Final Results

RM

06/02/2018 07:00

RNS Number : 9792D

RM PLC

06 February 2018

6 February 2018

RMplc

Final Results for the period ending 30 November 2017

RM plc ("RM"), a leading supplier of technology and resources to the education sector, reports its final results for the year ending 30 November 2017.

HIGHLIGHTS

Financial
2017
2016
Change
Revenue
RM Resources
RM Results
RM Education
Adjusted* operating profit
Adjusted* operating profit margins
Statutory profit after tax
185.9m
83.6m
31.6m
70.6m
22.1m
11.9%
12.9m
167.6m
58.8m
31.6m
77.0m
18.8m
11.2%
11.6m
+10.9%
+42.1%
0.0%
-8.4%
+17.4%
+0.7pp
+10.3%
Adjusted* diluted EPS
Paid and proposed dividend** per share
21.9p
6.60p
17.4p
6.00p
+25.9%
+10.0%

Operational
A strong year delivering growth in adjusted operating profits of 17.4% to 22.1m
Revenues increased by 11% to 185.9m and adjusted operating margins rise to 11.9%
Acquisition of the Education & Care business of Connect Group plc (The Consortium) completed 30 June 2017 contributing revenues of 27.8m
Profit after tax grew 10.3% to 12.9m (2016: 11.6m)
Strong cash conversion resulting in net debt of 13.4m (2016: net cash of 40.0m) following the acquisition
Defined benefit pension deficit decreases to 20.2m (2016: 34.8m)
Full year proposed dividend increased by 10% to 6.60p

Commenting on the results, David Brooks, Chief Executive of RM, said:

"2017 was a significant year for the Group and it was encouraging to see the improvement in underlying operating margins and strong cash generation.The Group increased revenues following the acquisition of The Consortium, which we are now confident will deliver synergies that are approximately double our initial estimate.

Going forward, despite the continued subdued UK Education market, 2018 has started in line with our expectations and we are confident of a year of good progress."

* Adjusted operating profit is before the amortisation of acquisition related intangible assets; costs associated with the acquisition of The Consortium and subsequent costs related with the delivery of synergies; share-based payment charges; and changes in the provision for onerous lease contracts.

** The expected timetable for the final dividend and Annual General Meeting is as follows:

Ex-dividend date for 2017 final dividend (4.95 pence per share)
15 March 2018
Record date for 2017 final dividend
16 March 2018
AGM
21 March 2018 at 11.30 a.m.
Payment of 2017 final dividend
13 April 2018
References to times are to Greenwich Mean Time. If any of the above times or dates should change, the revised times and/or dates will be notified to shareholders by an announcement on a Regulatory Information Service. Payment of the 2017 final dividend is subject to the approval by shareholders of the final dividend.

Contacts
RM plc
FTI Consulting
08450 700300
David Brooks, Chief Executive Officer
Jamie Ricketts / Elena Kalinskaya
Neil Martin, Chief Financial Officer
08450 700 300
020 3727 1000

Chairman's Statement

2017 was a positive year for RM with revenue, adjusted operating profits and margins improved compared with the prior year. The Group completed the acquisition in June 2017 of the Education and Care business of Connect plc (The Consortium) which is being combined with TTS. Cash generation was strong and the Company finished the year with modest net debt of 13.4m.

RM Resources increased revenues and profits, driven by the acquisition. The first few months of ownership have seen good progress in integrating The Consortium and TTS. The Board expects the annual synergies from this acquisition to be broadly double the original estimates of 2m. Excluding the effect of the acquisition, RM Resources saw a decline in revenues compared with the prior year, with international growth more than offset by declines in the UK. After a difficult first half, the RM Resources business stabilised in the second half of the year.

RM Results revenues were unchanged from the prior year but profits grew strongly. The Division's future was strengthened by the renewal of a number of long-term contracts and winning several deals with new customers in both the e-testing and e-marking areas.

RM Education revenues declined as expected, following a reshaping of the lower margin elements of the business in late 2016. Profitability and operating margins improved on the prior year, as did cash generation.

The strong cash performance in all three divisions resulted in a profit to cash conversion rate of over 100%. The Group's defined benefit pension schemes deficit, including a small effect from The Consortium schemes, decreased to 20.2m (2016: 34.8m).

The Board is recommending a final dividend of 4.95 pence per share which would constitute, at 6.60 pence per share in total, an increase of 10% over the prior year.

The outlook for 2018 is still affected by continued pressure on UK school budgets. However, management is focused on delivering the synergies from the acquisition in RM Resources, while delivering continued good operating performance and developing strategies for top-line growth.

John Poulter

Chairman

5 February 2018

Extract from Strategic Report

RM plc is a leading supplier of technology and resources to the education sector. Our products and services are used in most parts of UK education from early years settings, primary and secondary schools and colleges to major exam boards and central government. The Company's focus continues to be on delivering sustainable shareholder returns with a resilient and efficient operating model. RM is increasing its revenues and adjusted operating margins and delivering a high return on capital employed.

Operating Review

The Group is structured in three operating divisions, each with its own managing director and management team, with corporate services functions provided centrally. Approximately 32% (2016: 36%) of Group headcount is based in India, providing support services and software development to the operating divisions.

RM Resources

The RM Resources Division now consists of the brands TTS, The Consortium and West Mercia Supplies.

At the beginning of 2017, the Division comprised TTS only. On 30 June 2017, the Company completed the acquisition of the Education and Care business of Connect plc, which added The Consortium and West Mercia Supplies ("The Consortium") brands to RM Resources.

RM Resources provides education resources and supplies used in UK and international schools and early years establishments. Products supplied are a mix of commodity, third party branded, own brand equivalents and TTS own designed items manufactured by a network of third party suppliers with a focus on specialist curriculum resources.

The Division's strategy is to grow its market share in the provision of resources to schools, early years and special educational needs markets via online sales, a direct sales force and direct catalogue, both in the UK and internationally.

RM Resources revenues increased by 42% to 83.6m following the acquisition of The Consortium and the inclusion of revenues from that business from July onwards. Organic TTS revenues declined by 5% to 55.9m (2016: 58.8m), with UK revenues declining by 12% to 41.1m (2016: 46.8m), partially offset by strong growth of 23% in international revenues to 14.8m (2016: 12.1m). International revenues now represent 26% of revenue in TTS. In the five months since being acquired, The Consortium delivered 27.8m of revenues, of which 1.0m was from international sales and 1.7m was from non-Education resources sectors.

