisons, the following divisional commentary and figures draw on proforma comparative information for the twelve month period to 30 November 2011 ("2011") for the reorganised structure.

Education Technology

The Education Technology division is a UK-focused business supplying IT hardware, networks, internet services and related installation and support. As anticipated, market conditions in the UK education sector, and in the wider hardware and infrastructure market, remain difficult with continued funding pressures on customers and technology price deflation. As a result, overall revenue in the Education Technology division declined by approximately 13% to £109.0 million (2011: £125.7 million) and adjusted operating profit margins fell from 6.6% to 3.3%. In terms of seasonality, the Education Technology hardware and network businesses, together with related services, operate at a broadly consistent level throughout three-quarters of the year with a significant seasonal increase over the summer, while the internet hosting business is relatively constant throughout the year.

Reviewing the performance and trends in the three main operating areas:

·; Revenue derived from Hardware (RM-branded and third-party computing products, together with maintenance and warranty and other third-party classroom equipment) accounted for approximately 61% of the division's revenue. RM-branded computer product shipments continue to decline more rapidly than revenues from third-party products, which due to the lower margin on third-party products has an impact on overall gross margins. Demand for hardware products and underlying gross margins are anticipated to remain under pressure in the year ahead.

·; Network Solutions and the Internet Hosting Group contributed approximately 27% of the Education Technology division revenue. Network Solutions, which provides network management software to over 4,000 schools saw its revenues decline year on year. Underlying gross margins in this business are anticipated to experience continued pressure with declines in the contributions from BSF projects. The Internet Hosting Group maintained its market position as a service provider to approximately 7,000 schools.

·; The remaining revenue of the Education Technology division is derived from associated installation and support services.

In the Academy and Free Schools market RM has won c. 20-25% of the tendered business by value. Despite low margin levels associated with UK hardware/infrastructure businesses, the division has a strategic importance to the RM Group, providing the major direct sales channel to UK schools and supplying products and services to the Managed Services division. The increased focus on working capital has resulted in gross inventory levels being reduced by 25% year on year and debtor collection performance improving. Furthermore, the division has started a process of significant rationalisation of the previously diverse range of product offerings and a review of margin leakage and pricing methodologies, in order to mitigate the effects of the challenging market environment.

In terms of future market trends, the increasing interest in schools towards adoption of "Bring Your Own Device" ("BYOD") policies offers RM an opportunity both to supply hardware technology and network/infrastructure solutions to facilitate this complex transition for the Group's customers. At the same time, as schools adopt BYOD, the demand for hardware purchased by schools themselves may decline. The BYOD evolution is being monitored closely by the Board.

Managed Services

The Managed Services division comprises implementation, management and support of IT infrastructure within schools and colleges, including the Group's BSF contracts. Revenues in 2012 increased by approximately 32% to £81.4 million (2011: £61.5 million) as the BSF programme reached its peak. While 2013 will benefit from some delays in 2012, due to the contract roll-out schedule it is anticipated that BSF revenue will decline significantly thereafter with only modest revenue from BSF implementations after 2014.

The Managed Services division is subject to long term project accounting and revenues and profits were negatively impacted by delays to builders completing BSF projects resulting in invoicing milestones being deferred to future periods. In addition, the decision to migrate away from the current learning platform offerings, described in more detail under Education Software, has led to increased costs forecast to be incurred in meeting existing obligations under long term contracts with these legacy costs being recovered over a declining customer user base. This has resulted in adjusted operating margins in the year reducing to 3.5% from 10.0%, although some margin recovery is anticipated in the year ahead.

Education Resources

Following the restructuring of the Group and the disposal programme, the Education Resources division now comprises just two operating businesses: TTS and RM-SpaceKraft. The division had an excellent year despite the difficult market backdrop with revenue growing by approximately 3% to £59.8 million (2011: £58.0 million) in a declining UK market. TTS accounted for approximately 93% of the divisional total revenue and delivered all of the revenue growth. Adjusted operating margins increased strongly to 14.9% compared with 9.3% in the prior year, reflecting the benefits of new systems implemented in TTS last year, reduced overheads and the continuous operational improvement programme. Working capital utilisation in TTS has been a major focus during the year, with inventory levels at 30 November 2012, approximately 20% lower compared with the prior year, while increasing revenue and improving on-time delivery performance.

