R
M
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
2
RM plc
Annual Report and Accounts
for the year ended 30 November 2012
Board of Directors
Martyn Ratcliffe
Chairman
David Brooks
Chief Operating Officer
Iain McIntosh
Chief Financial Officer
Lord Andrew Adonis
Independent Non-Executive Director
SEE PAGE 09 FOR FULL DIRECTOR BIOGRAPHIES
Jo Connell OBE, DL
Independent Non-Executive Director
Deena Mattar
Independent Non-Executive Director
Sir Mike Tomlinson
Independent Non-Executive Director
Contents
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
01 Chairman’s Statement
03 Chief Operating Officer’s Report and
Review of Operations
07 Group Financial Performance & Chief Financial
Officer’s Report
09 Directors’ Biographies
10 Report of the Directors
17 Corporate Governance Report
24 Audit Committee Report
26 Remuneration Report
107 Shareholder Information
38 Independent Auditor’s Report
40 Consolidated income statement
41 Consolidated statement of
comprehensive income
42 Consolidated balance sheet
43 Company balance sheet
44 Consolidated cash
flow statement
45 Consolidated net funds
45 Company cash flow statement
46 Consolidated statement
of changes in equity
47 Company statement of changes
in equity
48 Notes to the report and accounts
102 Proforma financial information
01
Chairman’s Statement
The past year has been one of significant change within RM and
the Board is pleased with the progress made, particularly in the
context of public sector budget constraints. Following the
restructuring in 2011, the increased focus on working capital
resulting in a very strong cash position at the year end and the
launch of some exciting new cloud-based products in 2012, RM
now has an excellent platform for the future as a leading provider
of products, solutions and services into the UK education market.
The strategic focus of the Group has now evolved from
operational restructuring to reinvigorating innovation to develop
new offerings and opportunities for the education sector. The
future strategy of the Group will be based around RM’s
unparalleled distribution channel into UK schools, which
comprises both a direct marketing and a direct sales capability.
Through these channels, RM launched three new initiatives in the
year:
Despite the difficult market conditions, revenue from retained
operations increased slightly to £285.9 million compared with
£283.7 million for the same period last year, with the benefit from
the Building Schools for the Future (‘BSF’) programme within the
Managed Services division and a strong performance from the
Education Resources division being offset by a decline in the
Education Technology and Education Software divisions. Profit
before tax was £8.4 million (2011: £(18.5) million loss for the 12
months to 30 November; £(23.4) million loss for the 14 months to
30 November) and adjusted profit before tax was £13.1 million
compared to £14.6 million in the same period last year, a
reduction in part due to the increased investment in new market
opportunities. Further details are set out in the Chief Operating
Officer’s Report and Review of Operations. Earnings per share
were 5.4 pence (2011: (21.2) pence loss for the 12 months to
November; (25.3) pence loss for the 14 months to November).
Furthermore, with a significant improvement in working capital
management, cash flow has been particularly strong with net
funds, including proceeds from disposals and after payment of an
additional £5 million to the pension fund, at 30 November 2012 of
£37.8 million (30 November 2011: £11.3 million). This cash balance
is the highest since 2003.
Following last year’s strategic review, the Board defined three
primary objectives for 2012:
zz
zz
zz
Completion of the restructuring programme, including the
disposals of non-core business operations;
Stabilisation following the restructuring programme; and
Innovation and development of new offerings.
Progress against the Board’s objectives has been very positive.
The disposal of loss-making and non-core business activities was
completed in the first half of the year, realising cash receipts of
£6.3 million since the strategic review in September 2011. The
redundancy programme achieved the necessary streamlining of
the Group, reducing headcount from 2,699 in September 2011
before the strategic review to 2,250 in November 2012.
zz
zz
zz
RM Unify: The market response to RM Unify, a cloud-based
platform for application and content distribution, has been
excellent, addressing the limitations of historic learning
platforms through an innovative solution which provides
schools with an increasing range of RM and third-party
applications through a flexible business model.
