REG - RM PLC - Final Results <Origin Href="QuoteRef">RM.L</Origin> - Part 3
06/02/2018 07:05
- Part 3: For the preceding part double click ID:nRSF9792Db
112 - (59) (1) 1 53
Credit to equity - 1,980 (110) 749 - 2,619
At 30 November 2016 846 5,912 254 1,781 - 8,793
Credit/(charge) to income (13) - 59 (65) 84 65
Charge to equity - (3,481) (80) (70) - (3,631)
Acquired Deferred tax assets/(liabilities) 321 1,009 - 11 (3,077) (1,736)
At 30 November 2017 1,154 3,440 233 1,657 (2,993) 3,491
Certain deferred tax assets and liabilities have been offset above.
6. Earnings per ordinary share
Year ended 30 November 2017 Year ended 30 November 2016
Profit for Weighted average number of shares Pence per share Profit for Weighted average number of shares Pence per share
the year the year
£000 '000 £000 '000
Basic earnings per ordinary share
Basic earnings 12,851 81,455 15.8 11,646 81,144 14.4
Adjustments (see note 2) 5,098 - 6.2 2,509 - 3.0
Adjusted basic earnings 17,949 81,455 22.0 14,155 81,144 17.4
Diluted earnings per ordinary share
Basic earnings 12,851 81,455 15.8 11,646 81,144 14.4
Effect of dilutive potential ordinary shares: share-based payment awards - 179 (0.1) - - -
Diluted earnings 12,851 81,634 15.7 11,646 81,144 14.4
Adjustments (see note 2) 5,098 - 6.2 2,509 - 3.0
Adjusted diluted earnings 17,949 81,634 21.9 14,155 81,144 17.4
7. Dividends
Amounts recognised as distributions to equity holders were:
Year ended Year ended
30 November 2017 30 November 2016
£000 £000
Final dividend for the year ended 30 November 2016 - 4.50p per share (2015: 3.80p) 3,660 3,079
Interim dividend for the year ended 30 November 2017 - 1.65p per share (2016: 1.50p) 1,348 1,220
5,008 4,299
The proposed final dividend of 4.95p per share for the year ended 30 November 2017 was approved by the Board on 5 February 2018. The dividend is subject to approval by Shareholders at the annual general meeting. The anticipated cost of this dividend is £4,046,000 which is not included as a liability at 30 November 2017.
8. Trade and other receivables
Year ended Year ended
30 November 2017 30 November 2016
£000 £000
Current
Financial assets
Trade receivables 20,770 15,060
Long-term contract balances 3 -
Other receivables 1,146 1,294
Derivative financial instruments - 685
Accrued income 1,366 1,824
Amounts owed by Group undertakings - -
23,285 18,863
Non-financial assets
Prepayments 5,862 5,540
29,147 24,403
Non-current
Financial assets
Other receivables 1,144 1,153
30,291 25,556
9. Trade and other payables
Year ended Year ended
30 November 2017 30 November 2016
£000 £000
Current liabilities
Financial liabilities
Trade payables 18,524 13,777
Other taxation and social security 4,765 2,842
Other payables 535 2,284
Derivative financial instruments 389 45
Accruals 12,975 9,096
Long-term contract balances 10,183 16,766
Amounts owed to Group undertakings - -
47,371 44,810
Non-financial liabilities
Deferred income 10,265 9,711
57,636 54,521
Non-current liabilities
Non-financial liabilities:
Deferred income:
- due after one year but within two years 409 462
- due after two years but within five years 443 509
852 971
58,488 55,492
10. Provisions Onerous lease and dilapidations Employee-related restructuring Other Total
Group £000 £000 £000 £000
At 1 December 2015 3,579 184 1,178 4,941
Utilisation of provisions (345) (184) (396) (925)
Release of provisions (161) - (147) (308)
Increase in provisions - 1,844 1,057 2,901
Unwind of discount 84 - - 84
At 30 November 2016 3,157 1,844 1,692 6,693
Acquired on 30 June 165 - - 165
Utilisation of provisions (308) (1,697) (236) (2,241)
Release of provisions (1,115) - (568) (1,683)
Increase in provisions 1,780 831 819 3,430
Unwind of discount 91 - - 91
At 30 November 2017 3,770 978 1,707 6,455
Provisions for onerous leases and dilapidations have been recognised at the present
value of the expected obligation at discount rates of 2.6% (2016: 2.6%) per annum
reflecting a risk-free discount rate, applicable to the liabilities. These discounts
will unwind to their undiscounted value over the remaining lives of the leases via a
finance cost within the Income Statement. At 30 November 2017, £1,525,000 (2016:
£1,465,000) of the provision refers to onerous leases, and £2,245,000 (2016:
£1,692,000) refers to dilapidations. During the year an onerous provision was created
for the top floor of the head office property and an onerous provision release was
made for the successful sub-letting of one of the Group's properties. Following the
acquisition in the year, the Group's dilapidation provisions as a whole were reviewed
and subsequently increased.