TTS is the Group's primary direct marketing channel, providing a highly successful and very profitable catalogue-based business model. During the period, TTS continued to extend its marketing reach outside of its core UK primary and early years segments with new initiatives including the launch of a new Key Stage 3 catalogue aimed at the secondary school market. TTS export revenues also grew significantly this year, albeit from a low base and this success was recognised by the company receiving a Queen's Award for International Trade. In addition, a new 'RM At Home' website was launched in June 2012, initially offering a focused range of products directly to parents. Furthermore, the RM School Finder, which was launched as a free online service in 2012 to help parents evaluate prospective schools for their children, provides enhanced traffic to the RM At Home web site. While revenues from this new channel have been immaterial to date, collaboration with other web sites, particularly related to property relocation, have progressively increased traffic to RM School Finder and subsequently to the RM At Home web site.

In summary, TTS is a well-managed, growing business with good margins and significantly improved return on capital following the actions taken on inventory and supply chain management. The biggest risk to the business relates to one significant customer programme with an annually renewed contract which represents over 10% of divisional revenues. To mitigate this risk, build on the success of the TTS platform and continue to increase its market share, the Group will continue to invest in expanding the TTS offerings and broaden the sectors serviced.

RM-SpaceKraft is a modest business, supplying products and installation services for the Special Educational Needs market. Revenues declined in the year and with budgetary reductions in this area, the Board anticipates this market sector to remain challenging.

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). Distribution for the Education Software division's offerings, excluding Assessment Services and Data Solutions which have a separate direct sales capability, is primarily through the Group's other divisional sales operations.

The market for education software has been changing rapidly in recent years and RM had not previously adapted its business model to reflect the market evolution. Recognising this change, in 2012 the Board has invested in RM Unify and RM Books, which have been well received by customers and content providers and these new, innovative solutions will provide a platform for the future. As anticipated, these new offerings had no material contribution in 2012 and, relative to the Group revenue, are not anticipated to be significant in 2013. As a result, overall revenues in the Education Software division declined by approximately 7% to £35.7 million (2011: £38.5 million) and adjusted operating margins reduced to 3.8% compared with 8.4% last year, when the division also benefitted from enhanced margins realised at the end of a long term contract.

The largest contributor of revenue to the division (approximately 44% of the division's revenues) is the Assessment Services business, which did grow in the year due to increasing volumes from existing customers and some new customer wins. This business provides e-marking and e-testing solutions and services for examining boards where RM has established a strong position in the UK as the leading independent service provider (i.e. not under the same ownership of an Examining Board) and is now building an international presence to offset the limited future growth in the UK market. A further new international pilot contract was signed in Slovenia and, since the year end, a further new pilot project has also been secured in Singapore, although it is anticipated that international opportunities will evolve more as a software rather than service-oriented activity. In summary, the Group's strong, independent market position provides a continuing opportunity for the future.

Data Solutions provides database-oriented consultancy solutions and services to public sector organisations primarily, but not exclusively, in the UK Education sector. The business is highly dependent on one public sector customer and the renewal of this contract, for which a tender is in progress, is critical to the future of this activity. However, a two year extension to December 2014 for the current contract has been signed since the year end and investment is being made to enable RM to submit an attractive, competitive response to the new tender.

Revenue from School Management Systems was flat following customer losses in 2011 while Learning Software and other business declined by approximately 34% reflecting the significant changes in this market. The next generation of the division's maths product, RM Easimaths, was launched in January 2012 as a hosted service for schools and will in future be distributed via RM Unify. However, the remaining portfolio of curriculum software products, which has been declining for some years, has been reviewed and a number of product lines are being phased out.

The UK market for Learning Platform software is changing rapidly in the current budgetary environment and there is an accelerating 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 contract extension was 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 launched by RM this year, provides an exciting opportunity for a service to enable technology solutions to replace Learning Platforms. RM Unify incorporates a cloud-based 'launchpad' and 'application store' enabling schools to procure a variety of applications in a secure, single sign on environment. As part of the Glow extension, RM Unify will be made available to schools in Scotland and the roll-out is progressing well with positive user feedback. In addition, RM Unify has been chosen by a number of existing Managed Services customers as the replacement platform for their Learning Platform and is now included in the majority of bids that the Education Technology and Managed Services divisions submit. Customer response to RM Unify has been excellent and RM's strategy is to progressively migrate Learning Platform customers to the new RM Unify platform and not to continue to sell the existing Learning Platform solutions. However, there are obligations under various long term contracts to continue to provide current solutions for several years. As noted in the report on the Managed Services division, these contracts are now forecast to bear nearly all the costs related to supporting Learning Platforms, negatively impacting on their lifetime profitability.