RM Books: The innovative RM e-books service has also been
well received and is increasingly being recognised as being
the first e-books solution that satisfies the very different
requirements of a school environment in managing e-book
deployment. While the catalyst for the major transition from
printed textbooks to e-books will probably be curriculum
changes, many of the leading education publishers are now
providing digital content to RM Books. RM Unify provides an
ideal distribution channel into schools for RM Books.
RM At Home: While a more modest activity to extend the RM
Education Resources channel distribution, the launch of RM
Schoolfinder, a free service which consolidates information
on schools for parents, and a number of associated key
partner web links, are increasing the traffic to RM At Home.
While costs associated with the development of these offerings
have been expensed, continued investment will be required in the
next few years to build on these and other new opportunities. In
the medium term, RM’s new offerings potentially provide exciting
channels for distribution of digital content and applications.
Building on the Group’s leading position in the UK education
sector, these new offerings reposition RM at the forefront of
providing innovative solutions to the education market.
In line with the dividend policy, subject to shareholder approval, a
final dividend of 2.25 pence per share is proposed, making a total
dividend (paid and proposed) of 3.00 pence per share (2011: 3.00
pence). The dividend will be payable on 15 May 2013 to
shareholders on the register on 19 April 2013.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 02
Chairman’s Statement continued
Board Changes
The Board announced the appointment of Mr David Brooks as
Chief Operating Officer and a Director of RM plc, with effect from
1 July 2012. Mr Brooks originally joined RM as a graduate and has
gained extensive experience in the education sector across many
parts of the RM Group. Having been successful in his role as Chief
Operating Officer, the Board has now decided that Mr Brooks
should be promoted to Chief Executive Officer with effect from
1 March 2013.
Mr Martyn Ratcliffe was appointed Non-Executive Chairman on
1 June 2011 and became Executive Chairman on 25 October 2011.
Since that time Mr Ratcliffe has led the successful restructuring of
the Group and the development and launch of the new initiatives.
Mr Ratcliffe has advised the Board that it is now an appropriate
time to effect a transition and that he will step down as Chairman
and a Director in the summer. A search for a new Non-Executive
Chairman will commence shortly.
After 9 years of service, Sir Bryan Carsberg retired from the Board
as a Non-Executive Director and Chair of the Audit Committee at
the 2012 annual general meeting. Ms Deena Mattar succeeded
him as Chair of the Audit Committee.
Summary
In summary, 2012 has been a challenging but very successful
year for RM with significant progress achieved. The actions taken
since the strategic review have stabilised the Group and have
established a stronger platform for the future, with some
innovative new offerings being launched. Furthermore, despite
the market environment and the internal organisational changes,
RM has maintained its unparalleled position in the UK education
market which is a reflection of the resilience and commitment of
the management and staff throughout the Group.
Looking forward, the Board anticipates that difficult market
conditions will continue for the foreseeable future. The decline in
the Group’s BSF contract profile in 2014 and beyond, together with
the anticipated decline in hardware/infrastructure revenue and
margin, is not insignificant. As a result, and as previously stated,
the Board anticipates Group revenue will continue to decline for
some period. However, in the medium term, the investment in
new offerings provides the potential to leverage the unique
relationship between RM and its customer base, in higher value
sectors of the education market. Such creativity and innovation,
based on a more robust foundation and a leading market
position, offers an exciting opportunity in the future as RM
transitions to the digital education era.
Sir Mike Tomlinson has advised the Board that, having been
a Non-Executive Director for 9 years, he will be retiring from
the Board and not therefore standing for re-election at the
forthcoming annual general meeting. Ms Jo Connell will succeed
him as Chair of the Remuneration Committee.
Martyn Ratcliffe
Chairman
21 February 2013
stock code: RM.RM plc Annual Report 2012BUSINESS REVIEW 03
Chief Operating Officer’s Report
and Review of Operations
For the year to November 2012, the Group has been structured in
four operating divisions, each with a Managing Director and
management team. Wherever appropriate, staff functions are
provided by a central service in order to benefit from economies
of scale and consistency across the Group. In addition
approximately 23% of the Group headcount is based in India,
providing support services and software development to the
operating divisions.
In order to aid year on year comparisons, the following divisional
commentary and figures draw on proforma comparative
information for the 12 month period to 30 November 2011 (‘2011’)
for the reorganised structure.
