Rm Regulatory News (RM.)

1 February 2016

RM plc

Preliminary Results for the period ending 30 November 2015

RM plc ("RM"), the leading educational IT and resources group, reports its results for the year ending 30 November 2015.

HIGHLIGHTS

Commenting on the results, David Brooks, Chief Executive of RM, said:

"2015 was another good year of progress for the Group. Both RM Resources and RM Results grew organically and RM Education has been reshaped and is now on a stable platform for the future. The Group's profit margins reaching double digits is a positive milestone.

Market conditions in the UK Education sector will continue to be subdued as a result of increased pressure on school budgets. Our strategy continues to focus on retaining a leading market position for all three businesses whilst maintaining our stronger operating margins."

* Adjusted operating profit is before the amortisation of acquisition related intangible assets; impairment of held for sale assets and related transition costs; the gain/(loss) on sale of operations; share-based payment charges; restructuring provision movements; changes in the provision for dilapidations and onerous lease contracts and exceptional credit on Defined Benefit Pension Scheme.

Extract from Strategic Report

RM's objective is to create shareholder value through the provision of education resources, IT software and IT services to the education sector.

Operating Review

The Group is structured in three operating divisions, each with its own managing director and management team. Some staff functions are provided centrally. Approximately 33% (2014: 28%) of Group headcount is based in India, providing support services and software development to the operating divisions.

RM Resources

The RM Resources Division consists of the operating business TTS. In December 2015 we divested our small special educational needs business, SpaceKraft, for £0.8m which is separately identified as Held for Sale as at 30 November 2015. This enables the RM Resources management team to focus on the much larger TTS operation and exit from manufacturing activities that were required as part of the SpaceKraft business model.

TTS provides education resources used in schools through a mainly direct marketing business model with goods supplied from large, centralised UK distribution centres. Products supplied are a mix of third party branded and TTS branded items manufactured by a network of third party suppliers.

The Division's strategy is to grow market share in the provision of resources to UK schools, early years and special educational needs markets via direct catalogue and online sales. TTS also supplies a subset of these products through UK and international distributors as well as directly to international schools.

Divisional revenue increased by 7.6% to £63.5 million (2014: £59.1 million), with UK market share gains and a 31.6% increase in international revenues. Divisional revenue increased by 12.2% in the first six months but only by 3.7% in the second half of the year as first half sales benefited from the curriculum changes that drove strong sales of new products.

Divisional adjusted operating margins remained consistent at 17.5% reflecting the benefits of continued growth and strong control over costs. Adjusted operating profit was £11.1 million (2014: £10.3 million).

TTS UK Direct Marketing

Revenue from TTS UK direct marketing increased by 4.0% to £48.3 million (2014: £46.4 million). The first half of the year was very strong, showing 11.9% year on year increase, with the last effects of the uplift supported by changes to the curriculum in English primary schools. However, in the second half revenue in this area decreased by 2.9% reflecting the tighter budgets within schools.

We continue to make significant investment in TTS' online channel. Online orders now make up 30% of direct marketing sales and a completely new e-commerce platform will be released this year.

We expect the UK education resources market to continue to be subdued as a result of increased pressure on the discretionary element of school budgets. Our focus will be on maintaining sector leading margins while looking to retain our strong market position.

TTS International

Revenue from international sales to overseas resellers and to international schools increased by 31.6% to £11.1 million (2014: £8.5 million). This was driven by growth in Europe and the Americas and included a large contract in the Middle East. We expect international revenues to continue to grow in the coming year.

TTS UK Distributors

Revenue from sales to UK trade partners decreased by 1.5% to £4.1 million (2014: £4.2 million), reflecting the tightness of budgets in the wider UK education resources marketplace.

RM Results

The RM Results business provides IT software and services to enable onscreen exam marking (e-marking), onscreen testing (e-testing) and the management and analysis of educational data. Its customers include government ministries, exam boards and professional awarding bodies in the UK and around the world.

The strategy is to primarily grow the e-assessment side of the business through expanding the scope of solutions to existing customers through the provision of leading software products and services and to win new customers in both the UK and overseas markets. Software and services are provided through a combination of proprietary and third party, in-house and outsourced arrangements. Internationally the business is expected to develop through partnerships and software licensing rather than as a service based activity.

Revenue increased by 10.4% to £30.7 million (2014: £27.8 million). Adjusted operating margins increased further to 18.1% (2014: 16.7%). Adjusted operating profit increased by 19.5% on the prior year to £5.6 million (2014: £4.6 million).

During the year the business was successful in securing a three year contract with the education charity, AQA, the largest UK schools exam awarding body, to provide e-marking services alongside the current provider.