Divisional adjusted operating profit increased to 11.6m (2016: 10.2m) as the Division's profitability benefited from the acquisition of The Consortium outlined above. However, operating margins decreased to 13.9% (2016: 17.3% - TTS only). This reduction was driven by a reduction in TTS's margins to 15.1% (2016: 17.3%), resulting from a reduction in revenues combined with a more competitive pricing market and exchange rate impacts which reduced profits by 0.9m. The Consortium (11.3% operating margins) further diluted the margin of the Division as a whole.

UK

UK revenues increased by 45% to 67.8m (2016: 46.8m) driven by the acquisition of The Consortium. Organic TTS UK revenues decreased by 12% as primary schools and nurseries focussed their resources budgets more on commodity items. This was due to discretionary budgets being negatively impacted by unfunded increases in staff pension and national insurance costs. The decline in TTS in the UK was more pronounced in the first half of the year (-20%) than in the second half of the year (-2%). This reflected some improvement in the market, although we continue to expect that tight budgets will keep the UK market subdued.

The Company continues to invest in its online channels. Online orders now make up broadly half of UK direct education sales. We expect the proportional growth in online sales to continue in future years, as more customers use it as their preferred method of ordering.

International

The international business is made up of sales of own designed products through resellers and distributors to over 70 countries and sales of a wider portfolio of education supplies directly to international English curriculum schools. Organic TTS revenues from international sales to overseas resellers and international schools increased by 23% to 14.8m (2016: 12.1m). This was driven by strong growth of our own designed products through reseller channels (+32%) and growth in sales to international schools (+14%). We expect international revenues to continue to grow in the coming year. The acquisition of The Consortium delivered an additional increase in sales to international schools (1.0m in the five months since the acquisition completed). The increased product range will significantly add to the combined proposition of the Division going forward.

Integration

The integration of the TTS and The Consortium businesses is progressing well. A single senior management team consisting of members from both organisations has been appointed and has started to rationalise the distribution storage footprint, move to a combined operating model for the business and develop the go to market strategy for the UK and internationally. In addition, supply chain savings and organisational restructuring is in progress. Better synergies coupled with more scope for operational efficiencies are now expected, in time, to realise benefits of approximately double our initial expectations of 2m pa. This outlook assumes no changes to the estate and distribution network or the potential benefits of delivering a unified set of systems and processes where beneficial.

The Board is currently not expecting a significant uplift from revenue synergies in its outlook due to the subdued nature of the UK market and the increased risks of new online entrants. However, combined purchasing contracts with aggregated buying groups, the inclusion of TTS own designed products into The Consortium's sales channels and a joint approach to maximising the opportunity in English curriculum international schools are just three of the initial initiatives being worked on.

RM Results

The RM Results Division provides IT software and services to exam boards and professional awarding bodies to help them digitise exams in the UK and internationally through the use of e-assessment. In addition, the Division manages and analyses educational data on behalf of the UK central government, which was part of a 'Data' division.

The strategy is to grow the e-assessment business through expanding the scope of solutions to existing customers and to win new customers in both the UK and overseas markets. The target markets for e-assessment are general qualifications, language testing, professional awarding bodies and higher education. Software and services are provided through a combination of proprietary and third party, in-house and outsourced arrangements. Internationally, the business is largely expected to develop through partnerships and software licensing.

Revenue remained stable at 31.6m. The e-assessment part of the business grew by 7%, which offset the planned exit of a number of contracts in the Data business (-21%). Adjusted operating profit increased strongly by 14% on the prior year to 7.8m (2016: 6.8m).

Adjusted operating margins increased to 24.5% (2016: 21.5%).

RM Results signed a five year agreement in 2017 for the provision of a Global Assessment Platform to Oxford University Press (OUP). The contract provides item and test authoring, online test delivery and online marking of a range of OUP English Language testing products through an integrated technology platform.

The Division has also successfully secured several key contract renewals and extensions with existing customers including:

A three year contract extension to continue to provide e-marking services until 2021 to the education charity, AQA, the UK's largest schools exam awarding body.

A two year extension with the Department of Education for the National Pupil Database contract.

An extended e-marking contract with the Caribbean Examinations Council (CXC).

Following the planned exit of a number of contracts the Data business now consists of a contract to deliver the National Pupil Database contract to the Department for Education.

The Board is targeting the growth opportunities in e-assessment whilst maintaining good operating margins and sees RM Results as being very well placed to respond to the ever increasing digitisation of high stakes exams in the UK and internationally. Organic and non-organic growth options will be considered in this promising, technology driven area.

RM Education

RM Education is a UK focused business supplying IT software and services to schools and colleges. In recent years the strategy has been to improve operating margins and the proportion of annuity revenue whilst transitioning from its large legacy hardware manufacturing operations. This should create a more stable software and services platform from which it can grow.

Revenues in the Division declined by 8% to 70.6m (2016: 77.0m) with the planned contract completion of several Building Schools for the Future (BSF) contracts and the decline of some of the lower margin legacy infrastructure business. Adjusted operating profit margins continued to improve, increasing to 9.3% (2016: 7.6%), benefitting from a 12% reduction in the cost base. Adjusted operating profit increased to 6.6m (2016: 5.8m).

Recurring annuity revenues increased from 61% to 68% in 2017, reflecting the continued improvements over recent years since 2013 levels (37%).

The RM Education business is made up of Managed Services - IT outsourcing (40% of revenue), Digital Platforms (10%) - Cloud-based software offerings and Infrastructure (50%) - aimed at schools who want to run their own IT. The primary focus for this business going forward is increasing its annuity revenues.

Managed Services

The Managed Services offering is primarily the provision of IT outsourcing services to UK schools and colleges. Managed Services revenues decreased by 15% to 28.1m (2016: 33.1m) with several large BSF contracts coming to an end resulting in lower levels of project spend and revenues associated with BSF contracts falling to 11m from 19m in the prior year. Retention rates of existing customers during the year was 94% and, in addition, 49 new schools signed managed services contracts in the year. The proportion of revenues coming from contracts outside BSF programmes grew from 43% in 2016 to 60% in 2017.

A proportion of the Division's managed service contracts are subject to long-term project accounting policies, in particular those relating to BSF. Consequently, as these contracts complete in the year or progress towards completion, profits benefit from the effects of good operational performance, risk mitigation at completion and wider reductions in the RM Education Division cost base.

Digital Platforms

The Digital Platform offering covers key products such as RM Integris (RM's cloud-based school management system) and RM Unify, our cloud-based authentication and portal system, as well as certain other legacy content offerings. Digital Platforms revenues increased by 5% to 7.3m (2016: 7.0m) as growth in these key products more than offset declines in those legacy products. Customer retention rates of core Digital Platform products were 97% in the year.