The average remaining life of the leases at 30 November 2017 is 2.1 years (2016: 3.1
years).
In making their assessment of the required provisions, the group is required to
estimate the likely sub-let income that could be earned over the remaining life of
the lease. This requires the Directors to make judgements relating to the likelihood
that a property will be sub-let and the income that will be earned.
Employee-related restructuring provisions refer to costs arising from restructuring
to meet the future needs of the Group and are all expected to be utilised during the
following financial year.
Other provisions includes one-off items not covered by any other category of which
the most significant items are the risk provisions from ended BSF contracts
transferred from long-term contract creditors to provisions, at the year end this
amount is £779,000 (2016: £475,000).
Disclosure of provisions
Year ended Year ended
30 November 2017 30 November 2016
£000 £000
Current liabilities 3,436 3,536
Non-current liabilities 3,019 3,157
6,455 6,693
11. Share capital
Company and Group Ordinary shares of 22/7p
'000 £000
Allotted, called-up and fully paid:
As at 30 November 2015, 2016 and 2017 82,650 1,890
Ordinary shares issued carry no right to fixed income.
12. Defined benefit pension schemes
The Group has both defined benefit and defined contribution pension schemes. There are three defined benefit pension schemes, the Research Machines plc 1988 Pension Scheme (the "RM Scheme") and, following the acquisition of The Consortium in June 2017, the
CARE Scheme and the Platinum Scheme. The RM Scheme and the CARE Scheme are both operated for employees and former employees of the Group only. The Platinum Scheme is a multi-employer scheme, with The Consortium being just one of a number of employers. The
Group plays no active part in managing that Scheme, although the number of the Group's employees in that Scheme is small and so the impact / risk to the Group from that Scheme is limited.
For all three Schemes, based on the advice of a qualified independent actuary at each balance sheet date and using the projected unit method, the administrative expenses and current service costs are charged to operating profit, with the interest cost,
net of interest on scheme assets, reported as a financing item.
Defined benefit pension scheme remeasurements are recognised as a component of other comprehensive income such that the balance sheet reflects the scheme's surplus or deficit as at the balance sheet date. Contributions to defined contribution plans are
charged to operating profit as they become payable.
Scheme assets are measured at bid-price, where available, at 30 November 2017. The present value of the defined benefit obligation was measured using the projected unit method.
Under the guidance of IFRIC 14, the Group are able to recognise a pension surplus on the balance sheet for all three schemes. In the year the RM and CARE schemes shown a deficit and the Platinum scheme is in surplus.
The Research Machines plc 1988 Pension Scheme (RM Scheme)
The Scheme provides benefits to qualifying employees and former employees of RM Education Limited, but was closed to new members with effect from 1 January 2003 and closed to future accrual of benefits from 31 October 2012. The assets of the Scheme are
held separately from RM Education Limited's assets in a trustee-administered fund. The Trustee is a limited company. Directors of the Trustee company are appointed by RM Education Ltd and by members. The Scheme is a funded scheme.
Under the Scheme, employees were entitled to retirement benefits of 1/60th of final salary for each qualifying year on attainment of retirement age of 60 or 65 years and additional benefits based on the value of individual accounts. No other post
-retirement benefits were provided by the Scheme.
The most recent actuarial valuation of Scheme assets and the present value of the defined benefit obligation was carried out for statutory funding purposes at 31 May 2015 by a qualified independent actuary. IAS 19 Employee Benefits (revised) liabilities at
30 November 2017 have been rolled forward based on this valuation's base data.
As at 31 May 2015, the triennial valuation for statutory funding purposes showed a deficit of £41,800,000 (31 May 2012: £53,500,000). The Group agreed with the Scheme Trustees that it will repay this amount via deficit catch-up payments of £4,000,000 in
December 2015 and £3,600,000 per annum until 30 September 2024. At 30 November 2017 there were amounts outstanding of £300,000 (2016: £300,000) for one month's deficit payment and £32,000 (2016: £32,000) for Scheme expenses. The next triennial valuation
of the Scheme is due as at 31 May 2018 and may result in changes to the level of deficit catch-up payments required.
In addition to the £4,000,000 of catch-up payments in December 2015, a further £4,000,000 contribution was paid in December 2015 into an escrow account established in March 2014, the use of which within the Scheme is required to be agreed by RM Education
Limited and the Scheme Trustee.