Internationally, the business is pursuing opportunities for the onscreen marking of paper-based exams as well as onscreen testing, often bidding with partner organisations. In the UK, examination and curricula changes introduced by the English Department for Education have significantly changed the phasing of exams so that the vast majority are taken in the summer term, which has moved revenue phasing into the second half of the year. There is a long-term trend from paper-based to onscreen testing in the e-assessment market, though the adoption of such systems for school based examinations is low.

The educational data side of the business is heavily dependent on the Department for Education, principally through the National Pupil Database and RAISE Online contracts. These contracts include the capture and publishing of data for the school performance tables in England and both are up for retender in the next twelve months. However, we have successfully managed these contracts for over 10 years. We are in the process of exiting a number of other smaller data services, non-profit making contracts.

We are targeting the growth opportunities in e-assessment to more than outweigh reduced revenues in the educational data business, thereby allowing us to maintain good operating margins.

RM Education

RM Education is a UK focused business supplying IT software and services to schools and colleges.

The Division's strategy is to return to sustainable top line growth by developing the adoption of its portfolio of software products and services to existing and new UK school and college customers.

Market trends affecting the business include the demand from schools for solutions which are low-cost yet can cope with an increasingly diverse range of hardware and software. In addition, purchasing decisions in England have been increasingly devolved to schools and academy groups and away from central government and local authorities. This has required a change in the way the Division engages with its market and has resulted in an increased focus on the top c.2,000 customers.

As anticipated, the change of strategy away from selling hardware devices and a reduction in new school openings under the Building Schools for the Future (BSF) scheme led to overall revenue in RM Education declining by 28.3% to £80.2 million (2014: £111.9 million). However, adjusted operating profit margins remained stable at 6.8% (2014: 6.9%) Adjusted operating profit was £5.5 million (2014: £7.7 million).

Managed Services

The Managed Services offering is primarily the provision of full IT outsourcing services to schools and colleges. As anticipated, revenues in 2015 again declined with a reduction in new school openings under the BSF programme. Managed Services revenues decreased by 35.5% to £32.2 million (2014: £50.0 million). However, the retention rates of existing customers increased significantly during the year to over 80%. In addition, 44 new schools signed managed services contracts in the year.

A proportion of our managed service contracts are subject to long-term project accounting policies, in particular those relating to BSF. Consequently, as these contracts progress towards completion, profits continue to benefit from the effects of good operational performance and cost control.

Digital Platforms

These include established products such as RM Integris (RM's cloud-based school management system), RM Easimaths curriculum software and RM EasiTeach whole class teaching software as well as newer offerings including RM Unify. Digital Platforms revenues increased by 1.4% to £7.7 million (2014: £7.6 million).

Revenue from RM Integris increased following good market share gains including over 350 schools in Derbyshire. The strategy is to increase RM's market share by focussing on its cloud-based platform, competitive price point and investing to develop its relevance across primary, secondary and multi academy school customers in a market currently dominated by a large competitor and with low levels of switching between suppliers.

RM Unify is a technology platform to allow customers easy access to the varied digital, cloud-based, educational specific content and materials that are now available online. During the year the Scottish government chose to extend its contract (providing RM Unify to all schools in Scotland) by another two years to January 2018.

Going forward the priority areas of focus are on winning new RM Integris primary, secondary and multi academy school customers and on progressing the RM Unify proposition and profile through embedding and expanding system usage amongst existing customers.

Infrastructure

Infrastructure includes the tools, products and services to help schools manage their own IT. RM Education's internet business is also included as well as the provision of third party hardware that allows RM to meet all the ICT needs of its customers. Revenues decreased by 25.8% to £40.3 million (2014: £54.3 million) as we continue the transition from manufacturing our own PC client devices and associated warranties and installations and move to a more technology agnostic services and support provider.

On the support and network tools side the focus is on ensuring that existing customers renew their support contracts and are on the latest version of our software.

RM is an internet broadband and e-safety service provider to approximately 5,000 schools. RM designs and manages networks, procuring and integrating bandwidth and provides its own and third party e-safety products. This business is underpinned by one large regional consortium which accounts for a large share of its revenue. The contract runs until 2018 though volumes are variable. The priority in this area is on growing customer numbers and improving retention rates.

RM no longer manufactures computers. However, some customers do still want RM to provide all their ICT needs, including PC client devices. RM therefore sources third party hardware which is shipped directly to customer sites when required. This is a low margin activity but is seen to be supportive of the broader relationship with our customers which is a critical success factor in being an infrastructure partner of choice to schools.

RM India

As at 30 November 2015, RM's operation in Trivandrum accounted for 33% of Group headcount (2014: 28%).