Education Technology
The Education Technology division is a UK-focused business
supplying IT hardware, networks, internet services and related
installation and support. As anticipated, market conditions in the
UK education sector, and in the wider hardware and
infrastructure market, remain difficult with continued funding
pressures on customers and technology price deflation. As a
result, overall revenue in the Education Technology division
declined by approximately 13% to £109.0 million (2011: £125.7
million) and adjusted operating profit margins fell from 6.6% to
3.3%. In terms of seasonality, the Education Technology hardware
and network businesses, together with related services, operate
at a broadly consistent level throughout three-quarters of the
year with a significant seasonal increase over the summer,
while the internet hosting business is relatively constant
throughout the year.
Reviewing the performance and trends in the three main
operating areas:
zz
Revenue derived from Hardware (RM-branded and third-
party computing products, together with maintenance and
warranty and other third-party classroom equipment)
accounted for approximately 61% of the division’s revenue.
RM-branded computer product shipments continue to
decline more rapidly than revenues from third-party products,
which due to the lower margin on third-party products has
an impact on overall gross margins. Demand for hardware
products and underlying gross margins are anticipated to
remain under pressure in the year ahead.
zz Network Solutions and the Internet Hosting Group contributed
approximately 27% of the Education Technology division
revenue. Network Solutions, which provides network
management software to over 4,000 schools saw its
revenues decline year on year. Underlying gross margins in
this business are anticipated to experience continued
pressure with declines in the contributions from BSF projects.
The Internet Hosting Group, maintained its market position as
a service provider to approximately 7,000 schools.
The remaining revenue of the Education Technology division
is derived from associated installation and support services.
zz
In the Academy and Free Schools market RM has won c. 20-25%
of the tendered business by value. Despite low margin levels
associated with UK hardware/infrastructure businesses, the
division has a strategic importance to the RM Group, providing
the major direct sales channel to UK schools and supplying
products and services to the Managed Services division. The
increased focus on working capital has resulted in gross inventory
levels being reduced by 25% year on year and debtor collection
performance improving. Furthermore, the division has started a
process of significant rationalisation of the previously diverse
range of product offerings and a review of margin leakage and
pricing methodologies, in order to mitigate the effects of the
challenging market environment.
In terms of future market trends, the increasing interest in schools
towards adoption of “Bring Your Own Device” (“BYOD”) policies
offers RM an opportunity both to supply hardware technology and
network/infrastructure solutions to facilitate this complex
transition for the Group’s customers. At the same time, as schools
adopt BYOD, the demand for hardware purchased by schools
themselves may decline. The BYOD evolution is being monitored
closely by the Board.
Managed Services
The Managed Services division comprises implementation,
management and support of IT infrastructure within schools and
colleges, including the Group’s BSF contracts. Revenues in 2012
increased by approximately 32% to £81.4 million (2011: £61.5
million) as the BSF programme reached its peak. While 2013 will
benefit from some delays in 2012, due to the contract roll-out
schedule it is anticipated that BSF revenue will decline significantly
thereafter with only modest revenue from BSF implementations
after 2014.
The Managed Services division is subject to long-term project
accounting and revenues and profits were negatively impacted by
delays to builders completing BSF projects resulting in invoicing
milestones being deferred to future periods. In addition, the
decision to migrate away from the current learning platform
offerings, described in more detail under Education Software, has
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 04
Chief Operating Officer’s Report
and Review of Operations continued
led to increased costs forecast to be incurred in meeting existing
obligations under long-term contracts with these legacy costs
being recovered over a declining customer user base. This has
resulted in adjusted operating margins in the year reducing to
3.5% from 10.0%, although some margin recovery is anticipated
in the year ahead.
