RM (LON:RM.) is an IT company which operates in the education sector but which has recently faced major difficulties. With the company primarily focussed on the UK public sector market, it has faced a downturn in revenue in several of its operations. To quote from the new Chairman’s statement in the Annual Report:
“In recent years, while recognising the market was changing, the severity of the changes was not fully appreciated by the business…”.
The impact was concealed to some extent by the “Building Schools for the Future” programme. He goes on to say that:
“This situation was compounded by an unsuccessful international expansion programme and a lack of innovation in recent years….”.
So a new Chairman, Martyn Ratcliffe, was appointed last June and other board changes made. After the Chief Executive and Group Managing Director resigned, Mr Ratcliffe was appointed as Executive Chairman in October 2011. The new management have been disposing of some operations and cutting costs vigorously. The share price dived to about a third of what it was before these events, valuing the company at the current share price of 83p at £78m.
The results for the year ending showed a pre-tax loss of £1.8m although revenue was only slightly down. The loss primarily arose from restructuring costs, excess property provisions and goodwill/intangible impairments but even the “adjusted” profits which ignore those more than halved. This does of course look like “taking a bath” which is the term applied when new management comes in and wants to ditch all the historic legacies and start with a clean sheet.
Mr Ratcliffe has a rather peculiar remuneration package. In October 2011 the board awarded him one million share options subject to a precondition that “for each two share options Mr Ratcliffe must have purchased five RM shares prior to 30 November 2012”. The share options are also subject to performance conditions, which are based on the share price exceeding 100p prior to 30 November 2015. It is stated that he has waived any salary up to November 2011, but does not disclose what his base salary might be going forward.
In December 2011 a new “Performance Share Plan” was put in place for senior executives (excluding Mr Ratcliffe) and this is also solely share price based. In addition on the 1st March this year the company announced it had…