In September 2012, RM launched another new initiative, RM Books, a cloud-based channel for accessing electronic text books for schools. RM Books provides the first e-book solution designed for UK schools. While e-book adoption in schools is currently limited, the increasing adoption of e-books in the wider market provides the Board with confidence in the future of RM Books. With the many benefits to be derived from digital textbooks, demand in schools for this exciting technology change is anticipated to accelerate in the future, particularly when curriculum changes take effect and schools need to invest in new textbooks. RM Books, which is also a standard offering on RM Unify, is being positioned to benefit from this market evolution. 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. In parallel, distribution agreements with a significant number of UK textbook publishers have now been established including Cambridge University Press, Encyclopaedia Britannica, Harper Collins, Hodder Education and Oxford University Press. RM continues to invest in enhancing and expanding the platform to maximise the potential opportunity.

RM Unify and RM Books are exciting new innovations for RM, where medium term success will be dependent on near-term investment to maximise adoption of these offerings and extend the range of digital content provided. These two initiatives are also compatible with the increasing trend towards schools' adoption of BYOD. 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.

RM India

The Group's operation in Trivandrum, India, RM Education Solutions India ("RMESI"), which is owned by RM, was established in 2003. At 30 November 2012, RMESI accounted for approximately 23% of Group headcount (2011: 20%). The Board considers that this proportion is broadly the right balance between onshore and offshore resources.

RMESI provides services solely to RM Group companies. Approximately 46% of RMESI employees are engaged in software development for the operating divisions, and 28% in customer and operational support with the remainder providing back office shared service support (e.g. customer order entry, IT, finance and HR) and administration.

Organisation Evolution

The organisational structure introduced at the start of 2012 has enabled the Board to better evaluate the profitability and potential of each of the businesses and thereby to define appropriate future strategies. Having completed this process, in order to leverage the Group's distribution channel and associated infrastructure and deliver more integrated offerings across Education Technology, Managed Services and Education Software (excluding the Assessment & Data elements), from 1 December 2012 the sales and product marketing functions of these divisions have now been merged into a single Commercial Education Technology group supported by an integrated Operations Education Technology group. This structural evolution not only leverages RM's direct sales channel to schools but also provides further opportunities for operational efficiency and the benefits of increased scale. The Assessment and Data Services business and Education Resources division are not affected by these changes. 

David Brooks

Chief Operating Officer

Group Financial Performance and Chief Financial Officer's Report

In 2011, RM changed its financial year end from 30 September to 30 November. As a result, the comparative financial statements are for the 14 month period to 30 November 2011. However to aid year-on-year comparisons, proforma information for the 12 months to 30 November 2011 is also provided.

To provide a better guide to underlying business performance, the income statement amortisation charges relating to acquisition related intangible assets, share-based payment charges and other items of a non-operational nature have been disclosed in an adjustments column in the income statement to give 'Adjusted' results.

Group revenues were £288.7 million (2011: £350.8 million for the 14 month period and £310.1 million for the 12 month period, both including exited business activities). As anticipated, this represented a 6.9% decline on proforma total revenues of £310.1 million for the 12 months to 30 November 2011. Excluding exited operations, despite the difficult market conditions, revenues increased by 0.8% to £285.9 million from £283.7 million for the proforma 12 months to 30 November 2011.

The Group incurred an unadjusted statutory profit before tax of £8.4 million (2011: loss of £(23.4) million for the 14 months to 30 November 2011 and £(18.5) million for the 12 months to 30 November 2011). Significant exceptional items included £5.7 million adjustments relating to the impairment of the value of goodwill and intangible assets and loss on the sale resulting from completion of the sale of operations announced in last year's strategic review. In addition, the Group received a £0.7 million settlement from a legal claim brought against a supplier with respect to allegations of historic price fixing and a net exceptional credit of £1.3 million principally due to closing the pension scheme to future accrual of benefits. Adjusted operating profit was £13.6 million compared to £14.1 million proforma profit for the 12 months to 30 November 2011. Adjusted operating losses from exited businesses fell from £5.5 million for the proforma 12 months to November 2011 to £0.5 million in the year to 30 November 2012. Adjusted operating profit margins from retained businesses declined from 6.9% for the year to 30 November 2011 to 4.9%, including investments and associated costs.