The Indian operation provides services solely to RM Group companies. Activities include software development, customer and operational support and back office shared service support (e.g. customer order entry, IT, finance and HR) and administration.

Employees

Average Group headcount for the year was 1,860 (2014: 1,870) which is comprised of 1,645 (2014: 1,640) permanent and 215 (2014: 230) temporary or contract staff, of which 1,294 (2014: 1,360) were located in the UK and 566 (2014: 510) in India. At 30 November 2015 headcount was 1,899 (2014: 1,778).

The following table sets out a more detailed summary of the permanent staff employed as at 30 November 2015:

The Group is committed to offering equal employment opportunities and its policies are designed to attract, retain and motivate the best staff regardless of gender, sexual orientation, race, religion, age or disability. The Group gives proper consideration to applications for employment when these are received from disabled persons and will employ them in posts whenever suitable vacancies arise. Employees who become disabled are retained whenever possible through retraining, use of appropriate technology and making available suitable alternative employment.

The Group encourages the participation of all employees in the operation and development of the business and has a policy of regular communications. The Group incentivises employees and senior management through the payment of bonuses linked to performance objectives, together with the other components of remuneration detailed in the Remuneration Report.

The Group has a wide range of other written policies, designed to ensure that it operates in a legal and ethical manner. These include policies related to health and safety, 'whistle blowing', anti-bribery and corruption, business gifts, grievance, career planning, parental leave, systems and network security. All of RM's employment policies are published internally.

Group Financial Performance

Group revenue declined by 12.0% to £178.2 million (2014: £202.5 million) as anticipated.

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

Adjusted operating profit margins increased again this year from 9.1% in 2014 to 10.2%. Despite the decline in revenue, adjusted operating profit decreased only marginally to £18.2 million (2014: £18.5 million). On a statutory basis, operating profit was £19.6 million (2014: £16.5 million) with adjustments principally benefiting from a release of a £2.4 million provision for dilapidations on leased properties and onerous lease contracts more than offsetting the share based payments charge of £0.9 million.

The Group generated an increased unadjusted statutory profit before tax of £19.2 million (2014: £15.8 million).

The total tax charge within the Income Statement for the year was £4.3 million (2014: £4.2 million). The Group's tax charge for the period, measured as a percentage of profit before tax, was 22% (2014: 26%). The decrease is principally due to the reduction in the UK corporate tax rate and an adjustment on finalisation of a prior year corporation tax return. Adjusted basic earnings per share were 16.2 pence (2014: 16.4 pence). Statutory basic earnings per share were 18.5 pence (2014: 13.9 pence) and statutory diluted earnings per share were 17.8 pence (2014: 13.0 pence).

RM generated cash from operations for the year of £10.9 million (2014: £19.1 million). Cash and short-term deposits increased to £48.3 million (2014: £47.9 million). The lowest cash and short-term deposit position during the year due to seasonal cash flows was £34.0 million (2014: £25.9 million).

Cash generated from operations is expected to continue to be less than operating profit in the year ahead, reflecting the reversal of a favourable working capital position related to long-term contracts.

Dividends

The total dividend paid and proposed for the year has been increased by 25% to 5.00 pence per share (2014: 4.00 pence). This comprises an already paid interim dividend of 1.20 pence per share and, subject to shareholder approval, a proposed final dividend of 3.80 pence per share. The estimated total cost of normal dividends paid and proposed for 2015 is £4.1 million (2014: £3.2 million). This increased dividend proposal reduces the dividend cover ratio from 4.1 to 3.2.

Defined Benefit Pension Scheme

At 30 November 2015 the IAS 19 scheme deficit (pre-tax) was £21.9 million (2014: £26.8 million). This reduction in Scheme deficit results from the reduction in liabilities due to beneficial membership experience over the three year valuation period ended May 2015, better than assumed returns on the Scheme assets and the shortfall contributions paid by the Company. These have been partially offset by the change in the mortality assumptions and a reduction in the inflation risk premium.

On 11 December 2015, agreement was reached with the Trustee of the RM defined benefit pension scheme ("Scheme") with regards to the triennial valuation as at 31 May 2015. The deficit was agreed at £41.8 million (31 May 2012: £53.5 million). The deficit recovery plan comprises an initial cash contribution of £4.0 million into the Scheme and £4.0 million into the escrow account previously established for the purposes of further risk mitigation exercises, together with deficit recovery payments remaining at £3.6 million per annum until 2024 (previously 2027). These funding plans will be assessed at future triennial reviews.