The Division also signed a new contract for five years with Education Scotland to continue to provide RM Unify to all schools in Scotland.

Infrastructure

Infrastructure is a very tight margin business including the tools, products and services to help schools manage their own IT. Revenues decreased by 5% to 35.2m (2016: 37.0m) as the Division continues to move away from lower margin transactional business. As highlighted before, at the end of 2016, the Division restructured this area and reduced the UK workforce. The retention rate across the core annuity products of Connectivity and Network Support within the Infrastructure business was 94%.

A significant new three year contract was tendered for and won in this Division in 2017 to provide connectivity services to over 500 schools in Hertfordshire.

RM India

As at 30 November 2017, RM's operation in Trivandrum accounted for 32% of Group headcount (2016: 36%).

The Indian operation provides services solely to RM Group companies. Activities include software development, customer and operational support, back office shared service support (e.g. customer order entry, IT, finance and HR) and administration.

Employees

Average Group headcount for the year was 1,787 (2016: 1,822), which is comprised of 1,633 (2016: 1,634) permanent and 154 (2016: 188) temporary or contract staff, of which 1,172 (2016: 1,173) were located in the UK and 615 (2016: 649) in India. At 30 November 2017 headcount was 1,907 (2016: 1,731).

The following table sets out a more detailed summary of the permanent staff employed as at 30 November 2017:

Male
Female
Executive Directors
2 (100%)
0 (0%)
Senior Managers (excluding Executive Directors)
45 (80%)
11 (20%)
All employees
1,102 (62%)
683 (38%)

The Group is committed to offering equal employment opportunities and its policies are designed to attract, retain and motivate the best staff regardless of gender, sexual orientation, race, religion, age, disability or educational background. The Group gives proper consideration to applications for employment when these are received from disabled persons and will employ them in posts whenever suitable vacancies arise. Employees who become disabled are retained whenever possible through retraining, use of appropriate technology and making available suitable alternative employment.

The Group encourages the participation of all employees in the operation and development of the business and has a policy of regular communications. The Group incentivises employees and senior management through the payment of bonuses linked to performance objectives, together with the other components of remuneration detailed in the Remuneration Report.

The Group has a wide range of other written policies, designed to ensure that it operates in a legal and ethical manner. These include policies related to health and safety, 'whistle blowing', anti-bribery and corruption, business gifts, grievance, career planning, parental leave, systems and network security. All of RM's employment policies are published internally.

The Corporate Governance Report sets out the Company's Diversity Policy.

Acquisition

As noted above, the Company completed the acquisition of The Consortium on 30 June 2017 for a purchase price of 56.5m (on a cash free, debt free basis). The acquisition complements the Company's already existing TTS business and has been accretive to the Company's adjusted earnings per share.

The final net cash consideration paid was 59.0m including 0.5m of cash in the business. The difference between the headline price of 56.5m noted above and the final consideration paid reflected the positive net working capital position of the balance sheet of the acquired business as at the date of completion. Intangible assets of 18.1m have been identified reflecting value associated with the distribution and product brands acquired, together with a further 31.1m of goodwill alongside 9.8m of net assets.

The acquisition was satisfied entirely in cash at completion and was funded through existing cash reserves and a new 75m revolving credit facility. Further details in relation to that facility are given in the Directors' Report.

Group Financial Performance

Group revenue grew by 11% to 185.9m (2016: 167.6m) supported by the acquisition of The Consortium, which contributed 27.8m. Organic revenues, excluding the benefit of the acquisition, declined 6% to 158.1m (2016: 167.6m).

2017
2016
Adjusted
Adjustment
Statutory
Adjusted
Adjustment
Statutory
Revenue
185.9
-
185.9
167.6
-
167.6
Operating profit
22.1
(5.9)
16.2
18.8
(2.9)
15.9
Profit before tax
20.5
(5.9)
14.6
18.1
(3.0)
15.1
Tax
(2.6)
0.9
(1.7)
(3.9)
0.5
(3.5)
Profit after tax
17.9
(5.1)
12.9
14.2
(2.5)
11.6


Adjusted operating profit margins increased again this year from 11.2% in 2016 to 11.9%. Adjusted operating profit increased to 22.1m (2016: 18.8m).

To provide a better understanding of underlying business performance, amortisation charges relating to acquisition related intangible assets, share-based payment charges, restructuring provision movements, acquisition costs and other items of an exceptional nature have been disclosed in an adjustments column in the Income Statement to give 'Adjusted' results. Note 2 to the financial statements identifies these adjustments highlighting recurring and non-recurring items.

On a statutory basis, operating profit was 16.2m (2016: 15.9m), with adjustments principally being 2.6m of acquisition related costs, 1.6m for costs associated with delivering acquisition synergies, share-based payments charges of 0.8m, 0.5m of amortisation of acquisition related intangible assets and a 0.4m movement in provisions for onerous lease contracts.

The Group generated a statutory profit before tax of 14.6m (2016: 15.1m) with a net interest charge of 1.6m.

The total tax charge within the Income Statement for the year was 1.7m (2016: 3.5m). The Group's tax charge for the period, measured as a percentage of profit before tax, was 12% (2016: 23%). The reduction is principally due to a reduction of 1.2m in the transfer pricing provision associated with cross border intra-group transactions between the UK and India which has been agreed with the relevant tax authorities and a reduction in the UK corporate tax rate. Statutory profit after tax increased to 12.9m (2016: 11.6m).

Adjusted basic earnings per share were 22.0 pence (2016: 17.4 pence). Statutory basic earnings per share were 15.8 pence (2016: 14.4 pence) and statutory diluted earnings per share were 15.7 pence (2016: 14.4 pence).

RM generated cash from operations for the year of 20.5m (2016: 13.4m), which represents a cash conversion from operating profit in excess of 100%. Net debt was 13.4m, compared to cash and short-term deposits of 40m in 2016, reflecting the impact of the acquisition which was satisfied entirely in cash at completion.

Cash generated from operations is expected to be broadly in line with operating profit in the year ahead.

Dividends

The total dividend paid and proposed for the year has been increased by 10% to 6.60 pence per share (2016: 6.00 pence). This is comprised of the interim dividend of 1.65 pence per share paid in September 2017 and, subject to shareholder approval, a proposed final dividend of 4.95 pence per share. The estimated total cost of normal dividends paid and proposed for 2017 is 5.4m (2016: 4.9m). Dividend cover for the year is 3.3 times, as compared to a figure of 2.9 times in 2016. This reflects the 26% growth in adjusted basic earnings per share and the 10% growth in dividend proposed.

