Rm Plc · LSE:RM.
Rm — FY2002 Earnings Presentation
30 slides from Rm's earnings presentation, Sep 30, 2002
Slide 1: RM plc – Preliminary Results
RM plc – Preliminary Results Year ended 30 September 2002 Tim Pearson - CEO Mike Greig - Group Finance Director
Slide 2: Agenda
2 Agenda • Headlines Tim Pearson • Financials Mike Greig • CEO’s Review Tim Pearson Progress Prospects • Questions
Slide 3: Headlines
3 Headlines • Second half – recovery in progress • Results marginally ahead of market expectations Despite sluggish demand • Excellent cash generation • Recovery programme on plan Cost reductions in place and working More rapid response to customer demand • Increasing effort applied to new opportuni
Slide 4: Financial headlines
4 Financial headlines 2002 2001 • Turnover £202.2m £241.9m • Profit before tax, goodwill & exceptionals £5.0m £16.3m • Exceptional charges £9.0m - • Net cash inflow from operating activities £25.0m £20.9m • Net funds at 30 September £32.7m £27.1m • Final dividend unchanged at 3.2p • Share buy back
Slide 5: Turnover
5 Turnover • 2002 turnover Down 16% overall 241.9 Down 11% excluding LSP 207.6 202.2 • Centrally-driven initiatives (LSP, NGfL …) 162.2 pushed spending ahead of natural growth £m 131.0 rate in 2000 and 2001 • Return to “bottom up” driven demand 1998 1999 2000 2001 2002 Year ended 30 September (shade
Slide 6: Business mix
6 Business mix Activity 2001 2002 £m £m H1 H2 FY H1 H2 FY Infrastructure software and services 25.4 31.9 57.3 24.8 30.7 55.5 Education software and services 17.5 17.1 34.6 13.8 14.7 28.5 PC & 3rd Party Products 52.1 62.7 114.8 37.2 61.7 98.9 Sub total 95.0 111.7 206.7 75.8 107.1 182.9 Learning Schoo
Slide 7: Gross profit
7 Gross profit Activity Revenue Gross Profit £m Change £m percentage • Product mix changes Software & Internet 57.0 -5% 26.1 45.8% More laptops Services 46.3 -31% 9.3 20.1% Increase in Internet & broadband revenues PC & 3rd Party Products 98.9 -14% 15.8 16.0% Less education software Total 202.2 -16%
Slide 8: Operating costs
8 Operating costs (before exceptionals & goodwill amortisation) 50.0 46.5 46.0 • H2 annualised run rate £44.3m 42.0 44.3 Down £5.7m from H1 £m 33.1 32.3 31.1 28.5 24.5 Headcount reduction from 3 May Non-staff costs reductions during H2 No profit related bonuses & reduced recruitment costs 1998 1999
Slide 9: Profit before tax
9 Profit before tax (before exceptionals & goodwill amortisation) • Costs control benefit from end of H1 Full year PBT down 69% 15.5 16.3 H2 PBT down 31% 10.0 12.3 • LSP contribution reduced 5.0 Particularly in H2 £ million 1998 1999 2000 2001 2002 Year ended 30 September (shaded bars show H1 and H2
Slide 10: Exceptional charges
10 Exceptional charges • Excess property – £1.9m (up from £1.4m at Interim stage) Provision increased by £0.5m following further deterioration in commercial property market Provision against costs of vacating and disposing of 22,000 sq.ft. of office space 11,000 sq.ft. provision now against vacant c
Slide 11: Pensions update
11 Pensions update • P&L charge £3.1m under SSAP24 • Balance sheet disclosure under FRS17 Deficit £7.5m (£5.3m after tax) at 30 September 2001 Deficit £16.9m (£11.8m after tax) at 30 September 2002 (FTSE 100 index at 3722) • Changes last year Retirement age increased from 60 to 65 Employee contribut
Slide 12: Profit and loss
12 Profit and loss Year ended 30 September 2001 2002 2002 £m Before Before Goodwill Exceptionals Total goodwill exceptionals and goodwill Turnover 241.9 202.2 202.2 Gross profit 62.1 51.2 51.2 Selling & distribution (26.9) (26.4) (26.4) Research and development (11.6) (13.8) (13.8) Administration (7
Slide 13: Balance sheet and cash flow
13 Balance sheet and cash flow • Net funds up £5.6m to £32.7m 53.0 • Excellent cash generation Cash inflow from operating activities £25.0m 45.1 • Tight working capital control (£15.6m inflow) 41.1 Unusually good debtor position 36.5 • Capital expenditure (£3.5m) £m 32.7 29.3 Depreciation (£8.8m) 27
Slide 14: Average net funds
14 Average net funds Net funds 2000 2001 2002 £m 30 September 16.9 27.1 32.7 Year average 7.4 7.1 23.1 Year minimum (1.8) (10.2) 16.7 • Business model with low average working capital requirement • Seasonal business leads to significant cash fluctuations • Financial strength important for major cont
Slide 15: Education market background
15 Education market background • Continued growth in education funding Further delegation to individual schools Teacher pay settlement 68.4 CSR 2000 62.9 Curriculum Online CSR 2002 53.7 58.6 Shift from centrally driven to “bottom-up” demand £ billion • DfES looking for “transformation” • BBC Market
