Rm Plc · LSE:RM.
Rm — FY2007 Earnings Presentation
36 slides from Rm's earnings presentation, Sep 30, 2007
Slide 1: RM plc – Year ended 30 September 2007
RM plc Year ended 30 September 2007 Printed on 100% recycled paper Tim Pearson – CEO Mike Greig – Group Finance Director Education focus Relative Technical scale capability
Slide 2: Headlines
2 Headlines We are the clear leader in BSF New Education Resources businesses growing well Progress across all four focus areas Learning Technologies Assessment & Data Services Education Resources Education Management Systems Further strong growth in committed revenues* to £330m (2006: £240m
Slide 3: Financial headlines
3 Financial headlines Year to 30 September 2007 2006 Revenue £270.9m £262.3m Profit before tax £15.5m £14.6m before amortisation of acquisition related intangible assets and exceptional pension credit Profit before tax £18.4m £14.5m BSF bid costs expensed £3.6m £3.8m Diluted EPS 12.3p 11.5p before a
Slide 4: Basis of reporting
Basis of reporting IFRS Our measure of profit: Before amortisation of acquisition related intangible assets After share-based payment charges Before exceptional pension credit in FY2007 After expensing BSF bid costs - Profit before bid costs also provided No R&D capitalised No expenditure
Slide 5: Revenue
5 Revenue 300 200 Revenue up £8.6m (3.3%) £m Acquisitions: £4.8m 100 FY2007 and full-year impact of FY2006 Organic growth: £3.8m 0 International revenues doubled to £8.8m 2003 2004 2005 2006 2007 Revenue PCs, distribution and education resources Education software and services Noteworthy chang
Slide 6: Gross profit and business mix
6 Gross profit and business mix FY2007 FY2006 Rev Gross profit Rev Gross profit Infrastructure software & services £m £m % £m £m % Infrastructure software & 90.4 30.3 33.5 88.1 26.7 30.3 > 40% of Group gross profit services Increasing contribution from long-term project Education software & serv
Slide 7: Operating costs
7 Operating costs Operating costs FY2007 FY2006 Selling & distribution 34.0 33.2 Research & development 14.9 14.9 Acquisition impact: £1.3m Administration Operating costs* 11.1 60.0 10.2 58.3 FY2007 and full-year impact of FY2006 * Excluding amortisation of acquisition related intangible assets an
Slide 8: Profit margin
8% BSF bid costs 8 Profit margin Profit margin 6% 4% 2% Five years of PBT margin growth 0% 2003 2004 2005 2006 2007 FY2007: 5.7% vs. FY2003: 4.0% Profit before tax* (%) Investment in BSF programme is exceptional 20 BSF bid costs Profit 16 Transformational for nature of RM’s secondary school busi
Slide 9: Income statement
9 Income statement Year to 30 September £m 2007 2006 Adjusted *Adjustments Total Revenue 270.9 270.9 262.3 Cost of sales (197.4) (197.4) (191.2) Gross profit 73.5 73.5 71.1 Selling & distribution (34.0) (34.0) (33.2) Research & development (14.9) (14.9) (14.9) Administrative (11.2) (11.2) (10.2) Amo
Slide 10: Balance sheet
10 Balance sheet £m 30 Sep 30 Sep 2007 2006 Goodwill 24.6 22.3 Other intangible assets – acquisition 3.3 1.0 Acquisitions Other intangible assets - software 2.4 2.5 DACTA & SERAP Property, plant & equipment 21.1 22.5 Deferred tax assets 2.7 7.4 Total non current assets 54.2 55.7 Net capex: £6.7m (
Slide 11: Pensions
11 Pensions Pension deficit dramatically reduced £15.4m reduction in deficit in the year IAS 19 pension deficit – Sep 2007: £3.3m; Mar 2007: £8.9m; Sep 2006: £18.7m Additional planned payments would eliminate existing deficit during 2008 Final £1.5m special pension payment and continuing £1.7m p
Slide 12: Cash & net funds
12 Cash & net funds £m 30 Sep 30 Sep 2007 2006 Cash & cash equivalents 29.3 30.1 Issued loan notes (0.2) (0.9) Outflows in year Net funds 29.1 29.2 Dividends: £4.8m Issuable loan notes (1.7) - Deferred cash consideration - (0.7) Special pension payment: £2m Net funds less deferred consideration
Slide 13: Context
13 Context 92.0 86.1 81.8 Comprehensive Spending Review (October 2007) 77.7 Education confirmed as key priority area 2.8% real terms growth in education spending Per-pupil funding in state schools rising by 10% (real terms) between 2007/08 2008/09 2009/10 2010/11 2007/08 and 2010/11 UK Public
Slide 14: Satisfaction measures
Satisfaction measures 7.64 7.41 7.21 Customer & employee satisfaction: 7.0 Essential to long-term success Significant source of competitive advantage Customer satisfaction 2004 2005 2006 2007 Customer Satisfaction Customer satisfaction score: 7.64 (2006: 7.41) Four years of continuous improvem
Slide 15: Assessment and Data Services
15 Assessment and Data Services On-screen marking becoming mainstream Strategic partnership with Cambridge Assessment progressing well Pilots in place with other UK examination boards and awarding bodies 2005 2006 2007 Framework agreement with Scottish Qualification Authority Scripts marked on
Slide 16: Education Management Systems
16 Education Management Systems IntegrisG2 Web-delivered, centrally-hosted school management software Multi-year product / market development programme Development continuing Primary school version (England) complete CODA financials integration in development Secondary school version and Welsh &
Slide 17: Education Resources
Education Resources Software UK market decline since 2002 … and has not been an investment priority for RM over that period Reasons to anticipate improvement at some point BBC jam suspension Move to 1:1 computing likely to ‘cannibalise’ textbook market Learning Platform critical mass RM strate
Slide 18: My Stickers.