Education Resources
Following the restructuring of the Group and the disposal
programme, the Education Resources division now comprises just
two operating businesses: TTS and RM-SpaceKraft. The division
had an excellent year despite the difficult market backdrop with
revenue growing by approximately 3% to £59.8 million (2011:
£58.0 million) in a declining UK market. TTS accounted for
approximately 93% of the divisional total revenue and delivered all
of the revenue growth. Adjusted operating margins increased
strongly to 14.9% compared with 9.3% in the prior year, reflecting
the benefits of new systems implemented in TTS last year, reduced
overheads and the continuous operational improvement
programme. Working capital utilisation in TTS has been a major
focus during the year, with inventory levels at 30 November 2012,
approximately 20% lower compared with the prior year, while
increasing revenue and improving on-time delivery performance.
TTS is the Group’s primary direct marketing channel, providing a
highly successful and very profitable catalogue-based business
model. During the period, TTS continued to extend its marketing
reach outside of its core UK primary and early years segments
with new initiatives including the launch of a new Key Stage 3
catalogue aimed at the secondary school market. TTS export
revenues also grew significantly this year, albeit from a low base
and this success was recognised by the company receiving a
Queen’s Award for International Trade. In addition, a new ‘RM At
Home’ website was launched in June 2012, initially offering a
focused range of products directly to parents. Furthermore, the RM
School Finder, which was launched as a free online service in 2012
to help parents evaluate prospective schools for their children,
provides enhanced traffic to the RM At Home website. While
revenues from this new channel have been immaterial to date,
collaboration with other websites, particularly related to property
relocation, have progressively increased traffic to RM School
Finder and subsequently to the RM At Home website
In summary, TTS is a well-managed, growing business with good
margins and significantly improved return on capital following the
actions taken on inventory and supply chain management. The
biggest risk to the business relates to one significant customer
programme with an annually renewed contract which represents
over 10% of divisional revenues. To mitigate this risk, build on the
success of the TTS platform and continue to increase its market
share, the Group will continue to invest in expanding the TTS
offerings and broaden the sectors serviced.
RM-SpaceKraft is a modest business, supplying products and
installation services for the Special Educational Needs market.
Revenues declined in the year and with budgetary reductions
in this area, the Board anticipates this market sector to
remain challenging.
Education Software
The Education Software division comprises Assessment Services,
Data Solutions, School Management Systems (‘SMS’), Learning
platforms, Software Publishing (including Easiteach and RM
Easimaths) and other software (excluding network-related
software which is within the Education Technology division).
Distribution for the Education Software division’s offerings,
excluding Assessment Services and Data Solutions which have a
separate direct sales capability, is primarily through the Group’s
other divisional sales operations.
The market for education software has been changing rapidly in
recent years and RM had not previously adapted its business
model to reflect the market evolution. Recognising this change, in
2012 the Board has invested in RM Unify and RM Books, which
have been well received by customers and content providers and
these new, innovative solutions will provide a platform for the
future. As anticipated, these new offerings had no material
contribution in 2012 and, relative to the Group revenue, are not
anticipated to be significant in 2013. As a result, overall revenues
in the Education Software division declined by approximately 7%
to £35.7 million (2011: £38.5 million) and adjusted operating
margins reduced to 3.8% compared with 8.4% last year, when the
division also benefited from enhanced margins realised at the
end of a long-term contract.
The largest contributor of revenue to the division (approximately
44% of the division’s revenues) is the Assessment Services
business, which did grow in the year due to increasing volumes
from existing customers and some new customer wins. This
business provides e-marking and e-testing solutions and services
for examining boards where RM has established a strong position
in the UK as the leading independent service provider (i.e. not
under the same ownership of an examining board) and is now
building an international presence to offset the limited future
stock code: RM.RM plc Annual Report 2012BUSINESS REVIEW 05
growth in the UK market. A further new international pilot contract
was signed in Slovenia and, since the year end, a further new
pilot project has also been secured in Singapore, although it is
anticipated that international opportunities will evolve more as
a software rather than service-oriented activity. In summary,
the Group’s strong, independent market position provides a
continuing opportunity for the future.
Data Solutions provides database-oriented consultancy solutions
and services to public sector organisations primarily, but not
exclusively, in the UK education sector. The business is highly
dependent on one public sector customer and the renewal of this
contract, for which a tender is in progress, is critical to the future
of this activity. However, a two year extension to December 2014
for the current contract has been signed since the year end and
investment is being made to enable RM to submit an attractive,
competitive response to the new tender.