Slide 16: General software and services market
16 General software and services market • Growth rates unlikely to significantly exceed GDP growth – Holway • Over investment driven by .com boom and Y2K • Public sector and business process outsourcing most attractive markets • Niche strategy is the right thing to do
Slide 17: Schools market context
17 Schools market context Early 1990s Late 1990s Current Future Individual school purchases Central and LEA driven Individual school purchases Additional PCs and Process improvement Other equipment and outsourcing Internet ICT in core Schools’ Networks and Basic ICT equipment connectivity curriculum
Slide 18: Recovery plan
18 Recovery plan Controlling costs Improving efficiency and effectiveness Areas of growth
Slide 19: Costs
19 Costs • Cost reduction targets met for H2 • Significant decrease in non-staff expenditure Car fleet Travel & expenses Mobile phones Facilities management Company insurance • Software development in India • Continuing to focus on cost management • RM running more effectively and efficiently (but l
Slide 20: Customers
20 Customers • Customer satisfaction measure CEO-driven initiative New system in place to measure individual customer satisfaction Quantitative: how do our customers rate us? Qualitative: what could we do better? More than 1,700 customers have responded so far (in 6 weeks) More than 800 improvement
Slide 21: Marketing & sales
21 Marketing & sales • Improving marketing and sales disciplines Needs-based segmentation approach Different marketing & sales engagement model for different customer segments Different product offers for different customer segments Improved processes Working towards increased productivity in market
Slide 22: Education software & services
22 Education software & services • MathsAlive Full KS3 coverage released • ICT Alive Whole class teaching service aimed at key skill area of ICT • Easiteach Studio / Easiteach Literacy Whole class teaching software exploiting interactive white boards • Curriculum Online All RM education software pro
Slide 23: Infrastructure products and services
23 Infrastructure products and services • Interactive Whiteboards Strong product offering Whole-class teaching software support • RM Community Connect 3 Successful introduction programme Station licence shipments increased year-on-year • Broadband & Internet 39% increase in revenue South West Grid f
Slide 24: PC products
24 PC products • RM Tablet PC Microsoft’s education launch partner Education-specific product (robust, education software) World-leading price point (£799) • Enhanced laptop range Addressing increasing laptop demand Significant increase in configurations available Good performance in Laptop for Teac
Slide 25: Organisation & leadership
25 Organisation & leadership • New structure One market – one company Driven by customer needs and operational excellence CEO • Greater focus on marketing & sales Improving customer understanding Director Director Group Improving productivity Marketing & Sales Products & Services Finance Director •
Slide 26: Strengthening the Board
26 Strengthening the Board • New Non Executive Directors appointed John Windeler Chairman – Alliance & Leicester Sir Bryan Carsberg Former Director General OFT & OFTEL Former Secretary General of International Accounting Standards Council • Education Advisory Council Chaired by Tim Brighouse Ex-Chie
Slide 27: Corporate development
27 Corporate development Network Learning Software Tools Software PC Whole Course Software ICT Services Education Services Managed Education Services Services Infrastructure Education
Slide 28: Corporate development
28 Corporate development • Growth targeted in education services areas • Acquisitions Evaluating some modest acquisitions to help move into Education Services Must be shareholder value enhancing Reject the majority of candidates – no acquisitions for the sake of acquisition • Strategic projects High
Slide 29: Trading outlook
29 Trading outlook • Revenue broadly flat Planned end of LSP (£19 million Î £1 million) 700 Schools ICT market Revenue growth elsewhere expected 600 Significant strategic project bid pipeline 500 400 • Benefit of full year of reduced cost base 300 • Share buy back permission 200 • Targeting business
Slide 30: Prospects
30 Prospects • Longer term education needs greater than ever ICT usage still in the foothills Opportunities for process improvement • Top level education funding growth • Made a good start Short term improvements in place Now working on medium and longer term improvements Looking for growth opportun