RM: a class(room) act

But first-half results for 2017-18 from RM (RM.) presented a company in fine fettle, with growth underpinned by a major acquisition, expansion overseas and momentum in the UK – despite the challenging domestic market. In addition, the half-year dividend was raised 15 per cent and the balance sheet remains sound, despite the effects of an acquisition. In response, City analysts upgraded their earnings expectations. 

Indeed, first-half revenues were transformed by the acquisition – Consortium, the former education and care wing of Connect (CNCT), which RM purchased last June for £56.5m. Group sales rose 33 per cent to £94.9m, with £24m coming from Consortium. 

Specifically, Consortium enhances RM’s ‘Resources’ segment, which provides education resources to schools and nurseries in the UK and overseas. Revenues doubled to £51m, constituting 54 per cent of the group's total. But, even excluding Consortium, the division’s existing business – TTS – still enjoyed 6 per cent growth: 5 per cent in the UK, and 12 per cent internationally, where RM says it is developing a presence and broadening its customer base.

True, Consortium reduced Resources’ operating profit margin from 11.1 per cent to 8.2 per cent. It has a lower operating margin than TTS, and its profits are seasonally weighted to the second half. But adjusted operating profits still rose 50 per cent to £4.2m – reflecting the aforementioned sales growth, and over £1m in acquisition synergies. RM's management expects synergies to reach £4m per year by 2020. 

Elsewhere, RM’s ‘Results’ business – which provides IT software and e-assessment services – saw revenues fall 8.9 per cent to £12.3m after a planned reduction in data contracts and in the absence of a major new e-assessment client implementation project. Still, the segment landed three new international clients, and – thanks to cost savings – the underlying operating margin increased, keeping adjusted operating profits flat.

RM Education, which sells general purpose 'ICT' software and services, also saw sales dip 2.6 per cent to £31.5m; growth in its infrastructure and digital platform operations was offset by further reductions in the government’s ‘Building Schools for the Future’ initiative. But the adjusted operating margin rose from 9.6 per cent to 11.6 per cent, helped by falling operating costs.

Management expects to “at least” meet full-year expectations (see table). And while net debt of £23.4m was in line with seasonal outflows, a £13.1m reduction in the group’s pension deficit to £9.1m was useful.