The total tax charge within the Income Statement for the year was £3.5 million (14 months to November 2011: credit of £0.3 million). The Group's tax charge for the period, measured as a percentage of profit/loss before tax, was 41% (2011: 1% tax credit). This increase is principally due to many of the adjustments to operating profit not being tax deductable. Excluding the impact of such adjustments, the tax charge on adjusted profit before tax was at an effective rate of 24% compared to 32% for the proforma 12 months to 30 November 2011. Statutory basic and diluted earnings per share were 5.4 pence (2011: loss per share of (25.3)pence). The total dividend paid and proposed has been maintained at 3.00 pence per share (2011: 3.00 pence). This comprises an already paid interim dividend of 0.75 pence per share, and, subject to shareholder approval, a proposed final dividend of 2.25 pence per share. The estimated total cost of dividends paid and proposed for 2012 is £2.8 million (2011: £2.7 million).

Average Group headcount for the year was 2,305 (2011: 2,799). At 30 November 2012 headcount was 2,250 a 5% reduction from 2,358 on 30 November 2011 and a 17% reduction from 2,699 on 30 September 2011. The November 2012 headcount comprises 1,963 permanent and 287 temporary or contract staff, of which 1,722 were located in the UK, 528 in India and elsewhere.

Despite challenging trading conditions, cash generation was particularly strong with cash generated by operations for the year of £33.5 million (2011: £24.8 million for the 14 month period and £39.5 million for the 12 month period). In addition, proceeds for businesses sold in the period totalled £2.5 million (2011: £3.8 million) and the Group made an additional one off payment of £5.0 million into the defined benefit pension scheme (see below). As a result, cash and cash equivalents increased to £37.8 million (30 November 2011: £24.5 million) with net funds of £37.8 million, (30 November 2011: £11.3 million net funds less deferred consideration). This is the second highest net funds position at year end in RM's history, surpassed only by the position at September 2003. Seasonal cash flows reach a low point over the peak summer period and the low point in net funds during the period was £6.5 million (2011: maximum net debt £(22.4) million).

Consequently, the Group's £30 million unsecured revolving credit facility, signed in January 2012 and £3 million annual overdraft facility, both with Barclays Bank, have not been utilised in the year, despite the increase in pension deficit recovery payments set out below. The £13 million drawn at 30 November 2011 of the former committed £25 million HSBC acquisition facility was repaid in the year. The committed Barclays facility has been extended until 27 March 2016. The principal financial covenants remain at 2.5 times net debt/earnings before interest, taxation, depreciation and amortisation ('EBITDA') and 4.0 times interest cover. The interest rate over LIBOR is 2.75%, which can reduce to 2.5% from January 2013 whenever net debt/EBITDA falls below 0.5 times.

To encourage management focus on capital efficiency, the Group tracks its utilisation of Operating Net Assets. This measure excludes the following items beyond the control of divisional management: goodwill, acquisition related intangible assets, investments, net funds, corporation taxes and retirement benefit obligations relating to the defined benefit pension scheme. At 30 November 2012 there were Operating Net Liabilities of £16.2 million compared with Operating Net Assets of £5.2 million at 30 November 2011, representing a significant improvement in capital efficiency. Applying a 10% pre tax cost of capital to Operating Net Assets each month and deducting this capital charge from adjusted operating profit allows a measure of Operating Economic Profit to be calculated. This represents the value added over and above the cost of employing the capital used to run the business. Operating Economic Profit for the year increased 22% from £11.1 million for the year to November 2011 to £13.5 million for the year to November 2012. Specific elements of improvement include inventory levels (excluding that held by exited businesses) reducing by 21% year on year and trade receivables reducing by 4%.

The RM defined benefit pension scheme was closed to new entrants in 2003. Agreement was reached with the trustees also to close the Scheme to future accrual of benefits from 31 October 2012. At 30 November 2012 the IAS 19 scheme deficit (pre tax) was £20.4 million (2011: £21.2 million). The triennial valuation of the Scheme's position at 31 May 2012 for statutory funding purposes showed a Scheme deficit of £53.5 million (31 May 2009: £16.6 million). This significant increase in deficit was primarily due to a deterioration in market assumptions, such as government gilt yields, used to value the Scheme's liabilities. A deficit recovery plan over 15 years has been agreed with the trustees which includes provision of a parent company guarantee to the recovery plan, an initial payment of £5.0 million which was made in October 2012 and annual deficit recovery payments of £4.0m for the year to 31 May 2013, and £3.6 million subsequently. Total deficit recovery payments in excess of current service cost for the year were £7.2 million (2011: £1.8 million for the 14 month period and £1.6 million for the 12 month period). 

