I am now pleased to report that RM plc's results for the six months to 31st March 1998 were slightly ahead of our expectations. Turnover was up 3% to £50.5 million (1997: £49.0 million) and profit before tax was £0.64 million (1997: £1.68 million). Earnings per share were 2.4p (1997: 6.3p).

The additional expenditure authorised by the board resulted in operating costs increasing ahead of turnover by 14% to £12.2 million (1997: £10.7 million). Sales and Marketing costs increased by £0.9 million to £6.7 million and R&D costs increased by £0.4 million to £2.7 million reflecting increased investment to position RM for additional customer demand.

The strategic development of RM's software and services businesses continued with turnover in these areas increasing by 29%. Gross profit was up 5% at £12.6 million (1997: £12.0 million), with gross margin percentage up to 24.9% (1997: 24.4%). This gross margin percentage reflects the increase in RM's higher margin software and services businesses, which offset the decrease in margin generated by RM's PC business.

The Group's cash position at the end of the first half was strong with cash balances standing at £8.3 million (1997: £13.7 million). This reduction reflects a cash outflow since the 1^st April 1997 of £8.6 million to fund the Group's investment in learning software through its strategic alliance with CCC (the US publishers of SuccessMaker™).

Markets
During the first half RM’s markets were affected by the deferral of expenditure mentioned earlier. Despite this the Group was able to achieve sales growth in its schools businesses. This provided strong evidence of the attractiveness of RM's products and the success of the Group's marketing. Turnover from primary schools increased by 5% and the Group's position as the leading supplier in this sector is now clear. Revenues from secondary schools, the Group’s largest market, were unchanged.

The allocation of the additional £100 million Standards Fund grant for educational IT in English schools, announced by the Government in October 1997, has now been confirmed. Local Education Authorities were informed in April of the additional funding they have been allocated and RM has worked with the majority of them on the formulation of their educational IT plans.

In January, David Blunkett announced an additional £230 million, funded from National Lottery receipts, to fund a four-year programme to train serving teachers to use IT effectively in the curriculum. IT can significantly enhance the quality of education in the UK and RM is very supportive of this initiative. The Board believes that the increase in IT competence and confidence amongst UK teachers which the initiative will bring about will improve prospects for RM's products and services. In addition, RM is working in partnership with the Open University and Local Education Authorities to become a training provider under the programme.

During February and March 1998 RM ran its annual seminar programme which reached a total of over 6,000 senior education managers - twice as many as last year – from secondary schools, colleges and, for the first time, primary schools. RM’s seminars are a significant item in the calendar for many education managers and were particularly enthusiastically received this year as schools prepared for the Standards Fund grant. This year RM was pleased to welcome as keynote speakers Lord Puttnam and Sir Dennis Stevenson (Government Advisors with a strong interest in educational IT) and Professor Michael Barber (the Head of the DfEE's Standards and Effectiveness Unit).

Products and Services
The Government's National Grid for Learning will require all schools to have access to the Internet from all of their computers. This is a significant step forward, particularly for primary schools, and is causing increased demand for networking solutions. To meet this demand RM launched SchoolShare™ and the Primary Network at BETT'98. These products aim to bring the ease-of-use of the RM WindowBox™ into the network environment.

Also announced, and warmly received, at BETT'98 was RM Maths Learning System, a learning software product aimed at primary age children and the first learning software product fully developed in house by RM. Together with existing learning software products - SuccessMaker and Invest Destinations – RM Maths Learning System gives RM an unrivalled position in the rapidly developing market for such software. RM's learning software business continues to perform well with turnover up more than 60% on the same period last year.

In April the Group's Internet content business won a major order for its premium Internet content product, Living Library. All 9,583 of the multimedia laptop computers being supplied to Head Teachers and senior school managers under the DfEE's Multimedia Portables for Teachers Pilot will be supplied with access to Living Library. This is the first time the DfEE has chosen an Internet content service to be included in this kind of scheme and confirms Living Library as the leading product in its class. RM also supplied a significant number of laptop computers for this scheme and in total the business was worth £2.7 million.

One of the themes of the Government's consultation document on the National Grid for Learning – Connecting the Learning Society – was providing IT as a managed service. During the first half RM won a managed service order from Tynemouth College under the PFI, worth £1 million over six years, to provide the college's complete IT installation. This is the first total IT outsourcing contract awarded in the education marketplace and was won against significant competition. The Group is also extending the range of services delivered to primary and secondary schools to include a number of managed service products.

Dividend
The Board is recommending an increase in interim dividend of 17% to 2.7p per share (1997: 2.3p) payable on the 19th June to shareholders on the register on the 5th June 1998.

Sub-division of Shares
Since flotation in 1994, the price of the Company’s ordinary shares has risen to the point where RM shares are now amongst the most highly priced on the UK stock market. The Board believes it is appropriate to propose a five-for-one sub-division of shares in order to improve the marketability of the Company's ordinary shares. This proposal will be put forward in a resolution to an Extraordinary General Meeting to be held on 22^nd June 1998. If approved, it is anticipated that dealings in the new shares will commence on 29^th June 1998, and will be effected by means of a sub-division of each ordinary share of 10p in the Company into five ordinary shares of 2p each.

Prospects
During the first half the Government has continued to demonstrate enthusiasm for the use of IT to improve standards in education. This enthusiasm has been underwritten by the substantial extra funding being made available. The Government's commitment to the use of IT in education is good both for the nation as a whole and for the long-term success of RM's business. The Board particularly welcomes the commitment to provide IT training for all serving teachers and to include IT as part of the national curriculum for initial teacher training.

As I anticipated at the end of 1997, the seasonal nature of RM's business is proving to be even more pronounced than usual in 1998. Nonetheless, the Board believes that RM's investment and performance in the first half position the Group well to take advantage of the additional public funding available in the second half and that this will result in a significant increase in the level of business for the full year.

Once again RM's staff have risen to the challenges of the marketplace and have delivered good performance for shareholders. With the continued support of the Group’s staff I look forward to a successful second half.

John Leighfield
Chairman

15^th May 1998

A printed copy of this Interim Report will be sent directly to shareholders. Copies of this Interim Report can be obtained from the registered office of the Company at:

New Mill House, 183 Milton Park
Abingdon, Oxfordshire, OX14 4SE