As turnaround projects go, the task faced by RM’s new boss is almost up there with the Greek debt crisis.
The UK’s largest provider of software to the education sector sank to an annual pre-tax loss of £23.9m last year and is in desperate need of new revenue streams to fill the void left by its dying Building Schools for the Future (BSF) business.
Martyn Ratcliffe, who recently took the helm of the London-listed firm, is under no illusions about the job ahead and has been brutally honest about the tactical errors RM made in the past decade.
RM’s plain-speaking executive chairman - who has built a reputation as a turnaround specialist at previous employers including Dell - sees innovation as key to the firm’s rebound in fortunes.
In RM’s annual statement, Ratcliffe admitted the firm “had not appreciated the severity” of the slowdown in its market, which was masked by the success of its burgeoning BSF business in the late noughties.
“This situation was compounded by an unsuccessful international expansion programme and a lack of innovation in recent years, whereby few new growth opportunities in the core UK market were created to offset the foreseeable decline in BSF,” said Ratcliffe.
The bottom fell out of RM’s world in 2010 when the government pulled the plug on the £55bn BSF programme on which the firm had grown fat.
RM’s BSF revenue hit about £40m in the 14 months to 30 November and will peak this year before rapidly tapering off in 2013 and 2014.
But RM faces a wider problem in that revenue from its core Education Technology division is set to decline in its fiscal 2012 as budget reductions continue to pinch schools’ IT expenditure. According to the British Educational Suppliers Association (BESA), more than two thirds of secondary and more than half of primary schools are facing a cut in ICT investments this year.
Ratcliffe joined RM as chairman last April before stepping into an executive role in January after chief executive Rob Sirs vacated the position after just three months.
His time at the firm has been marked by cost cutting and restructuring, as RM looks to double down on its core UK education and technology business. Since September, RM has disposed of five non-core units, while its ISIS business and holding in Inclusive are still up for sale. Headcount fell 17 per cent during the 14-month period to 30 November, to 2,358, and the firm has reorganised itself into four operating units (see box on page 13).
But - like any turnaround specialist - Ratcliffe is acutely aware that RM must also invest and expand if it is to return to growth.
Ratcliffe offered few clues as to how RM might put its £24m cash pile to use, but acquisitions are a possibility.
“Looking to the future, there are already several innovative opportunities being evaluated which, in the medium term, provide potential to leverage the unique relationship between RM and its customer base,” he said.
Tola Sargeant, research director at analyst TechMarketView (pictured below), said the rapid decline in RM’s BSF business will mean there is “obviously a hole to fill”.
“Ratcliffe is generally known for turning things around and has already reduced costs and ensured RM is a stronger business with foundations to grow going forward,” she said.
“It is not going to be easy. Clearly, school budgets are under pressure and there will be less money to spend on technology. Structural changes such as schools becoming free schools or academies will also have implications for RM.”
Cloud is one area in which RM should invest because of the technology and cost-saving benefits SaaS and IaaS can bring to schools.
“There is an opportunity in cloud services,” she said. “In general, we see the education sector in the UK moving to cloud - particularly SaaS and IaaS - more quickly than other areas of government.
“It is partly about cutting costs. The pay-as-you-go model is quite appealing to schools and it means they can get rid of datacentres and internal IT staff. It also makes software easier to use because teachers and pupils can access applications from home.”
She added: “And at the same time, there are fewer barriers to the adoption of cloud than other areas of government as security is less of a concern. I would be surprised if it were not an area in which RM is looking to do something innovative.”
Andy Rutley, managing director of VAR NS Optimum, said education suppliers such as RM should be realigning their resources so that more staff interact directly with schools.
“Schools are now talking directly to suppliers of services and IT. It is becoming a leaner marketplace and schools now have a lot more say in what they are using,” he added.
But Rutley rejected suggestions that schools’ ICT spend will fall.
“The BSF scheme was unwieldy and expensive,” he said. “The efficiencies brought in by removing the unwieldy red tape mean actual spending in classrooms will remain the same. It is the consultancy and red tape above that will see reductions, and that is what is causing IT suppliers that were heavily geared to that mode of supply to restructure.”
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