Revenue from School Management Systems was flat following
customer losses in 2011 while Learning Software and other
business declined by approximately 34% reflecting the significant
changes in this market. The next generation of the division’s
maths product, RM Easimaths, was launched in January 2012 as
a hosted service for schools and will in future be distributed via
RM Unify. However, the remaining portfolio of curriculum software
products, which has been declining for some years, has been
reviewed and a number of product lines are being phased out.
The UK market for learning platform software is changing rapidly
in the current budgetary environment and there is an accelerating
trend away from adoption of large, integrated learning platform
applications which are expensive to deploy and maintain. As a
result, this product line experienced further revenue decline in the
period, a trend that is anticipated to continue, although a contract
extension was awarded to RM by the Scottish Government to
extend the Glow platform until December 2013. However, schools
and other educational establishments do still require the benefits
of a single secure point of access to their systems and resources
and RM Unify, a new product launched by RM this year, provides
an exciting opportunity for a service to enable technology
solutions to replace learning platforms. RM Unify incorporates a
cloud-based ‘launchpad’ and ‘application store’ enabling schools
to procure a variety of applications in a secure, single sign on
environment. As part of the Glow extension, RM Unify will be
made available to schools in Scotland and the roll-out is
progressing well with positive user feedback. In addition, RM
Unify has been chosen by a number of existing Managed
Services customers as the replacement platform for their learning
platform and is now included in the majority of bids that the
Education Technology and Managed Services divisions submit.
Customer response to RM Unify has been excellent and RM’s
strategy is to progressively migrate learning platform customers
to the new RM Unify platform and not to continue to sell the
existing learning platform solutions. However, there are
obligations under various long-term contracts to continue to
provide current solutions for several years. As noted in the report
on the Managed Services division, these contracts are now
forecast to bear nearly all the costs related to supporting learning
platforms, negatively impacting on their lifetime profitability.
In September 2012, RM launched another new initiative, RM
Books, a cloud-based channel for accessing electronic textbooks
for schools. RM Books provides the first e-book solution designed
for UK schools. While e-book adoption in schools is currently
limited, the increasing adoption of e-books in the wider market
provides the Board with confidence in the future of RM Books.
With the many benefits to be derived from digital textbooks,
demand in schools for this exciting technology change is
anticipated to accelerate in the future, particularly when
curriculum changes take effect and schools need to invest in new
textbooks. RM Books, which is also a standard offering on RM
Unify, is being positioned to benefit from this market evolution. As
part of the service offering, RM is providing all schools that
register for RM Books, access to several hundred free e-books,
including English literature classics. In parallel, distribution
agreements with a significant number of UK textbook publishers
have now been established including Cambridge University Press,
Encyclopaedia Britannica, Harper Collins, Hodder Education and
Oxford University Press. RM continues to invest in enhancing and
expanding the platform to maximise the potential opportunity.
RM Unify and RM Books are exciting new innovations for RM,
where medium-term success will be dependent on near-term
investment to maximise adoption of these offerings and extend
the range of digital content provided. These two initiatives are
also compatible with the increasing trend towards schools’
adoption of BYOD. The costs to date of developing RM Unify and
RM Books have been expensed in the period and the Board
anticipate continuing to invest in these new business
opportunities over the next few years.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 06
Chief Operating Officer’s Report
and Review of Operations continued
RM India
The Group’s operation in Trivandrum, India, RM Education
Solutions India (‘RMESI’), which is owned by RM, was established
in 2003. At 30 November 2012, RMESI accounted for
approximately 23% of Group headcount (2011: 20%). The Board
considers that this proportion is broadly the right balance
between onshore and offshore resources.
RMESI provides services solely to RM Group companies.
Approximately 46% of RMESI employees are engaged in software
development for the operating divisions, and 28% in customer
and operational support with the remainder providing back office
shared service support (e.g. customer order entry, IT, finance and
HR) and administration.