Going Concern

The Directors, having made appropriate enquiries, consider that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and that therefore it is appropriate to adopt the going concern basis in preparing the financial statements.

Financial Viability Statement

In accordance with the UK Corporate Governance code, in addition to an assessment of going concern, the Directors have also considered the prospects of the Company over a longer time period. The period of assessment chosen is three years, which is consistent with the time over which the Company's medium-term financial plans are prepared. These financial plans include Income Statements, Balance Sheets and Cash Flow Statements. They have been assessed by the Board in conjunction with the principal risks of the Company, which are documented within the Principal Risks and Uncertainties section below, along with their mitigating actions.

The Board considers that the principal risks which have the potential to threaten the Company's business models, future performance, solvency or liquidity over the three year period are:

1. Public policy risk - UK education policy priority changes or restrictions in government funding due to fiscal policy

2. Operational execution - including:

a. RM Results operational performance over peak examination marking periods

b. Significantly increased working capital requirements within the RM Education and RM Results long-term contract portfolios and requirements in evolving RM Education business models

c. major adverse performance in a key contract or product which results in negative publicity and which damages the Group's brand

3. Business continuity - an event impacting the Group's major buildings, systems or infrastructure components. This would include a major incident at TTS' warehouse

4. Strategic risks - loss of a significant contract which underpins an element of a Division's activity

5. Defined Benefit Pension Scheme - funding of the Scheme deficit in adverse market conditions

Having assessed the above risks, singularly and in combination, and via sensitivity analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of assessment and are not aware of any reason that viability would be an issue for the foreseeable period after this.

Environmental Matters

The Group's impact on the environment, and its policy in relation to such matters, are noted in the Directors' Report.

Principal Risks and Uncertainties

The management of the business and the execution of the Group's strategy are subject to a number of risks. Risks are reviewed by the Audit Committee and Board. The Board confirms that it has carried out a robust assessment of the principal risks facing the Company and appropriate processes have been put in place to monitor and mitigate them, further details of which are given in the Corporate Governance Report. The key business risks for the Group are set out in the table below.

David Brooks

Chief Executive Officer

1 February 2016

Directors' responsibilities statement

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 30 November 2015. Certain parts are not included within this announcement.

Each of the Directors, whose names and functions are listed at the front of the Annual Report, confirm that, to the best of their knowledge:

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

· the information contained in the Strategic 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 1 February 2016 and is signed on its behalf by:

Greg Davidson

Company Secretary

The preliminary results for the year ended 30 November 2015 have been prepared in accordance with those International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted for use in the EU and therefore comply with Article 4 of the EU IAS Regulation applied in accordance with the provisions of the Companies Act 2006. However, this announcement does not contain sufficient information to comply with IFRS. The Group expects to publish a full Strategic Report, Directors' Report and financial statements which will be delivered before the Company's annual general meeting on 23 March 2016. The full Strategic Report and Directors' Report and financial statements will be published on the Group's website at www.rmplc.com.

The financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for the year ended 30 November 2015. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's annual general meeting. The auditor's reports on both the 2015 and 2014 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 1 February 2016.

Consolidated 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 which are considered exceptional in nature or with potential significant variability year-on-year in non-cash items which might mask underlying trading performance: the amortisation of acquisition related intangible assets; impairment of held for sale assets and related transition costs; the gain/(loss) on sale of operations; share-based payment charges; restructuring provision movements, changes in the provision for dilapidations and onerous lease contracts and exceptional credit on 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 disclosed. Equivalent adjustments to profit arising in future years, including increases in or reversals of items recorded, will be disclosed in a consistent manner.

Adjustments to profit

During the year ended 30 November 2015 adjustments to profit include:

· In March 2015 the Group's interests in Newham Learning Partnership (PSP) Ltd were sold for a total cash consideration of £1.6m; and a profit of £0.9m was recorded as an adjustment to investment income.

· In May 2015 the Group's 135 Milton Park leased premises were sub-let to South Oxfordshire District Council for a minimum period of 3 years. The premises are onerous to the Group's requirements, as they were at 30 November 2014, and on sub-letting £2.4m has been released from the onerous lease provision in the year.

At the balance sheet date, the Group's 100% investment in SpaceKraft Ltd was identified for disposal and was subsequently disposed in December 2015. Assets and liabilities relating to SpaceKraft Ltd have been transferred to held for sale at the balance sheet date. An impairment of £233,000 has been recognised in acquisition related intangible assets and property, plant and equipment and charged to the income statement in addition to related transition costs.

Basis of preparation

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

Significant accounting policies

The accounting policies used for the preparation of this announcement have been applied consistently.

2. Operating segments

* Relates entirely to the defined benefit pension scheme.