The Board is committed to a long-term sustainable dividend policy with the objective of a dividend cover of between two to three times adjusted earnings per share over the medium-term. RM plc has 28.6m of distributable reserves as at 30 November 2017 available to support the dividend policy.

RM plc is a non-trading investment holding company and derives its profits from dividends paid by subsidiary companies. The Directors consider the Group's capital structure and dividend policy at least twice a year, ahead of announcing results and during the annual budgeting process, looking at longer-term sustainability. The Directors do so in the context of the Company's ability to execute the strategy and to invest in opportunities to grow the business and enhance shareholder value.

The dividend policy is influenced by a number of the principal risks identified in the table of 'Principal Risks and Uncertainties' set out below and which could have a negative impact on the performance of the Group or its ability to distribute profits.

Defined Benefit Pension Schemes ("Schemes")

Prior to the acquisition of The Consortium, the Company operated one defined benefit pension scheme (the "RM Education Scheme"). As part of the acquisition of The Consortium, the Company now operates a further defined benefit pension scheme (the "CARE Scheme") and participates in a third, multi-employer, defined benefit pension scheme (the "Platinum Scheme"). Both of the RM Education Scheme and the CARE Scheme are closed to future accrual of benefits. While the Platinum Scheme remains open to future accrual of benefits, the number of Group employees participating in that Scheme is very small and so the impact of that Scheme on the Group is limited.

Despite the introduction of the two new defined benefit schemes outlined above, the IAS19 deficit (pre-tax) across the Group decreased by 14.6m to 20.2m (Nov 2016: 34.8m). This reduction was primarily driven by an increase in the scheme assets of the RM Education Scheme of 15.6m and a decrease in the liabilities of that Scheme of 2.4m, driven by updated mortality assumptions. As at 30 November 2017 the net deficit associated with the CARE Scheme and Platinum Scheme combined was 3.7m.

Following a change in 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 cashflows for those Schemes.

Since the acquisition of The Consortium, agreement has been reached with the Trustees of the CARE Scheme with regards to the triennial valuation as at 31 December 2016 at a deficit of 4.2m, with recovery payments of 379,000 pa over the next ten years. As a result, the total Group deficit recovery plan cashflow requirements across all of the above schemes are 4.4m pa. The triennial review for the RM Education Scheme is due in May 2018. The next review date for the Platinum Scheme is in December 2018.

Impact of the EU Referendum vote

The Company continues to monitor the evolving impacts of the referendum decision on UK's membership of the EU. The referendum result has not changed the UK Government's policy of ring fencing funding for priority areas and, therefore, there is no foreseen impact on education funding as a whole.

The Group has European sales of 11.3m, primarily driven by the sale of own designed products from the RM Resources Division. The Group will monitor the nature of the Brexit arrangements as they influence the trading relationship between the UK and the EU. It is not expected at this stage that they will fundamentally change demand for these products which have been growing strongly in recent years.

The Group has foreign currency denominated costs that outweigh foreign currency denominated revenues and therefore increased currency volatility creates an exposure. Exchange rates have been more stable in 2017 following the post referendum adjustment in 2016 but the Company continues to monitor these closely. This risk is managed through currency hedging against exchange rate movements, typically 9-12 months into the future. The Group is also working to rebalance its exposure by growing its foreign denominated sales ahead of its costs to reduce the currency imbalance and more naturally hedge this risk.

Going Concern

The financial position, cashflows and liquidity position are described in the financial statements and the associated notes. In addition, the notes to the financial statements include RM's objectives, policies and processes for managing its capital, its financial risk management objectives, and its exposure to credit and liquidity risk. During the year, the Group completed the acquisition of The Consortium which was supported by an increase in its revolving credit facility from 30m to 75m and resulted in the Group moving to a net current liability position of 13.4m. The maximum net debt position during the period following the acquisition was 37.7m. Having reviewed the future budgets and projections for the business, the principal risks that could impact on the Group's liquidity and solvency over the next 12 months and its current financial position, the Board believes that RM is well placed to manage its business risks successfully and remain in compliance with the financial covenants associated with its borrowings. Therefore, the Board has a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. For this reason, the Company continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Financial Viability Statement

In accordance with the UK Corporate Governance code, in addition to an assessment of going concern, the Directors have also considered the prospects of the Group and Company over a longer time period. The period of assessment chosen is three years, which is consistent with the time period over which the Group's medium-term financial budgets are prepared. These financial budgets include Income Statements, Balance Sheets and Cash Flow Statements. They have been assessed by the Board in conjunction with the principal risks of the Group, which are documented within the Principal Risks and Uncertainties section below, along with their mitigating actions.

The Board considers that the principal risks which have the potential to threaten the Group's business models, future performance, solvency or liquidity over the three year period are:

1. Public policy risk - UK education policy priority changes or restrictions in government funding due to fiscal policy.

2. Operational execution - including:

a. Significantly increased working capital requirements within the RM Education and RM Results long-term contract portfolios and requirements in evolving RM Education business models.

b. Major adverse performance in a key contract or product which results in negative publicity and which damages the Group's brand.

c. RM Results operational performance over peak examination marking periods.

3. Business continuity - an event impacting the Group's major buildings, systems or infrastructure components. This would include a major incident at one of the RM Resources main warehouses.

4. Strategic risks - loss of a significant contract which underpins an element of a Division's activity.

5. Defined Benefit Pension Schemes - funding of Scheme deficits in adverse market conditions.

6. Inability to deliver, or a significant delay in implementation of, the synergies planned alongside the acquisition of The Consortium whilst still incurring the costs of delivery.

Having assessed the above risks, singularly and in combination, and via sensitivity analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of assessment and are not aware of any reason that viability would be an issue for the foreseeable period after this.

Environmental Matters

The Group's impact on the environment, and its policy in relation to such matters, are noted in the Directors' Report.

Principal Risks and Uncertainties

The management of the business and the execution of the Company's strategy are subject to a number of risks. The Company has a structured approach to the assessment and management of risks. A detailed risk register is maintained, in which risks are categorised under the following categories: political, strategic, operational and financial. The full register is reviewed at least annually by each Division to ensure that the risks that could potentially affect each Division are properly captured. The register also includes a summary of the steps taken to manage or mitigate against those risks and the person or people responsible for the relevant actions. This register is then consolidated and Group-wide risks added, to ensure that the risk covers the entire Group's operations. This is then reviewed by the Executive Committee, the Audit Committee and the Board. As such, the Board confirms that it has carried out a robust assessment of the principal risks facing the Group and appropriate processes have been put in place to monitor and mitigate them. Further details are also set out in the Corporate Governance Report.