The parent company RM plc has entered into a pension protection fund compliant guarantee in respect of scheme liabilities. No liability has been recognised for this within the Company as the Directors consider that the likelihood of it being called upon is
remote.
The Consortium CARE Scheme
Until 31 December 2005, The Consortium for Purchasing and Distribution Ltd ("The Consortium", acquired by the Company on 30 June 2017) operated the CARE Scheme providing benefits on both a defined benefit (final salary-linked) and a defined contribution basis. From 1 January 2006, the defined benefit (final salary- linked) and defined contribution sections were closed and all employees, subject to the eligibility conditions set out in the Trust Deed and Rules, joined a new defined benefit (Career Average
Revalued Earnings) section. As at 28 February 2011 the Scheme was closed to future accruals.
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process, The Consortium must agree with the trustees of the Scheme the contributions to be paid to address any shortfall against the Statutory Funding Objective. The Statutory Funding Objective does not currently impact on the recognition of the Scheme in these accounts. The
Scheme is managed by a Board of Trustees appointed in part by the Company and in part from elections by members of the Scheme. The Trustees have responsibility for obtaining valuations of the fund, administering benefit payments and investing Scheme assets. The Trustees delegate some of these functions to their professional advisers where appropriate. The valuation of the Scheme at 31 December 2016 was a deficit of £4.2m.
Prudential Platinum Pension
The Consortium acquired West Mercia Supplies in April 2012 (prior to the Company acquiring The Consortium). Upon acquisition by The Consortium of West Mercia Supplies, a pension scheme was set up providing benefits on both a defined benefit (final salary-linked) and a defined contribution basis for West Mercia employees. The most recent full actuarial valuation was carried out by the independent actuaries Xafinity on 31 December 2015. Using the assumptions below the results of the full valuation were
adjusted and rolled forward to form the basis for the current year valuation. The Scheme is administered within a legally separate trust from The Consortium and the Trustees are responsible for ensuring that the correct benefits are paid, that the Scheme is appropriately funded and that the Scheme assets are appropriately invested. The valuation of the Scheme at 31 December 2015 was a deficit of £70,000.
Amounts recognised in the Income Statement and in the Statement of Comprehensive Income
Year ended 30 November 2017 Year ended 30 November 2016
Note £000 £000
Administrative expenses and taxes (552) (845)
Current service costs (69) -
Operating expense (621) (845)
Interest cost (6,946) (7,301)
Interest on Scheme assets 5,897 6,803
Net interest expense 4 (1,049) (498)
Expense recognised in the Income Statement (1,670) (1,343)
Effect of changes in demographic assumptions 7,920 1,838
Effect of changes in financial assumptions (4,608) (36,938)
Effect of experience adjustments 1,898 -
Total actuarial gains/(losses) 5,210 (35,100)
Return on Scheme assets excluding interest on Scheme assets 12,750 11,545
Income/(expense) recognised in the Statement of Comprehensive Income 17,960 (23,555)
Income/(expense) recognised in Total Comprehensive Income 16,290 (24,898)
Reconciliation of the Scheme assets and obligations through the year
RM scheme CARE scheme Platinum scheme Year ended 30 November 2017 Year ended 30 November 2016
£000 £000 £000 £000 £000
Assets
At start of year 190,983 - - 190,983 174,029
Acquired during the year - 15,734 1,871 17,605 -
Interest on Scheme assets 5,706 170 21 5,897 6,803
Return on Scheme assets excluding interest on Scheme assets 12,734 26 (10) 12,750 11,545
Administrative expenses (538) - (14) (552) (845)
Contributions from Group 3,984 95 108 4,187 11,984
Contributions from employees - - 9 9 -
Benefits paid (5,981) (237) (12) (6,230) (12,533)
At end of year 206,888 15,788 1,973 224,649 190,983
Obligations
At start of year/period (225,758) - - (225,758) (195,890)
Acquired during the year - (21,888) (1,654) (23,542) -
Interest cost (6,692) (236) (18) (6,946) (7,301)
Actuarial gains/(losses) 3,077 1,872 260 5,209 (35,100)
Benefits paid 5,981 237 12 6,230 12,533
Service cost - - (69) (69) -
Contributions from employees - - (9) (9) -
At end of year (223,392) (20,015) (1,478) (244,885) (225,758)
Pension deficit (16,504) (4,227) - (20,731) (34,775)
Pension surplus - - 495 495 -
Net pension deficit (16,504) (4,227) 495 (20,236) (34,775)
Reconciliation of net defined benefit obligation
Year ended 30 November 2017 Year ended 30 November 2016
£000 £000
Net obligation at the start of the year (34,775) (21,861)
Net obligation acquired during the year (5,937) -
Cost included in Income Statement (1,670) (1,343)
Scheme remeasurements included in the Statement of Comprehensive Income 17,959 (23,555)