Iain McIntosh

Chief Financial Officer

Directors' responsibilities statement

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 30 November 2012. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

·; the Group financial statements, which have been prepared in accordance with IFRS, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and performance of the Group; and

·; the information contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

The responsibility statement was approved by the Board of Directors on 21 February 2013 and is signed on its behalf by:

Iain McIntosh

Chief Financial Officer

Consolidated income statement

for the year ended 30 November 2012

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

Consolidated statement of comprehensive income

for the year ended 30 November 2012

Consolidated balance sheet

as at 30 November 2012

Consolidated cash flow statement

for the year ended 30 November 2012

Consolidated net funds

for the year ended 30 November 2012

Consolidated statement of changes in equity

for the year ended 30 November 2012

Notes to the report and accounts

The preliminary results for the year ended 30 November 2012 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 on 24 April 2013. 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 year ended 30 November 2012 or for the 14 months ended 30 November 2011. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's annual general meeting. The auditor's reports on both the 2012 and 2011 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 21 February 2013.

Change of year end

In the prior period, the financial year end of the company and its subsidiaries changed from 30 September to 30 November. Following the change of accounting reference date, this preliminary announcement discloses the financial performance and cash flows for the year ended 30 November 2012 and the financial position as at 30 November 2012. As a result, the comparative financial information which is for the 14 months ended 30 November 2011 covers an indirectly comparable time period. Proforma financial information for the comparable year ended 30 November 2011 has been included within an appendix to this announcement and is unaudited.

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 following adjustments to profit: the amortisation of acquisition related intangible assets; the impairment of goodwill, acquisition related intangible assets, other intangible assets and investments; the loss on sale of operations; share-based payment charges; restructuring costs; increase in provision for dilapidations on leased properties and onerous lease contracts; exceptional credit on settlement; release of deferred consideration; and an exceptional net pension credit on the Group's defined benefit pension scheme. 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 period.

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 and disposal groups held for sale which are measured at the lower of their carrying amount and fair value less costs to sell. 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 for the foreseeable future 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.

The Group's business is supplying products, services and solutions 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. From 1 December 2011, the Group changed the presentation of financial information included in the consolidated management accounts to reflect the new reporting structure with this information being presented to the chief operating decision maker. Segmental information for the Group is reported on this basis for the year ended 30 November 2012 and prior period financial information has been restated to be in line with this new basis.

The nature of the products/services sold within each segment is explained below:

·; Education Technology - a UK focused business supplying schools with IT hardware, networks, internet services and related installation

and support.

·; Managed Services - implementation, management and support of IT infrastructure within schools and colleges, including the Building

Schools for the Future contracts.

·; Education Resources - provides schools with curriculum focussed classroom resources including teaching equipment and materials.

·; Education Software - comprises Assessment Services, Data Solutions, School Management Systems, Learning Platforms and other

software. The largest contributor of revenue to the division is the Assessment business, providing e-marking and e-testing solutions and

services for examining boards. 

Segmental result

* Refer to note 1 for an explanation of adjustments to profit.

** 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, balance due from joint venture and investment undertakings and cash and cash equivalents which are shown as non-segmental balances:

Included within the disclosed segmental assets are non-current assets (excluding financial instruments, deferred tax assets and other financial assets) of £28.3m (2011: £41.3m) located in the United Kingdom and £0.8m (2011: £1.0m) located in India.

a) Consolidated income statement

Analysis of tax charged in income statement:

b) Other comprehensive income

Analysis of tax charged in other comprehensive income:

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

c) 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 before tax is as follows:

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

Certain deferred tax assets and liabilities have been offset above.

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:

Diluted earnings per ordinary share:

* Adjustments made to profit after tax are as set out within the consolidated income statement.

Amounts recognised as distributions to equity holders in the year:

The proposed final dividend of 2.25p per share was approved by the Board on 20 February 2013. The dividend is subject to approval by shareholders at the Annual General Meeting and the expected cost of £2.1m has not been included as a liability as at 30 November 2012.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units ('CGUs') that are expected to benefit from that business combination. As explained within note 2, for the year to 30 November 2012 the Group has operated under four operating divisions: Education Technology, Managed Services, Education Resources and Education Software which each consist of various Business Units. The Group's CGUs are at the Business Unit level and it is this level to which goodwill has been allocated.