The key business risks for the Group are set out in the table below.

Risk and categorisation
Description and likely impact
Mitigation
Public policy (Political Risk)
The majority of RM's business is funded from UK government sources. Changes in political administration, or changes in policy priorities, might result in a reduction in education spending, leading to a decline in market size.
UK government funding in the education sector is constrained by fiscal policy.
Global economic conditions might result in a reduction in budgets available for public spending generally and education spending specifically.
The Company reviews the education policy environment by regular monitoring of policy positions and by building relationships with education policy makers.
The Group's three divisions have diverse revenue streams and product/service offerings.
The Company's strategy is to focus on areas of education spend which are important to meet customers' objectives. Where the revenues of an individual business is in decline, management seeks to ensure that the cost base is adjusted accordingly.
Education practice (Political Risk)
Education practices and priorities may change and, as a result, RM's products and services may no longer meet customer requirements, leading to a risk of lower revenue.
The Company maintains knowledge of current education practice and priorities by maintaining close relationships with customers.
Operational execution (Operational Risk)
RM provides sophisticated products and services, which require a high level of technical expertise to develop and support, and on which its customers place a high level of reliance. Any significant operational failure would result in reputational damage and increased costs.
RM is engaged in the delivery of large, multi-year projects, typically involving the development and integration of complex IT systems, and may have liability for failure to deliver on time.
The Company invests in maintaining a high level of technical expertise.
Internal management control processes are in place to govern the delivery of projects, including regular reviews by relevant management. The operational and financial performance of projects, including future obligations, the expected costs of these and potential risks are regularly monitored by management.
Data and business continuity (Operational Risk)
RM is engaged in storing and processing personal data, where accuracy, privacy and security are important. Any significant security breach could damage reputation and impact future profit streams.
The Group would be significantly impacted if, as a result of a major incident, one of its key buildings, systems or infrastructure components could not function for a long period of time.
The Company's IS function has invested in developing its Data Centres, and has been successfully certified to ISO/IEC 27001:2005 for the provision of systems, information and hosting services.
The Company has established a Group Security and Business Continuity Committee to oversee the security aspects of the Group's information systems. This covers data integrity and protection, defence against external threats (including cyber risks) and disaster recovery.
The Group seeks to protect itself against the consequences of a major incident by implementing a series of back up and safety measures.
The Group has property and business interruption insurance cover.
People (Operational Risk)
RM's business depends on highly skilled employees. Failing to recruit and retain such employees could impact operationally on RM's ability to deliver contractual commitments.
The Company seeks to be an attractive employer and regularly monitors the engagement of its employees. The Company has talent management and career planning programmes.
Integration Risk
An inability to deliver, or a significant delay in implementation of, the synergies planned in relation to the acquisition of The Consortium and/or the loss of customers as a result of related disruption.
The Company has established a formal internal steering committee to oversee the integration of The Consortium. In addition, the Company retained Grant Thornton to provide external expertise in relation to such matters.
Integration risks are proactively managed and a number of mechanisms are in place to monitor the ongoing impact of the various activities, including staff consultations and satisfaction surveys and ongoing customer feedback.
Financial reports are generated each month to ensure that spend on integration activities and resulting expected benefits remain within budget.
The Board is kept appraised of the current status of the integration work on a regular and ongoing basis.
Innovation (Strategic Risk)
The IT market and elements of the education resources market are subject to rapid, and often unpredictable, change. As a result of inappropriate technology and product choices, the Group's products and services might become unattractive to its customer base.
The Group's continued success depends on developing and/or sourcing a stream
of innovative and effective products for
the education market and marketing these effectively to customers.
The Company actively monitors technology and market developments and invests to keep its existing products, services and sales methods up-to-date, as well as seeking out new opportunities and initiatives.
The Group works with teachers and educators to understand opportunities and requirements.
Dependence on key contracts (Strategic Risk)
The performance of the RM Education and RM Results Divisions are dependent on the winning and extension of long-term contracts with government,
local authorities, examination boards and commercial customers.
The Company invests in maintaining a high level of technical expertise and on building effective working relationships with its customers. The Company has in place a range of customer satisfaction programmes, which include management processes designed to address the causes of customers' dissatisfaction.
Pensions (Financial Risk)
The Group operates two defined benefit pension schemes in the UK (the "RM Education Scheme" and the "CARE Scheme" respectively) and participates in a third defined benefit pension scheme (the "Platinum Scheme").
Scheme deficits can adversely impact the net assets position of the trading subsidiaries RM Education Ltd and The Consortium for Purchasing and Distribution Ltd.
The RM Education Scheme was closed to new entrants in 2003 and closed to future accrual of benefits in 2012.
The CARE Scheme was closed to new entrants in 2006 and closed to future accrual of benefits in 2011.
The Company evaluates risk mitigation proposals with the trustees of these respective Schemes.
The Platinum Scheme is a multi-employer scheme over which the Company has no direct control. However, due to the small number of the Company's employees who are in this Scheme, the risk to the Company from this Scheme is limited.
Dividends (Financial Risk)
The Company's ability to pay dividends to shareholders depends on having sufficient distributable reserves in the holding company, RM plc. The Group is reliant on continued dividend distribution from subsidiaries and ensuring no significant impairment of RM plc's carrying assets.
The Company monitors the level of distributable reserves in RM plc and subsidiary companies and considers their ability to make dividend payments, via the holding company, to the shareholders.

David Brooks

Chief Executive Officer

5 February 2018

Directors' responsibilities statement

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 30 November 2017. Certain parts are not included within this announcement.

Each of the Directors, whose names and functions are listed at the front of the Annual Report, confirm that, to the best of their knowledge:

 the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group taken as a whole; and

 the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.

The responsibility statement was approved by the Board of Directors on 5 February 2018.

