RM teaches value lesson

RM's first-half results suggest a recovery is under way. Exclude SpaceKraft - a supplier of special-needs products sold in December - and sales dipped just 1 per cent in the six months. More significantly, management's focus on more profitable offerings, together with cost-cutting, widened the group's adjusted operating margin by 0.4 percentage points to 9.3 per cent.

The star performer was the results business, which provides electronic-marking and testing tools and data-analysis software to education authorities. In 2015 it accounted for 17 per cent of group sales and a quarter of underlying profits, and during the first half of this year revenue surged 24 per cent, fuelled by the signing of an expanded, five-year managed services deal with its largest customer, Cambridge Assessment. And although management's exit from less profitable contracts pushed the business's data sales down 6 per cent, its efforts widened the results division's adjusted operating margin by 3 percentage points to 18 per cent.

The resources division, which accounts for half of profit and just over a third of sales, has suffered due to tightening UK school budgets and an end to a primary school curriculum change. However, an 18 per cent rise in international sales in the first half kept revenue decline at the division to 4 per cent. And careful management of headcount and suppliers left the adjusted operating margin steady at 14.6 per cent.

Meanwhile, the education division continued its shift from manufacturing personal computers to selling more lucrative software and managed IT services. A 6 per cent first-half sales fall was a big improvement from the decline of 31 per cent a year earlier.

RM's first-half cash generation was hit by a one-off £8m pension payment along with a seasonal rise in working capital. But the company still ended the period with over £32m in net cash, although this needs to be seen in the context of a £23m pension deficit. Still, the balance sheet strength coupled with encouraging trading prompted management to hike the dividend by a quarter.