Organisation Evolution
The organisational structure introduced at the start of 2012
has enabled the Board to better evaluate the profitability and
potential of each of the businesses and thereby to define
appropriate future strategies. Having completed this process,
in order to leverage the Group’s distribution channel and
associated infrastructure and deliver more integrated offerings
across Education Technology, Managed Services and Education
Software (excluding the Assessment & Data elements), from
1 December 2012 the sales and product marketing functions of
these divisions have now been merged into a single Commercial
Education Technology group supported by an integrated
Operations Education Technology group. This structural evolution
not only leverages RM’s direct sales channel to schools but also
provides further opportunities for operational efficiency and the
benefits of increased scale. The Assessment and Data Services
business and Education Resources division are not affected by
these changes.
David Brooks
Chief Operating Officer
21 February 2013
stock code: RM.RM plc Annual Report 2012BUSINESS REVIEW 07
Group Financial Performance &
Chief Financial Officer’s Report
In 2011, RM changed its financial year end from 30 September to
30 November. As a result, the comparative financial statements
are for the 14 month period to 30 November 2011. However to aid
year-on-year comparisons, proforma information for the 12
months to 30 November 2011 is also provided.
To provide a better guide to underlying business performance,
the income statement amortisation charges relating to
acquisition related intangible assets, share-based payment
charges and other items of a non-operational nature have been
disclosed in an adjustments column in the income statement to
give ‘Adjusted’ results.
Group revenues were £288.7 million (2011: £350.8 million for the
14 month period and £310.1 million for the 12 month period, both
including exited business activities). As anticipated, this
represented a 6.9% decline on proforma total revenues of £310.1
million for the 12 months to 30 November 2011. Excluding exited
operations, despite the difficult market conditions, revenues
increased by 0.8% to £285.9 million from £283.7 million for the
proforma 12 months to 30 November 2011.
The Group incurred an unadjusted statutory profit before tax
of £8.4 million (2011: loss of £(23.4) million for the 14 months to
30 November 2011 and £(18.5) million for the 12 months to
30 November 2011). Significant exceptional items included
£5.7 million adjustments relating to the impairment of the value
of goodwill and intangible assets and loss on the sale resulting
from completion of the sale of operations announced in last
year’s strategic review. In addition, the Group received a £0.7
million settlement from a legal claim brought against a supplier
with respect to allegations of historic price fixing and a net
exceptional credit of £1.3 million principally due to closing the
pension scheme to future accrual of benefits. Adjusted operating
profit was £13.6 million compared to £14.1 million proforma profit
for the 12 months to 30 November 2011. Adjusted operating losses
from exited businesses fell from £5.5 million for the proforma 12
months to 30 November 2011 to £0.5 million in the year to 30
November 2012. Adjusted operating profit margins from retained
businesses declined from 6.9% for the year to 30 November 2011
to 4.9%, including investments and associated costs.
The total tax charge within the Income Statement for the year was
£3.5 million (14 months to 30 November 2011: credit of £0.3
million). The Group’s tax charge for the period, measured as a
percentage of profit/loss before tax, was 41% (2011: 1% tax credit).
This increase is principally due to many of the adjustments to
operating profit not being tax deductable. Excluding the impact
of such adjustments, the tax charge on adjusted profit before tax
was at an effective rate of 24% compared to 32% for the proforma
12 months to 30 November 2011. Statutory basic and diluted
earnings per share were 5.4 pence (2011: loss per share of (25.3)
pence). The total dividend paid and proposed has been
maintained at 3.00 pence per share (2011: 3.00 pence). This
comprises an already paid interim dividend of 0.75 pence per
share, and, subject to shareholder approval, a proposed final
dividend of 2.25 pence per share. The estimated total cost of
dividends paid and proposed for 2012 is £2.8 million
(2011: £2.7 million).
Average Group headcount for the year was 2,305 (2011: 2,799). At
30 November 2012 headcount was 2,250 a 5% reduction from
2,358 on 30 November 2011 and a 17% reduction from 2,699 on
30 September 2011. The November 2012 headcount comprises
1,963 permanent and 287 temporary or contract staff, of which
1,722 were located in the UK, 528 in India and elsewhere.