Greg Davidson

Company Secretary

5 February 2018

CONSOLIDATED INCOME STATEMENT
for the year ended 30 November 2017
Year ended 30 November 2017
Year ended 30 November 2016
Adjusted
Adjustments
Total
Adjusted
Adjustments
Total
Note
000
000
000
000
000
000
Revenue
2
185,863
-
185,863
167,615
-
167,615
Cost of sales
(112,857)
-
(112,857)
(100,365)
-
(100,365)
Gross profit
73,006
-
73,006
67,250
-
67,250
Operating expenses
(50,908)
(5,904)
(56,812)
(48,421)
(2,907)
(51,328)
Profit from operations
2
22,098
(5,904)
16,194
18,829
(2,907)
15,922
Investment income
3
365
-
365
279
-
279
Finance costs
4
(1,920)
(45)
(1,965)
(1,012)
(74)
(1,086)
Profit before tax
20,543
(5,949)
14,594
18,096
(2,981)
15,115
Tax
5
(2,594)
851
(1,743)
(3,941)
472
(3,469)
Profit for the year
17,949
(5,098)
12,851
14,155
(2,509)
11,646
Earnings per ordinary share
- basic
6
22.0p
15.8p
17.4p
14.4p
- diluted
6
21.9p
15.7p
17.4p
14.4p
Paid and proposed dividends per share
7
- interim
1.65p
1.50p
- final
4.95p
4.50p
Adjustments to results have been presented to give a better guide to business performance (see note 2).
All amounts were derived from continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 November 2017
Year ended
30 November 2017
Year ended
30 November 2016
Note
000
000
Profit for the year
12,851
11,646
Items that will not be reclassified subsequently to profit or loss
Defined Benefit Pension Scheme remeasurements
12
17,960
(23,555)
Tax on items that will not be reclassified subsequently to profit or loss
5
(3,123)
3,970
Items that are or may be reclassified subsequently to profit or loss
Fair value (loss)/gain on hedged instruments
(1,306)
515
Exchange (loss)/gain on translation of overseas operations
(36)
261
Tax on items that are or may be reclassified subsequently to profit or loss
5
(80)
32
Other comprehensive income/(expense)
13,415
(18,777)
Total comprehensive income/(expense) for the year attributable to equity holders
26,266
(7,131)
CONSOLIDATED BALANCE SHEET
At 30 November 2017
At 30 November 2016
Note
000
000
Non-current assets
Goodwill
45,164
14,067
Intangible assets
20,377
704
Property, plant and equipment
10,369
6,219
Defined Benefit Pension Scheme surplus
12
495
-
Other receivables
8
1,144
1,153
Deferred tax assets
5
6,484
8,793
84,033
30,936
Current assets
Inventories
19,413
10,689
Trade and other receivables
8
29,147
24,403
Cash and short-term deposits
1,797
39,987
50,357
75,079
Total assets
134,390
106,015
Current liabilities
Trade and other payables
9
(57,636)
(54,521)
Tax liabilities
(632)
(1,259)
Provisions
10
(3,436)
(3,536)
Overdraft
(2,028)
-
(63,732)
(59,316)
Net current (liabilities)/assets
(13,375)
15,763
Non-current liabilities
Other payables
9
(852)
(971)
Provisions
10
(3,019)
(3,157)
Deferred tax liability
5
(2,993)
-
Defined Benefit Pension Scheme obligation
12
(20,731)
(34,775)
Loan
14
(13,188)
-
(40,783)
(38,903)
Total liabilities
(104,515)
(98,219)
Net assets
29,875
7,796
Equity attributable to shareholders
Share capital
11
1,890
1,890
Share premium account
27,035
27,035
Own shares
(1,406)
(1,987)
Capital redemption reserve
94
94
Hedging reserve
(427)
879
Translation reserve
(159)
(123)
Retained earnings - (deficit)
2,848
(19,992)
Total equity
29,875
7,796


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 November 2017
Share capital
Share premium
Own shares
Capital redemption reserve
Hedging reserve
Translation reserve
Retained earnings
Total
Note
000
000
000
000
000
000
000
000
At 1 December 2015
1,890
27,035
(2,510)
94
364
(384)
(7,342)
19,147
Profit for the year
-
-
-
-
-
-
11,646
11,646
Other comprehensive (expense)/income
-
-
-
-
515
261
(19,553)
(18,777)
Total comprehensive (expense)/income
-
-
-
-
515
261
(7,907)
(7,131)
Transactions with owners of the Company
Share-based payment awards exercised
-
-
840
-
-
-
(1,450)
(610)
Purchase of own shares
-
-
(317)
-
-
-
-
(317)
Share-based payment fair value charges
-
-
-
-
-
-
1,006
1,006
Ordinary dividends paid
7
-
-
-
-
-
-
(4,299)
(4,299)
At 30 November 2016
1,890
27,035
(1,987)
94
879
(123)
(19,992)
7,796
Profit for the year
-
-
-
-
-
-
12,851
12,851
Other comprehensive (expense)/income
-
-
-
-
(1,306)
(36)
14,757
13,415
Total comprehensive (expense)/income
-
-
-
-
(1,306)
(36)
27,608
26,266
Transactions with owners of the Company
Share-based payment awards exercised
-
-
581
-
-
-
(581)
-
Share-based payment fair value charges
-
-
-
-
-
-
821
821
Ordinary dividends paid
7
-
-
-
-
-
-
(5,008)
(5,008)
At 30 November 2017
1,890
27,035
(1,406)
94
(427)
(159)
2,848
29,875

CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 November 2017
Year ended
30 November 2017
Year ended
30 November 2016
Note
000
000
Profit before tax
14,594
15,115
Investment income
3
(365)
(279)
Finance costs
4
1,965
1,086
Profit from operations
16,194
15,922
Adjustments for:
Acquisition related costs
2
2,643
525
Impairment of intangible assets
33
77
Amortisation of intangible assets
1,107
247
Depreciation and impairment of property, plant and equipment
2,289
2,223
Gain on sale of operations
-
(135)
Loss on disposal of other intangible assets
21
-
Loss/(gain) on disposal of property, plant and equipment
135
(5)
(Gain)/loss on foreign exchange derivatives
(1,306)
684
Share-based payment charge
821
1,006
Increase in provisions
1,997
2,557
Defined Benefit Pension Scheme administration cost
12
552
845
Operating cash flows before movements in working capital
24,486
23,946
(Decrease)/increase in inventories
(27)
173
Decrease in receivables
5,443
1,056
Decrease in trade and other payables
(7,129)
(10,863)
Utilisation of onerous lease and dilapidations provisions
10
(308)
(345)
Utilisation of employee-related restructuring provisions
10
(1,697)
(184)
Utilisation of other provisions
10
(236)
(396)
Cash generated from operations
20,532
13,387
Defined benefit pension scheme cash contributions
12
(4,187)
(11,984)
Tax paid
(2,019)
(3,567)
Income on sale of finance lease debt
9
6
Net cash inflow from operating activities
14,335
(2,158)
Investing activities
Interest received
307
255
Repayment of loans by third parties
16
16
Acquisition net of cash acquired
13
(58,407)
-
Acquisition related costs
(2,834)
-
Proceeds from sale of operations
-
759
Proceeds on disposal of property, plant and equipment
12
43
Purchases of property, plant and equipment
(1,150)
(1,333)
Purchases of other intangible assets
(176)
(456)
Amounts transferred from short term deposits
3,014
2,986
Net cash generated by/(used in) investing activities
(59,218)
2,270
Financing activities
Dividends paid
7
(5,008)
(4,299)
Drawdown of borrowings
14
14,000
-
Borrowing facilities arrangement and commitment fees
(1,098)
(422)
Interest paid
(224)
-
Purchase of own shares
-
(317)
Satisfaction of share-based payment awards
-
(610)
Net cash used in financing activities
7,670
(5,648)
Net (decrease)/increase in cash and cash equivalents
(37,213)
(5,536)
Cash and cash equivalents at the beginning of the year
36,973
42,320
Effect of foreign exchange rate changes
9
189
Cash and cash equivalents at the end of the year
(231)
36,973

