Slide 1: RM plc Preliminary Results, Year ended 30 September 2006
Where Technology and Education Meet RM plc Preliminary Results Year ended 30 September 2006 Tim Pearson – CEO Mike Greig – Group Finance Director
Slide 2: Headlines
2 Headlines Solid results … Achieved planned profit growth … against a difficult market background … School budgets under pressure (particularly in first half) Greater than expected decline in eLC spend … achieved through effective management of costs Significant progress in the development of the b
Slide 3: Financial headlines
3 Financial headlines Year to 30 September 2006 2005* Revenue £262.3m £262.7m Profit before tax £14.5m £11.5m Profit before tax £14.6m £14.0m before amortisation of acquisition related intangibles and goodwill impairment BSF bid costs expensed £3.8m £1.8m Diluted EPS 11.5p 8.7p Dividend per share pr
Slide 4: IFRS
4 The table below is provided for illustrative purposes only and summarises the impact of the transition to IFRS from IFRS UK GAAP. UK GAAP is as adopted in the 2005 financial statements; it has not been updated for subsequent changes in UK GAAP. Profit increased by £1.3m Year to 30 September 2006 2
Slide 5: Revenue
5 Revenue 300 Continuing improvement in mix of businesses Growth in software and services Growth in long-term contracts 200 FY2006 £m Growth in: Long-term contracts 100 Particularly Glow (SSDN) Education Resources Assessment & Data International: up 50% from a low base 0 Offset by: 2002 2003 2004 20
Slide 6: Gross profit and business mix
6 Gross profit and business mix Education software & services Glow currently traded at zero margin Reduction in high margin curriculum software Decreased effectiveness of eLCs PCs, distribution & education resources Increased contribution from differentiated PC hardware Increase in contribution from
Slide 7: Operating costs
7 Operating costs Costs well managed FY2006 FY2005* Selling & distribution 33.2 33.9 Rapid response to Q1 market conditions Research & development 14.9 16.7 Non-BSF costs down £4.9m on 2005 Administration 10.2 10.6 Selling & distribution Operating costs 58.3 61.2 Amortisation of acquisition BSF bid
Slide 8: Profit margin
8 Profit margin Profit before tax as % of revenue Before amortisation of acquisition related intangibles, goodwill charges and exceptional items FY2005 margin: 8% 4.9% as reported under UK GAAP BSF bid costs IFRS adjustments 5.3% under IFRS UK GAAP 6% FY2006 margin: 5.6% Increase of 0.3% over 2005 4
Slide 9: Income statement
9 Income statement £m FY2006 FY2005* Revenue 262.3 262.7 Cost of sales (191.2) (188.4) Gross profit 71.1 74.3 Selling & distribution (33.2) (33.9) Research & development (14.9) (16.7) Administration (10.2) (10.6) Amortisation of acquisition related intangible assets (0.1) - Other income and expenses
Slide 10: Tax
10 Tax £m FY 2006 FY 2005 Profit on ordinary activities before tax* 14,597 13,997 Income statement tax (4,055) 27.8% (3,790) 27.1% Tax credit on share based payments included in other recognised 113 374 income & expense Effective total tax charge (3,942) (3,416) *before amortisation of acquisition r
Slide 11: Balance sheet
11 Balance sheet 30 Sep 30 Sep £m 2006 2005* Capital expenditure: £9.7m Goodwill 22.3 22.2 Glow: £3.5m; other projects: £1.5m; Other intangible assets 3.5 1.7 other: £4.7m Property, plant & equipment 22.5 24.6 Depreciation: £9.1m Deferred tax assets 7.4 7.1 Total non current assets 55.7 55.7 Invento
Slide 12: Pensions
12 Pensions Defined benefit pension scheme Closed to new members for four years IAS19 pre-tax deficit: £18.7m (2005: £15.9m) Triennial valuation Deficit £12.7m (pre-tax) as at 31 May 2006 (2003: £12.9m) Major factor: life expectancy mortality assumptions updated to PA 92 (medium cohort) Actions SMAR
Slide 13: Cash and cash generation
13 Cash and cash generation Excellent cash generation £m 30 Sep 2006 30 Sep 2005 Continued excellent working capital management Cash & cash equivalents 30.1 22.9 Acquisition of subsidiaries Issued loan notes 0.9 1.1 Net funds 29.2 21.8 CAZ Software: £1.7m Issuable loan notes - 1.2 MES: £1.0m Deferre
Slide 14: Context
14 Context Five years ago General PC market shrinking Education software market going to shrink Pupil numbers going to shrink Customer service needed improvement Evolving education requirements Our plan Progress: Be the best at customer service Now award winning Bid for and win more bigger projects
Slide 15: RM’s business
15 RM’s business RM Infrastructure Education Assessment Education Resources and Data Management and and Services Systems Systems Software School RM Management RM RM Solutions (inc. Community Connect, Learning Forvus Platform, Systems, Services, Project Softease RM Asia delivery) 3T Pacific Sentinel
Slide 16: Satisfaction measures
16 Satisfaction measures Customer satisfaction score Increase to 7.41 (FY2005: 7.21) Improvement every year since measure introduced Customers’ improvement suggestions continue to 7.41 drive business actions 7.21 For example: pro-active customer calls 7.0 Award-winning support World’s Ten Best Web S
Slide 17: Market trends
17 Market trends Policy Sustainable Schools programme £375m for energy saving initiatives (including technology) Digital divide: Computers for Pupils (£60m over two years) School renewal: BSF and Primary Capital Programme Children’s Services: bringing together education, health and social care Techn
