It appears that Martyn Ratcliffe is starting to make his mark on the RM business (see RM appoints Ratcliffe as Chairman). We expected Ratcliffe to be tough in his actions and he’s not disappointing so far. Today’s announcements include a clear out at Board level, a trading update and the results of the strategic review.
The Board is being slimmed down. It will now consist of a Chairman (Ratcliffe), CEO (Terry Sweeney), and Finance Director (Iain Macintosh) as well as four non-Executive Directors. Three non-executive directors remain unchanged (including Jo Connell, previously MD of Xansa). New to the Board is Lord Adonis brining twelve years of experience in Government as a Minister and Special Adviser. Importantly that experience included his roles as Parliamentary Under-Secretary of State for DCSF as well as Senior No. 10 adviser on education.
In summary, the strategic review is doing two key things – refocusing and restructuring the Group. There is a recognition that the education market remains tough (40% of primary and secondary schools expect to reduce their expenditure on IT in the year ahead). But, frankly, much of what is being proposed should have been done in the ‘good times’.
The business will now concentrate on what it is good at – where it has “in depth market knowledge, a strong reputation with customers and proven ability to deliver earnings and cash flow, together with appropriate scale”. That will mean disposing of businesses that currently make up c9% of revenues. Those include international businesses (in the USA and Australia), Easytrace (cashless catering systems), and DACTA (that of the Lego Education Europe JV fame). Tellingly none of these businesses ever operated under the RM brand, which probably says a lot about their lack of ‘fit’ with the core business. Indeed, we pointed out our concerns regarding ISIS at the time of purchase in the now-infamous article – RM, no – not the comfy chair!
What’s left is being restructured. And that restructuring looks like it’s actually uncovered quite a few problems in the underlying core business. This probably goes some way to explaining why the shares initially dropped a whopping 33% in early trading. The business will now be structured by Education Technology (40% of revenues year to date, covering UK IT infrastructure and 3rd party classroom equipment); Managed Services (18% of revenues, implementation, management and support of IT infrastructure); Education Resources (19% of revenues, TTS and SpaceKraft); and Education Software (14% of revenues, assessment software, data solutions, school management systems, learning platforms and Easiteach). This reorganisation rebalances the business and should make each ‘division’ far easier to manage. It is now clear, for example, that some businesses suit international expansion (via resellers) while others should stick firmly to the UK. It is also clear that those businesses stocking inventory need to get a far better handle on the management of that inventory. Divisional management now have far fewer places to hide.
It is also clear that RM needs to rapidly get a handle on each of these new divisions before the wind-down or end of certain contracts impacts the business from 2012 onwards. For example, its BSF revenues (in the Managed Services division) will peak in 2012; a major existing customer for its Learning Platform (Glow) has indicated it will not re-procure the existing service after the end of the current contract in September 2012; and the Data Solutions business is highly dependent on one customer which will renew during 2012.
We still have a question mark over some of the remaining Educational Resources business (namely TTS, which will retain its own brand). But it’s not time to dismiss Ratcliffe yet. It looks like he’s heading in the right direction and really starting to get RM back to his knitting. This could very well be a fantastic turn-around story. But it needs to happen fast.