Cash contribution 4,187 11,984
Net pension deficit (20,236) (34,775)
Year ended 30 November 2017 Year ended 30 November 2016
Obligation by participant status £000 £000
Active 1,212 -
Vested deferreds 209,869 198,370
Retirees 33,804 27,388
244,885 225,758
Year ended 30 November 2017 Year ended 30 November 2016
Value of Scheme assets £000 £000
Fair value of Scheme assets with a quoted market price
Cash and cash equivalents, including escrow 10,535 7,370
Equity instruments 107,814 87,274
Debt instruments 1,973 68,951
Liability driven investments 77,939 -
Value of unquoted Scheme assets
Insurance contract 26,388 27,388
224,649 190,983
Significant actuarial assumptions
Year ended 30 November 2017 Year ended 30 November 2016
Discount rate (RM/Platinum schemes) 2.85% 3.00%
Discount rate (CARE scheme) 2.75% n/a
Rate of RPI price inflation 3.20% 3.15%
Rate of CPI price inflation 2.10% 2.15%
Rate of salary increases (Platinum scheme) 2.10% n/a
Rate of pensions increases
pre 6 April 1997 service 1.50% 1.50%
pre 1 June 2005 service 3.10% 3.10%
post 31 May 2005 service 2.10% 2.20%
Post retirement mortality table S2PA CMI 2016 1.25% S2PA CMI 2015 1.50%
Weighted average duration of defined benefit obligation 23 years 25 years
Assumed life expectancy on retirement at age 65:
Retiring at the accounting date (male member aged 65) 22.1 22.7
Retiring in 20 years after the accounting date (male member aged 45) 23.5 24.8
Following a change of actuary during the year the discount methodology applied under IAS19 for all three schemes was revised to better reflect the long dated credit risk of the cash flows for those schemes.
13. Acquisitions of subsidiaries
Acquisitions in the current period
On 30 June 2017, the Group acquired all of the shares in Hedgelane Limited, including its principal trading subsidiary known as
The Consortium. The Consortium is a leading supplier of branded and own-branded products primarily to educational institutions.
The acquisition of The Consortium represents a strategic opportunity for RM to enhance significantly the scale and offering of
its education resources business. The Board believes that the combination of RM's education resources business, TTS, and The
Consortium will lead to an expanded, more diversified and better balanced product portfolio, comprising a wide spectrum of
higher, value-added, curriculum-focussed resources and essential commodity and education resource products. The businesses also
have complementary geographic coverage and customer relationships, and combined will have an improved purchasing position and
benefit from other significant operational improvement opportunities.
The fair value of the cash consideration for the acquisition is £59.0m. Transaction fees associated with the acquisition and
expensed to the Consolidated Statement of Comprehensive Income in 2017 were £2.5m.
Effect of acquisition
The acquisition had the following effect on the Group's assets and liabilities:
Fair Value on Acquisition £000
Brands 18,100
Website platform 2,520
Property, plant and equipment 5,473
Inventories 8,695
Trade and other receivables 10,185
Cash and cash equivalents 549
Defined benefit pension scheme surplus 216
Trade and other payables (9,720)
Defined benefit pension scheme obligation (6,153)
Current tax liabilities (4)
Deferred tax (1,837)
Provisions (165)
Net assets acquired 27,859
Goodwill 31,097
Consideration paid 58,956
Satisfied by
Cash 58,956
Total purchase consideration 58,956
Net cash flow on acquisition 58,956
Cash and cash equivalents (549)
Cashflow on acquisition 58,407
In the period 1 July 2017 to 30 November 2017 The Consortium contributed revenue of £27.8m and statutory profit after tax of
£0.8m If the acquisition had occurred on 1 December 2016 The Consortium would have contributed revenue of £58.8m and statutory
profit after tax of £1.2m. In determining these amounts, management has assumed that the fair value adjustments that arose on
the date of acquisition would have been the same if the acquisition occurred on 1 December 2016.
Fair value adjustments
On the acquisition of The Consortium, all assets were fair valued and
appropriate intangible assets recognised following the principles of IFRS
3. Certain asset fair values are included as provisional in the short
term as management continue to integrate the acquired business.
A deferred tax liability related to these intangible assets was also
recognised. Management identified the main material intangible assets as
The Consortium own brand and the website platform. Brands were valued at
£18.1m using the Relief from Royalty method and are being amortised over
15 years which is in accordance with IAS 38. The website platform was
valued at £2.5m by considering the replacement cost.
Goodwill of £31.1m represents the excess of the purchase price over the
fair value of the net tangible and intangible assets acquired. The
goodwill arising on the acquisition is largely attributable to the
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