My Stickers. Blog Posts Survey |My Family "Gi) Sounds | <2? Widgets
Slide 19: Education Resources
19 Education Resources General curriculum resources Strong growth in FY2007 More catalogues 2005 2006 2007 General Curriculum More own-brand products Resources Special Direct (SEN catalogue) Revenue Growth Online sales Education Resources Further and faster growth in FY2008 Attractive busine
Slide 20: Education Resources
20 Education Resources General curriculum resources Acquired Net cost TTS Sep 2004 £12.0m MES Aug 2006 £1.0m SpaceKraft – revenue: £5.0m DACTA May 2007 £3.8m SpaceKraft Oct 2007 £4.4m Catalogue sales of innovative SEN and early years products Design and sourcing of innovative and differentiated pr
Slide 21: Learning Technologies
21 Learning Technologies Computers for Pupils Two year £50m DCSF scheme to provide ICT for disadvantaged pupils PCs plus filtered, mobile Internet connectivity Keys to RM’s success Flexibility: providing RM, Samsung, HP and Dell to London Boroughs Capability: mobile (3G) Internet access using RM
Slide 22: Learning Technologies
22 Learning Technologies RM Asus miniBook Revolutionary ‘one-per-pupil’ computer Brings 1:1 computer:pupil ratios within reach Lowest ever price point £169 entry point: Linux-based device Wireless networking; full productivity software suite; Webcam Working with Microsoft towards a Windows X
Slide 23: Learning Technologies
23 Learning Technologies Learning Platforms Web-based software environments Learning & teaching workflow Curriculum delivery Learning Platforms Communications and collaboration English market taking shape: Important to BSF; Authority-wide procurements Becta Learning Platform Services accreditati
Slide 24: BSF
24 BSF Critical success factors Education focus and understanding 9 Excellent delivery 9 Customer success £45 billion secondary school renewal programme 9 Innovative intellectual property 9 Will transform the secondary school marketplace Early market success 9 c.£5 billion (£1,450 per pupil) for I
Slide 25: BSF
BSF Significant opportunities beyond initial contract Initial BSF contract Total potential opportunity Other ICT opportunities in the Local Authority Additional services to BSF schools BSF BSF future waves future waves extensions BSF BSF initial contract initial contract extensions Time 25
Slide 26: BSF
26 BSF Significant potential in addition to initial contract value Future BSF waves in the same authority RM uniquely placed to benefit Extension of contracts beyond initial term Broad portfolio of education products and services Additional services to initial schools National sale and marketi
Slide 27: BSF
BSF Good investment with strong NPV Good investment with strong NPV BSF initial contracts NPV: +ve … even after the significant bid costs Other ICT opportunities in the Local Authority ‘Follow-on’ opportunities NPV > initial contract NPV Additional services to BSF schools BSF BSF ‘Cannibalisat
Slide 28: Outlook
28 Outlook Still early in the year Visibility improving RM remains a seasonal business H1/H2 split Anticipate stronger revenue growth in FY2008 Including full-year impact of recent acquisitions BSF continues to be an investment in FY2008 FY2008 bid costs: c.£4.3m Further investment in business
Slide 29: Conclusions
29 Conclusions Improved business model Further growth in committed revenues in FY2007 Clear leader in BSF Longer-term than many investment cases … but RM exceptionally well placed Profit contribution expected to exceed bid costs in FY2010 Progress in all four focus areas In UK and internatio
Slide 30: Appendices
Appendices
Slide 31: RM Asus miniBook web page
RM Asus miniBook - Microsoft Internet Explorer provided by Information Systems Ce) GO + [Re http://w rm,com/Primary Products fproduct.asp?cref=PD 1030046 [#2] [2<)] [009 Ee we a | ms RM Asus minBook ll fh > tah ~ [=p Pace » G Tools ~ Site Map 7 Support RM Asus miniBook Primary Home The genuine “anyw
Slide 32: Acquisitions
32 Acquisitions Business Activities Date Net cost 3T Productions Interactive design and development Mar 2000 £5.5m Softease Educational software Oct 2001 £4.8m Helicon Educational content Feb 2002 £0.7m Forvus Data analysis Jul 2003 £4.0m peakschoolhaus Education inspection services Oct 2003 £1.6m S
Slide 33: Education projects
33 Education projects 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 £34m complete South
Slide 34: Education projects
34 Education projects Accounting treatment and financial impact Pre-contract costs not taken to the balance sheet unless contract award virtually certain In practice appointment as preferred bidder Separable elements Accounted for using relevant Group accounting policy for that element Revenue
Slide 35: BSF
BSF Contract awards ICT Supplier Local Authority Status At preferred bidder *Change post-PB Consortium Solihull Contract RM ICT-only Bristol Contract Redstone Northgate Skanska Bradford Contract Sun Amey/Costain Newcastle - In house Aura Lancashire Contract Redstone Bovis Lend Lease Sheffield Contra
Slide 36: BSF
BSF Typical project Allocation of spend – typical BSF project Competitive Dialogue Average value of ICT contract: £13m Typical Data centre Stage # bidders Central systems and software 10% Learning Platform OJEU advertisement User equipment Pre-qualification questionnaire 5-10 In-school systems and s