Slide 18: Infrastructure and systems
18 Infrastructure and systems Educational networks No major upgrade drivers in FY2006 New functionality to be introduced in FY2007 Including support for: Microsoft Windows Vista; thin client technology Differentiated PCs PC average selling prices up Shift to ‘value-added’ ranges RM ONE RM Mobile ONE
Slide 19: Learning Platform
19 Learning Platform Education enterprise Policy drive DfES 2008 target: “every school learner in England having access to a personalised online learning space” Major investment area for RM in FY2006 and FY2007 RM leading provider of Learning Platforms Glow Learning Platform Warwickshire Newham Port
Slide 20: Glow
20 Glow Scottish Schools Digital Network National Intranet Progress Glow Dimensions Early-stage functionality demonstrated at Scottish Contract value £37.5m Learning Festival in September – very well received Contract term 5 years Piloting with Local Authorities Number of learners & teachers 800,000
Slide 21: Project progress
21 Project progress 18,600 13,300 Good progress on all Education Projects 4,500 South Yorkshire eLearning Project 560 Completes in FY2007 – extremely successful Educational success: >18,000 new Level 2 ICT qualifications Year Year Year Year 1 2 3 4 Significant contribution to regional regeneration L
Slide 22: BSF
22 RM strategy RM experience BSF Place on every shortlist should give On almost every shortlist we bid for 1-in-3 success rate RM competitive Less marks awarded BSF programme progress position should give for ICT in consortium >1-in-3 consortium bids Slower than anticipated during 2006 success rate
Slide 23: BSF – looking forward
23 BSF – looking forward Project pipeline c. £250m of initial opportunity currently in progress Won’t all complete in 2007 (c.5 projects will reach preferred bidder in 2007) Wave 4 projects announcement expected in December 2006 c.17 projects Some will be extensions of existing BSF programme Element
Slide 24: Assessment and Data
24 Assessment and Data On-screen testing QCA: Key Stage 3 ICT project progressing well WJEC: pilot tests IFS School of Finance: pilot tests for Certificate and Diploma in Financial Studies AQA: pilot on-screen tests for GCSE science e-Marking SCORIS: innovative e-marking service Cambridge Assessment
Slide 25: Education Management Systems
25 Education Management Systems IntegrisG2: changing the school MIS landscape Local Authority/enterprise level rather than school LAN-based Centrally-hosted, Web-delivered, platform independent Potential for £tens-of-millions savings to UK education service Selected to supply Service Children’s Educ
Slide 26: Education Resources – TTS
26 Education Resources – TTS TTS Shopping: Enhanced Web presence Enables additional sales Joint venture between TTS and RM IS team New distribution centre 45,000 square feet Nottinghamshire Electronic products division Further expansion into new product areas Music: acquisition of MES Special Educat
Slide 27: Education Resources - software
27 Education Resources - software International Focusing on Easiteach and RM Math 100% increase in revenues (from a low base) Very tough UK market eLCs – increasing ‘leakage’ Impact on RM revenues and profits BBC jam – first content available, not obviously different from industry products Future de
Slide 28: Technological capability
28 Technological capability Over 500 engineers with broad skill base Hosting 1,400 servers in more than 20 locations More than 600,000 mailboxes hosted Information security RM ESI: ISO/IEC 17799/27001 certified Internet and broadband Connectivity: > 2,000 high bandwidth connections Integration skill
Slide 29: Outlook
29 Outlook Still early in the year FY2006 trends continue Individual schools market remains tough Notably education software BSF: investment in long-term opportunity Bid costs at a similar level to FY2006 Increasing contribution from Education Projects
Slide 30: Conclusions
30 Conclusions Solid results Achieved planned profit growth Further increase in profit margin Doubled investment in bidding for BSF Achieved BSF win rate target Proud of our performance in Customer Satisfaction Further progress in building more resilient business model Improved visibility BSF contin
Slide 31: Appendices
Where Technology and Education Meet Appendices
Slide 32: Contracts
32 Contracts Education Projects Awarded Value Term Dudley Grid for Learning Jan 1999 >£50m 10 years Classroom 2000 Lot 3 (Northern Ireland) Feb 2003 £21m 5 years QCA – Key Stage 3 online testing Feb 2003 £23m 6 years South Yorkshire eLearning Programme May 2003 £34.4m 44 months South Lanarkshire Cou
Slide 33: Education projects
33 Education projects Accounting treatment and financial impact Pre-contract costs not taken to the balance sheet unless contract award probable In practice appointment as preferred bidder Separable elements Accounted for using relevant Group accounting policy for that element Revenue and profit rec
Slide 34: FY2006 awards
34 FY2006 awards AWARDS oeeeeee equipment MAKING A DIFFERENOE TOGETHER PaROLL Gh Big Chip Awards® The Digital Industry Awards for the North-West Clete eee ccm cnrenonene ante Account AWARDS 2006 AWARDS 2006 WINNER Award Finalist 2006 Help Desk Support Excellence Team Award § SUPp, so hp oO a = Award