1. Preliminary announcement

The preliminary results for the year ended 30 November 2017 have been prepared in accordance with those International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted for use in the EU and therefore comply with Article 4 of the EU IAS Regulation applied in accordance with the provisions of the Companies Act 2006. However, this announcement does not contain sufficient information to comply with IFRS. The Group expects to publish a full Strategic Report, Directors' Report and financial statements which will be delivered before the Company's annual general meeting on 21 March 2018. The full Strategic Report and Directors' Report and financial statements will be published on the Group's website at www.rmplc.com.

The financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for the year ended 30 November 2017. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's annual general meeting. The auditor's reports on both the 2017 and 2016 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. This Preliminary announcement was approved by the Board of Directors on 5 February 2018.

Consolidated Income Statement presentation

The Directors assess the performance of the Group using an adjusted operating profit and profit before tax. The Directors use this measurement basis as it excludes the effect of transactions that could distort the understanding of the Group's performance for the year and comparability between periods. This includes making certain adjustments for income and expense which are one-off in nature, or non-cash items and those with potential variability year on year which might mask underlying performance. Further details are provided in Note 2.

Basis of preparation

The financial statements have been prepared on the historical cost basis except for certain financial instruments, share-based payments and pension assets and liabilities which are measured at fair value. The preparation of financial statements, in conformity with generally accepted accounting principles, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of current events and actions, actual results ultimately may differ from those estimates.

Significant accounting policies

The accounting policies used for the preparation of this announcement have been applied consistently.

2. Operating segments

The Group's business is supplying products, services and solutions to the UK and international education markets. Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segmental performance is focussed on the nature of each type of activity.

The Group is structured into three operating divisions: RM Resources, RM Results and RM Education. The exited business in the year relates to SpaceKraft.

A full description of each division, together with comments on its performance and outlook, is given in the Strategic Report. Corporate Services consists of central business costs associated with being a listed company and non-specific pension costs.

This Segmental analysis shows the results and assets of these divisions. Revenue is that earned by the Group from third parties.

Net financing costs and tax are not allocated to segments as the funding, cash and tax management of the Group are activities carried out by the central treasury and tax functions.

Segmental results
RM
RM
RM
Corporate
Exited
Total
Year ended 30 November 2017
Resources
Results
Education
Services
Businesses
000
000
000
000
000
000
Revenue
UK
67,826
26,566
68,828
-
-
163,220
Europe
7,413
3,258
678
-
-
11,349
North America
1,618
-
231
-
-
1,849
Asia
1,226
204
691
-
-
2,121
Middle East
3,922
-
8
-
-
3,930
Rest of the world
1,627
1,590
177
-
-
3,394
83,632
31,618
70,613
-
-
185,863
Adjusted profit from operations
11,604
7,761
6,552
(3,819)
-
22,098
Investment income
365
Adjusted finance costs
(1,920)
Adjusted profit before tax
20,543
Adjustments (see note 2)
(5,949)
Profit before tax
14,594
RM
RM
RM
Corporate
Exited
Total
Year ended 30 November 2016
Resources
Results
Education
Services
Businesses
000
000
000
000
000
000
Revenue
UK
46,779
26,925
75,450
-
151
149,305
Europe
5,249
3,231
1,138
-
-
9,618
North America
1,723
-
232
-
-
1,955
Asia
981
117
50
-
-
1,148
Middle East
2,815
-
9
-
-
2,824
Rest of the world
1,288
1,307
170
-
-
2,765
58,835
31,580
77,049
-
151
167,615
Adjusted profit from operations
10,156
6,798
5,820
(3,926)
(19)
18,829
Investment income
279
Adjusted finance costs
(1,012)
Adjusted profit before tax
18,096
Adjustments (see note 2)
(2,981)
Profit before tax
15,115


Segmental assets
RM
RM
RM
Corporate
Exited
Resources
Results
Education
Services
Businesses
Total
000
000
000
000
000
000
At 30 November 2017
Segmental
103,935
6,324
15,627
205
-
126,091
Other
8,299
Total assets
134,390
RM
RM
RM
Corporate
Exited
Resources
Results
Education
Services
Businesses
Total
000
000
000
000
000
000
At 30 November 2016
Segmental
31,968
7,085
17,803
217
-
57,073
Other
48,942
Total assets
106,015

Adjustments to administrative expenses
Year ended
30 November 2017
Year ended
30 November 2016
000
000
Amortisation of acquisition-related intangible assets
503
8
Gain on sale of operations
-
(135)
Share-based payment charges
821
1,006
Net increase/(release) of provisions for onerous lease contracts
353
(90)
Acquisition related costs
2,643
525
Restructuring costs
1,584
1,593
5,904
2,907

Recurring items:

These are items which occur regularly but which management judge to have a distorting effect on the underlying results of the Group or are not regularly monitored for the purpose of determining business performance. These items include the amortisation of acquisition related intangible assets and share-based payment charges.

Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment.

Highlighted items:

These are items which are non-recurring and are identified by virtue of either their size or their nature. These items can include, but are not restricted to, impairment of held for sale assets and related transaction costs; changes in the provision for onerous lease contracts; the gain/loss on sale of operations and restructuring and acquisition costs. As these items are one-off or non-operational in nature, management considers that they would distort the Group's underlying business performance.

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 continued sub-letting of one of the Group's properties. For further details see Note 10.