The carrying amount of goodwill has been allocated as follows:

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Following continuing challenging market conditions and ongoing tightening of public sector budgets, impairment indicators were evident. The following impairments have been recognised in the year:

Education Software

·; After considering the likely future cash flows of RM Data Solutions Ltd, it was determined that no impairment was required. The business is heavily reliant on one public sector contract and the impairment analysis is performed on the basis that the contract is retained. In the event this contract is not renewed, a goodwill impairment charge will be recorded.

·; Following a review of forecast future cash flows, the goodwill on RM Education Ltd's (formerly RM Education plc's) Software business has been fully impaired.

Education Resources

·; Following a review of the forecast future cash flows, no impairment was required on Group subsidiary TTS Group Ltd.

·; An impairment of £1.4m has been recognised in relation to goodwill allocated to Space Kraft Ltd. This has arisen due to a reduction in forecast due to a reduction in public sector spending, which has led to a reduction in forecast net future cashflows.

The total impact of the items identified above is an impairment charge on the carrying value of goodwill of £3.0m (2011: £11.0m), which has been recognised in the year within operating expenses in the consolidated income statement.

The recoverable amounts of the CGUs are determined from value in use. The key assumptions for the value in use calculations are those regarding the discount rates and growth rates.

The Group monitors its post-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering the discount rates applying to CGUs, the Directors have considered the relative sizes, risks and the inter-dependencies of its CGUs and their relatively narrow operation within the Education products and services market. The impairment reviews use a discount rate adjusted for pre-tax cash flows. Analysis of the sensitivity of the resultant impairment reviews to changes in the discount rate is included below.

The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates cash flows for the following two years based on forecast growth rates of the CGUs. The growth rates are based on internal growth forecasts of between 0% and 3% (2011: -7% and 3%). The terminal rates used for the value in use calculation are between 0% and 3% (2011: between 0% and 3%).

Sensitivity analysis

No reasonably possible change in a key assumption would produce a significant movement in the carrying value of goodwill allocated to a CGU and therefore no sensitivity analysis is presented.

Restructuring provisions relate to employee related costs arising from restructuring to meet the future needs of the Group and are all expected to be utilised during the following financial year.

In the prior period, as part of the Group's September 2011 Strategic Review and with the subsequent business disposal and consolidation programme, a full assessment was made of the Group's use of its leased property portfolio. As a result, the Group identified that, with its reduced space requirements, additional provision of £6.9m was required for ongoing lease obligations and associated costs for premises expected to be vacated. In the current year, a further provision of £0.8m was required. These provisions are expected to be utilised over the remaining lives of the leases, which is an average of 3.8 (2011: 3.2) years. Of the provision at balance date, £4.2m (2011: £5.1m) relates to onerous leases.

Provisions for onerous leases and dilapidations have been recognised at the present value of the expected obligation at discount rates of 3% reflecting a risk free discount rate, applicable to the liabilities. These discounts will unwind to their undiscounted value over the remaining lives of the leases via a finance charge within the income statement.

Included within the increase in other provisions and the release of other provisions are £503,000 (2011: £1,454,000) and £716,000 (2011: £nil) respectively that have been recognised on the exit of operations included within the loss on sale of operations within the consolidated income statement and consolidated cash flow statement.

As a result of the September 2011 Strategic Review, the Board concluded that several Group subsidiaries and businesses would be disposed. These have been determined to not meet the IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations definition of discontinued operations.

a) Loss on disposals

On 19 January 2012, 100% of the equity of AMI Education Solutions Ltd, containing the Easytrace business was sold to Jonas Computing (UK) Ltd for £0.7m plus an adjustment for net assets at completion. On 4 January 2012, the Group entered into a sale agreement to dispose of its 49% stake in Lego Education Europe Ltd and the business assets including employment contracts of Dacta Ltd to Lego A/S for €4.4m, which included repayment of a loan of €2.2m. On 10 May 2012, the Group entered into a sale agreement to dispose of its subsidiary Isis Concepts Limited for a cash consideration of £0.2m.

The net assets disposed and the impact on the income statement of these disposals are detailed below: