Educational product and services supplier RM has had a challenging first half, both in its home UK market and in the US. Revenue declined by 15% to £133m and RM reported a pre-tax loss of £1.8m (after restructuring charges of £1.8m), compared to a £0.4m profit in the same period last year. Cash generation was strong though and RM increased its dividend by 6% to 1.47p as a result.
With the Building Schools for the Future (BSF) programme on ice, UK schools facing tighter budgets and uncertainty surrounding education policy, the UK market was always going to be a tough one for RM this year. Indeed, RM warned of a ‘modest’ revenue decline in 2011 at the start of the year, and in later trading updates (see HotViews archive) - at the time we felt ‘modest’ meant a decline of around 5% for the full year. Of course RM’s business is always very seasonal with the bulk of deployments over the summer so its interim results are never a particularly good indicator of full year performance. However, our sense is that at current course and speed 2011 will actually be worse than previously expected. Indeed, Terry Sweeney told us earlier this morning that the decline in Learning Technologies had been sharper than expected in the first half. But RM has acted quickly to cut costs and protect group profitability and still expects profits to be in line with market expectations this year.
Learning Technologies revenue dropped 19% to £87.3m in the first half. The decline in the division’s UK revenue was almost 14% but the US fared even worse, with revenue down 66% to £3.8m. In part the poor US performance is the result of the ending of a major contract, but the end of stimulus funds and tighter local budgets have also combined to create very tough market conditions for RM.
The Data and Assessment division also saw a 20% decline in revenue, to £8.2m, as projects were put on hold or cancelled in response to new UK education policies. But, as RM is keen to point out, the longer term outlook is stronger. The division signed four new long term contracts in H1 and committed revenues increased by 76% to £51m.
Education Resources was the best performing of RM’s three businesses, with 5% revenue growth to £37.5m (excluding the DACTA business which was transferred to its LEGO JV). Curriculum resources (TTS) was a particular bright spot within the division, growing revenues by 16% in the period.
Despite tough market conditions, RM is winning new business and extending its current relationships – forward committed revenues increased by 12% overall to £436m, under half of which is attributable to the erstwhile BSF programme. It's clear its expertise in education will continue to be sought by UK schools whatever the economic and political climate. But there is no getting away from the fact that RM's core markets are going to remain “subdued” in the short term, and 2011 is going to be a challenging year for the company.