During the year, the Group incurred professional advisor costs relating to the acquisition and integration of The Consortium, see Note 13 for further details. Restructuring costs were incurred during the year which also relate to the integration of The Consortium.

In the prior year, the restructuring of the Infrastructure part of the RM Education division was undertaken to move away from some of the lowest margin transactional elements such as network infrastructures, network installation and third-party hardware sales. This lead to a reduction of broadly 10% of the RM Education UK staff and a one-off exceptional charge of 1.6m.

3. Investment income
Year ended
30 November 2017
Year ended
30 November 2016
000
000
Bank interest
47
123
Income on sale of finance lease debt
168
46
Other finance income
150
110
365
279

4. Finance costs
Year ended
30 November 2017
Year ended
30 November 2016
Note
000
000
Borrowing facilities arrangement fees and commitment fees
524
421
Net finance costs on defined benefit pension scheme
12
1,049
498
Unwind of discount on long term contract provisions
49
37
Unwind of discount on onerous lease and dilapidations provisions
10
91
84
Interest on bank loans and overdrafts
229
-
Other finance costs
23
46
1,965
1,086

5. Tax
a) Analysis of tax charge in the Consolidated Income Statement
Year ended
30 November 2017
Year ended
30 November 2016
000
000
Current taxation
UK corporation tax
2,976
2,924
Adjustment in respect of prior years
(1,555)
302
Overseas tax
387
296
Total current tax charge
1,808
3,522
Deferred taxation
Temporary differences
(6)
173
Adjustment in respect of prior years
104
(237)
Overseas tax
(163)
11
Total deferred tax (credit)
(65)
(53)
Total Consolidated Income Statement tax charge
1,743
3,469
b) Analysis of tax charge/(credit) in the Consolidated Statement of Comprehensive Income
Year ended
30 November 2017
Year ended
30 November 2016
000
000
UK corporation tax
Defined benefit pension scheme
(428)
(1,241)
Share based payments
-
(142)
Deferred tax
Defined benefit pension scheme movements
3,481
(2,325)
Defined benefit pension scheme escrow
-
(749)
Share based payments
80
110
Deferred tax relating to the change in rate
70
345
Total Consolidated Statement of Comprehensive Income tax charge/(credit)
3,203
(4,002)

c) Reconciliation of Consolidated Income Statement tax charge
The tax charge in the Consolidated Income Statement reconciles to the effective rate applied by the Group as follows:
Year ended 30 November 2017
Year ended 30 November 2016
Adjusted
Adjustments Total
Adjusted
Adjustments Total
000
000
000
000
000
000
Profit on ordinary activities before tax
20,543
(5,949)
14,594
18,096
(2,981)
15,115
Tax at 19.33% (2016: 20%) thereon:
3,971
(1,150)
2,821
3,619
(596)
3,023
Effects of:
- change in tax rate on carried forward
 deferred tax assets
-
-
-
65
-
65
- other expenses not deductible for tax
 purposes
211
321
532
110
-
110
- other temporary timing differences
(38)
(22)
(60)
-
151
151
- R&D tax credit
-
-
-
(10)
-
(10)
- effect of profits/losses in various overseas tax jurisdictions
(100)
-
(100)
81
-
81
- gain on sale of operations
-
-
-
-
(27)
(27)
- Prior period adjustments - UK
(280)
-
(280)
(28)
-
(28)
- Prior period adjustments - overseas
(1,170)
-
(1,170)
104
-
104
Tax charge in the Consolidated Income Statement
2,594
(851)
1,743
3,941
(472)
3,469


d) Deferred tax
The Group has recognised deferred tax assets as these are anticipated to be recoverable against profits in future periods. The major deferred tax assets and liabilities recognised by the Group and movements thereon are as follows:
Group
Accelerated tax depreciation
Defined
benefit pension scheme obligation
Share-based payments
Short-term timing differences
Acquisition related intangible assets
Total
000
000
000
000
000
000
At 1 December 2015
734
3,932
423
1,033
(1)
6,121
Credit/(charge) to income
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
the year
Weighted average number of shares
Pence per share
Profit for
the year
Weighted average number of shares
Pence per share
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
30 November 2017
Year ended
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
30 November 2017
Year ended
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
30 November 2017
Year ended
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
30 November 2017
Year ended
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 signicantly 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 diversied 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 benet from other signicant 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 synergies and values associated with being part of the enlarged RM resources proposition. Stock has been valued in line with group policy taking into account the recoverability and obsolescence. The properties have been restated to fair market value. Trade and other receivables and payables were all reviewed and are in line with group policy.
Acquisition related costs
The group incurred acquisition related costs of 3.2m related to advisor fees, banking arrangements and stamp duty. These costs have been included in the administrative expenses in the group's consolidation statement of comprehensive income. Costs relating to debt raising have been capitalised and amortised over the life of the loan, see note 14.
14. Borrowings
Group
2017
2016
000
000
Bank loan
(14,000)
-
Add capitalised fees
812
-
Borrowings
(13,188)
-
Bank and professional service fees relating to securing the loan have been capitalised and are amortised over the length of the loan.


15. Related party transactions

The Group encourages its Directors and employees to be Governors, Trustees or equivalent of educational establishments. The Group trades with these establishments in the normal course of its business.

Ipswich School

John Poulter, non-executive director of RM plc, is a director of Ipswich School. Sales made in the year total 12,296 (2016: 2,419) and at the year-end there is a balance of 2,929 (2016: 90) outstanding.

Spinfield School

Neil Martin, executive director, is a governor of Spinfield School. TTS sales made in the year total 456 (2016: nil) and at the year-end there is a nil balance (2016: nil). The Consortium sales made in the year total 669.80 (2016: nil) and at the year-end there is a balance of 83 (2016: nil) outstanding.

Grant Thornton LLP

Deena Mattar, non-executive director of RM plc, is a non-executive of the Partnership Oversight Board of Grant Thornton. Grant Thornton were chosen from a competitive tender conducted by the Company and Deena Mattar was not involved in that exercise. The Company has engaged Grant Thornton to provide advice in connection with certain activities. The following payments were made in the year - 650,000 of integration costs in TTS and The Consortium, 48,000 stock work in The Consortium and 25,000 accrual for IFRS15 work.

TES Global Ltd (formerly TSL Education Ltd)

Lord Andrew Adonis was a Member of Advisory Board until 21 April 2017. During the year, the Group purchased 2,695 from the TES Global Ltd.

This information is provided by RNS

The company news service from the London Stock Exchange

  END

FR EAPASESKPEFF