RM is considering a dramatic return to the M&A game as it looks to regain its reputation for innovation.
The education provider's full-year statement underlined the extent of its recent deterioration as it sank to a pre-tax loss of £23.4m on revenue of £350.8m for the 14 months to 30 November 2011.
This compares with a pre-tax profit of £23.9m on sales of £380.1m for the 12 months to 30 September 2010.
Although the collapse of RM's core Building Schools for the Future (BSF) business has not helped its cause, executive chairman Martyn Ratcliffe was forthright in his assessment of his firm's own tactical shortcomings.
"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.
Under its restructuring drive, which is nearly complete, RM has disposed of five non-core units as it looks to double down on its core UK education business. 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.
Ratfcliffe stressed that RM's underlying business remains profitable and said it is now time to move back onto the front foot and innovate.
"Looking to the future, there are already several innovative new opportunities being evaluated which, in the medium term, provide potential to leverage the unique relationship between RM and its customer base," he said.
M&A opportunities in the UK will be considered, RM added in its accompanying results presentation.
Meet the new RM
The new-look, lean and mean RM divides itself into four operating divisions, each with a managing director and management team. About a fifth of the London-listed firm's headcount is now based in Trivandrum in India.
Supplying IT hardware, networks, internet services and related installation and support services to UK schools, Education Technology generated more than two fifths (44 per cent) of RM's sales last year.
For its last financial year, the division's continuing operations would have reported revenues of £125.7m on a pro forma basis.
The lion's share (62 per cent) of that was generated by hardware, comprising RM-branded and third-party computing products, together with maintenance, warranty and other third-party classroom equipment. About 10 per cent came from networking management software, which RM provides to 5,700 schools and a further 16 per cent from its service provider business.
Worryingly, RM said that it expects revenue from the division to decline in its fiscal 2012 as budget reductions continue to pinch schools' IT expenditure. It also has the lowest anticipated operating margins in the group. But RM sees the unit as strategically important as a "major sales channel" to UK schools.
RM's second-largest unit is also the one shrouded in the most uncertainty as it houses its legacy BSF business.
The unit would have generated revenues of £61.5m for RM last year on a pro forma basis – 22 per cent of the group total – with 65 per cent coming from BSF. It has about 30 contracts covering more than 750 schools and colleges, including both BSF and PFI [private finance initiative] contracts.
RM said BSF revenue will peak this year due to the contract rollout schedule but will decline rapidly to a mere trickle by 2015. Despite this, RM said BSF has enabled it to "establish an efficient infrastructure to be able to offer competitive outsourced
IT support services to schools, which could partially offset the reduction in future years as BSF revenues".
A £58m-revenue business last year, RM's Education Resources unit is dominated by TTS, a "very profitable" value-added distributor of curriculum products and materials. The division also houses RM-Spacekraft, which supplies products and installation services for the Special Educational Needs market. The division should be a big earner for RM in the coming weeks as its seasonality peaks in February and March.
The runt of RM's litter is no slouch, with its pro forma revenues of £38.5m last year generating 14 per cent of the group total.
The Education Software division comprises Assessment Services, Data Solutions, School Management Systems, Learning Platforms, Software Publishing.
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