Despite challenging trading conditions, cash generation was
particularly strong with cash generated by operations for the year
of £33.5 million (2011: £24.8 million for the 14 month period and
£39.5 million for the 12 month period). In addition, proceeds for
businesses sold in the period totalled £2.5 million (2011: £3.8
million) and the Group made an additional one off payment of
£5.0 million into the defined benefit pension scheme (see below).
As a result, cash and cash equivalents increased to £37.8 million
(30 November 2011: £24.5 million) with net funds of £37.8 million,
(30 November 2011: £11.3 million net funds less deferred
consideration). This is the second highest net funds position at
year end in RM’s history, surpassed only by the position at
September 2003. Seasonal cash flows reach a low point over the
peak summer period and the low point in net funds during the
period was £6.5 million (2011: maximum net debt £(22.4) million).
Consequently, the Group’s £30 million unsecured revolving credit
facility, signed in January 2012 and £3 million annual overdraft
facility, both with Barclays Bank, have not been utilised in the year,
despite the increase in pension deficit recovery payments set out
below. The £13 million drawn at 30 November 2011 of the former
committed £25 million HSBC acquisition facility was repaid in the
year. The committed Barclays facility has been extended until 27
March 2016. The principal financial covenants remain at 2.5 times
net debt/earnings before interest, taxation, depreciation and
amortisation (‘EBITDA’) and 4.0 times interest cover. The interest
rate over LIBOR is 2.75%, which can reduce to 2.5% from January
2013 whenever net debt/EBITDA falls below 0.5 times.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 08
Group Financial Performance &
Chief Financial Officer’s Report continued
To encourage management focus on capital efficiency, the Group
tracks its utilisation of Operating Net Assets. This measure
excludes the following items beyond the control of divisional
management: goodwill, acquisition related intangible assets,
investments, net funds, corporation taxes and retirement benefit
obligations relating to the defined benefit pension scheme. At 30
November 2012 there were Operating Net Liabilities of £16.2
million compared with Operating Net Assets of £5.2 million at 30
November 2011, representing a significant improvement in capital
efficiency. Applying a 10% pre tax cost of capital to Operating Net
Assets each month and deducting this capital charge from
adjusted operating profit allows a measure of Operating
Economic Profit to be calculated. This represents the value added
over and above the cost of employing the capital used to run the
business. Operating Economic Profit for the year increased 22%
from £11.1 million for the year to to 30 November 2011 to £13.5
million for the year to 30 November 2012. Specific elements of
improvement include inventory levels (excluding that held by
exited businesses) reducing by 21% year on year and trade
receivables reducing by 4%.
The RM defined benefit pension scheme was closed to new
entrants in 2003. Agreement was reached with the Trustees also
to close the scheme to future accrual of benefits from 31 October
2012. At 30 November 2012 the IAS 19 scheme deficit (pre tax)
was £20.4 million (2011: £21.2 million). The triennial valuation of
the scheme’s position at 31 May 2012 for statutory funding
purposes showed a scheme deficit of £53.5 million (31 May 2009:
£16.6 million). This significant increase in deficit was primarily due
to a deterioration in market assumptions, such as government gilt
yields, used to value the scheme’s liabilities. A deficit recovery
plan over 15 years has been agreed with the Trustees which
includes provision of a parent company guarantee to the recovery
plan, an initial payment of £5.0 million which was made in
October 2012 and annual deficit recovery payments of
£4.0 million for the year to 31 May 2013, and £3.6 million
subsequently. Total deficit recovery payments in excess of current
service cost for the year were £7.2 million (2011: £1.8 million for
the 14 month period and £1.6 million for the 12 month period).
Iain McIntosh
Chief Financial Officer
21 February 2013
stock code: RM.RM plc Annual Report 2012GOVERNANCE Directors’ Biographies
09
Martyn Ratcliffe – Chairman
(n)
Martyn Ratcliffe (51) was appointed Non-Executive Chairman of
RM plc on 1 June 2011 and Executive Chairman on 25 October
2011. He is also Chairman of the Nomination Committee of the
Board. Mr Ratcliffe has been Chairman of Microgen plc since 1998
and Chairman of Sagentia Group plc since April 2010. Mr Ratcliffe
has advised the Board that he will be stepping down in the
summer.
