RM braced for stormy times
Education specialist releases epic Stock Exchange announcement warning of job losses, restructuring, disposals and bonus cuts
RM is flogging parts of its business, slashing its workforce and undergoing a massive restructure as it faces the prospect of a lower-than-anticipated financial performance for its financial year ended 30 September.
The firm, which suffered heavy losses after the scrapping of the Building Schools for the Future (BSF) scheme, has been undertaking a strategic review of its group operations in the past few months, its latest trading update revealed.
The update said the board has considered "strategic alternatives" to determine the most attractive option to deliver value to shareholders. It anticipates the proposed changes will save the battling firm an estimated £35m in total.
“The Board has concluded that the business and its shareholders would be best served by a more focused, restructured Group,” the statement read. “With its dependence on the UK education sector and a significant share in this market, RM is subject to revenue, profit and cashflow seasonality. RM is, and will continue to be dependent on the UK macro-economic environment and particularly public sector spending on education.
“Recent reductions in UK public sector expenditure and the termination of the BSF programme have, and will continue to have, an impact on the Group in the next few years.”
Parts of the company up for sale include classroom furniture specialist ISIS, which it acquired in 2009; Easytrace – its access control and cashless catering systems; DACTA and a number of "minority shareholdings" which do not operate under the RM brand. It is also disposing of its loss-making Computrac business in the US.
According to the statement, the firm is following four key themes for its restructuring strategy: "Focus" – to concentrate on the core business of RM where it has “in-depth market knowledge”; "Integrate" – to integrate previously acquired companies more fully and share expertise more effectively; "Mitigate Seasonality" – the rebalance of profitability and cashflow to avoid relying on a few months of the year; and finally "De-risk International Strategy" – to change its international model to a distribution-based one with direct-sales activities “where appropriate”.
Currently the firm is structured into three operating divisions: Learning Technologies (72 per cent of Group revenue); Education Resources (22 per cent of Group revenue) and Assessment & Data (six per cent of Group revenue).
“This structure has resulted in a disproportionate dependence on the Learning Technologies division and does not reflect the different business activities or operating models within the divisions,” the statement said.
As a result of the review, the core business of the Group will be reorganised into four operating divisions: Education Technology – supplying IT infrastructure and third-party classroom equipment; Managed Services – comprising implementation, management and IT infrastructure support to schools and colleges, including the BSF contracts of which there are 32 outstanding; Education Resources – comprising its value-added distribution business TTS, and special educational needs installation service business SpaceKraft; and finally Education Software.
In further revelations, the firm said it needs to "engage in a consultation process with employees regarding proposed redundancies".
The plan is to reduce permanent headcount in the continuing operations by 13 per cent from the July 2011 level. When business disposals and previous actions are taken into account, the firm will have 23 per cent fewer staff than it did in September 2010.
“This significant restructuring means that redundancies are proposed at all levels of the organisation, although the Board is seeking to minimise the effects on frontline staff in order to maintain the high levels of service to the Group’s customers,” the statement said.
In addition, the executive directors have agreed to waive any bonus entitlements for the current year, and the chairman has agreed to waive all remuneration for the current financial year since his appointment in June.
Closing the mammoth Stock Exchange statement, the firm said: “As a major supplier to the UK education sector, RM is directly affected by the adverse public sector market environment and the Board anticipates a challenging period ahead for shareholders and employees.”