plc - Results for the year ended 30 September 1995
PERFORMANCE REVIEW
The year in which RM listed on the London Stock Exchange was a notably successful one for RM. There was an excellent performance from RM's mainstream businesses supplying IT solutions to UK education. Growth in orders during the year was more rapid than had been anticipated and this provided the opportunity to accelerate investment in developing new activities. These activities, which involve new uses of IT in education, have made very satisfactory progress and have significant longer term potential for RM.
RESULTS
Turnover increased by 23% to £80.7 million (1994: £65.5 million). Profit before tax reached a record £5.0 million (1994: £3.5 million excluding exceptional income of £0.2 million from a property disposal). Gross profits increased by 20% to £20.0 million. Operating costs grew by 17%, resulting in an operating profit of £4.6 million, an increase of 31% (1994: £3.5 million). Net interest receivable of £0.4 million (1994: £0.04 million), reflected the marked increase in average cash balances. Fully diluted earnings per share were 18.8p, an increase of 32% (1994: 14.2p, excluding exceptional income).
DIVIDEND
The Board is recommending the payment of a final net dividend of 4.5p per share for the year to 30 September 1995. This will make a total dividend for the year of 6.0p , an increase of 25% over the total of 4.8p paid last year. At this level the dividend is covered 3.1 times by fully diluted earnings. The final dividend is payable on 2nd February 1996 to shareholders on the register at 28th December, 1995.
REVIEW OF OPERATIONS
MARKETS
Sales to RM's core education markets, which continue to represent over 90% of turnover, grew by 22% against a background of generally tight government funding for education. This growth resulted both from an expansion in the size of the market for IT in education, reflecting a wider acceptance of the increasing benefits which IT offers in comparison to other forms of education expenditure, and from increases in RM's market share.
Primary schools
Revenues from primary schools grew by 38% over the prior year. RM increased its market share as a result of the continued success of the RM Window Box range of integrated systems with multimedia options which accounts for the majority of primary sector revenues. Over 80 Local Education Authorities are now members of the RM Window Box Partnership scheme. Multimedia has become increasingly important to primary schools and two thirds of computers supplied by RM to primary schools now include multimedia capability.
Secondary schools
Revenues from secondary schools, RM's largest market sector, grew by 12%. RM's business with 'specialist schools' (previously called technology colleges), which receive additional government funding for capital investment, grew particularly well. High quality access to the world's best multimedia resources, as provided by the recently launched RM Multimedia Servers, has proved to be extremely attractive for many secondary schools with over 150 already sold. During the year, RM introduced its open networking strategy which adds features developed by RM, specifically for education, to a wide range of operating systems. The initial success of this strategy has further enhanced RM's position as the education networking specialist.
Further and higher education
Revenues from further and higher education grew by 36% with particularly rapid growth in universities where RM’s increased focus on the requirements of this market led to a significant increase in the Company’s market share. RM maintained its market leadership in colleges of further education.
PRODUCTS
RM supplies IT solutions to education comprising products from one or more of RM's divisions. The range of software solutions offered by RM was broadened during the year by the addition of two new software divisions, RM Learning Systems and Key Solutions. Excellent progress was made in the three new areas identified at the time of the flotation as providing significant growth opportunities; Multimedia, Integrated Learning Systems and Communications (superhighways).
Internet for Learning
The RM Internet for Learning service launched in March 1995 has been an outstanding success with over 1000 schools and colleges now connected, providing access for tens of thousands of potential users. The RM Internet for Learning 'web site' has established itself as the premier UK schools Internet site with over 15,000 accesses per day. RM is involved in four projects in a recently announced £10 million DfEE initiative to bring superhighways to education in partnerships with LEAs, schools and other specialist providers. A trial with TELEWEST Communications plc in Essex and Kent is piloting the educational value of very high speed broadband connection of school networks to the Internet and other on-line services. Investment of £430,000 was made in RM Internet for Learning during the year, generating revenues of £130,000 and a loss of £300,000. Further investment is planned in the current year.
Learning Systems
RM Learning Systems is the exclusive distributor in the UK of the SuccessMaker integrated learning system. The learning gains achievable with SuccessMaker were confirmed by the government evaluation of a pilot scheme which found that children using the SuccessMaker maths course for 15 minutes a day made gains of 20 months in maths in a six month period. SuccessMaker is particularly suited to improving the core skills of numeracy and literacy and is therefore attractive for initiatives targeted at improving schools’ effectiveness. The excellent progress made this year has enabled RM to accelerate the development of the market and SuccessMaker is now in use in over 45 Local Education Authorities with over 5,000 children benefiting from its use. RM Learning Systems generated £640,000 of turnover and incurred initial losses of £200,000.
Key Solutions
The acquisition of Key Solutions in May 1995 has given RM a presence in the significant market for software and services for education management and administration. Building on an excellent product base acquired, RM has increased investment in product and services development and also in marketing activities. This expenditure, coupled with an expected seasonally weak contribution from Key Solutions, led to a loss of £220,000 on turnover of £308,000 in the post acquisition period. To achieve the same market success as RM's core business will require additional investment in Key Solutions and continuing integration with RM's other activities.
FINANCE
RM's business continued to demonstrate good cash generation; the net cash inflow from operating activities was £8.4 million and cash, net of finance lease borrowings, was £10.2 million at the year end, compared with £6.0 million a year earlier and after £1.1 million was spent during the year on the acquisition of Key Solutions.
The pronounced peak in the Group's activity prior to the commencement of the academic year contributed to cash balances dropping to a minimum of £1.0 million during this period. The seasonal nature of the Group's business and the need to maintain flexibility in the future, lead the Board to believe that it is appropriate to maintain a conservative balance sheet.
During the year the standard warranty provided with RM computers was changed to match the general industry norm of a one year warranty, from the three year warranty previously provided to school customers. The change increased the competitiveness of RM's computers and resulted in an increase in business won without additional direct sales effort. RM continues to offer customers the choice of a wide range of warranty extension options. These changes have had the short term effect of reducing revenues as the revenue for optional extended warranties is now being deferred. This change, combined with additional sales of PCs, particularly to universities, contributed to a decline in gross margins from 25.5% to 24.7%. Operating expenses declined as a percentage of revenue from 20.2% to 19.1%.
The research and development expenditure of £2.8 million was primarily related to software and integrated systems.
PROSPECTS
It is too early in RM's annual business cycle to give an indication of the likely outcome for the year, particularly in view of the seasonal nature of the business. However, the Board believes that growth in turnover will continue in the current year.
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