David Brooks – Chief Operating Officer
David Brooks (43) was appointed Chief Operating Officer and a
Director of RM plc on 1 July 2012. The Board has now decided that
Mr Brooks should be promoted to Chief Executive Officer with
effect from 1 March 2013. He originally joined RM as a graduate
and has gained extensive experience in the education sector
across many parts of the RM Group. Prior to becoming Chief
Operating Officer, he had been Managing Director of the
Education Software Division.
Iain McIntosh – Chief Financial Officer
Iain McIntosh FCA (50) joined RM on 30 November 2009 and
was appointed to the Board as a Director on 1 April 2010. Before
joining RM, he held equivalent positions in listed and private
equity backed IT and service companies, most recently as CFO of
FTSE 250 listed Axon Group plc. Mr McIntosh initially qualified as a
Chartered Accountant and then spent four years as a
Management Consultant with McKinsey & Co.
Lord Andrew Adonis – Independent Non-Executive Director
(a) (r) (n)
Lord Andrew Adonis (49) joined the Board on 1 October 2011. He
served 12 years in government as a Minister and special adviser,
including Secretary of State for Transport, Minister for Schools,
Head of the No.10 Policy Unit, and senior No. 10 adviser on
education, public services and constitutional reform. Before
joining government, he was Public Policy Editor of the Financial
Times. Lord Adonis is also a Non-Executive Director of Dods
(Group) PLC and a number of charitable organisations.
Jo Connell OBE, DL – Senior Independent Non-Executive Director
(a) (r) (n)
Jo Connell (65) was appointed to the Board as a Non-Executive
Director in December 2007 and is to be appointed Chair of the
Remuneration Committee after the next annual general meeting.
Until 2003, she was Managing Director of Xansa plc, the
outsourcing and technology company, having served on the
Board since 1991. Ms Connell is Chair of Governors and Pro-
Chancellor of the University of Hertfordshire, Chairman of Ofcom’s
Advisory Committee for Older and Disabled People and a former
Non-Executive Director of THUS plc and Synstar plc.
Deena Mattar – Independent Non-Executive Director
(a) (r) (n)
Deena Mattar FCA (47) joined the Board on 1 June 2011 as a
Non-Executive Director and was appointed Chair of the Audit
Committee on 26 March 2012. She served as Group Finance
Director of Kier Group plc from 2001 to 2010, having joined the
Group in 1998 as Finance Director of Kier National. Prior to this she
held senior positions at KPMG. Ms Mattar is also a Non-Executive
Director of Invensys plc, Lamprell plc and Wates Group Ltd.
Sir Mike Tomlinson – Independent Non-Executive Director
(a) (r) (n)
Sir Mike Tomlinson (70) was appointed to the Board as a Non-
Executive Director in February 2004. He is one of the UK’s leading
educationalists and formerly chaired the Department for
Education and Skills Working Group on educational reform for 14
to 19-year olds and was Her Majesty’s Chief Inspector for Schools
from December 2000 until April 2002, during which time he was
responsible for the work of Ofsted. He is Chair of Myscience,
responsible for the National and Regional Science Learning
Centres and the National STEM Centre. Sir Mike is retiring from the
Board at the forthcoming annual general meeting.
Committee membership as at the date of this report.
(a) Audit Committee Member
(r) Remuneration Committee Member
(n) Nomination Committee Member
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 10
Report of the Directors
The Directors submit their report together with the audited
consolidated and Company financial statements for the year
ended 30 November 2012.
Results and dividends
The results for the period are set out in the financial statements
and notes that appear on pages 40 to 101. As explained in the
Chairman’s Statement, the Directors propose the payment of a
final dividend of 2.25 pence per share, making a total of 3.00
pence per share for the period (2011: 3.00 pence).
Principal activities
The Group’s principal activity is the provision of products and
services to the UK and international education markets. In the
period covered by this report the Group’s products and services
were provided through the following four segments:
Education Technology: IT hardware, network, internet
services and related installation and support;
Managed Services: implementation, management and
support of IT infrastructure in schools and colleges,
including Building Schools for the Future (‘BSF’) contracts;
Education Resources: an added-value distribution business
offering a wide range of curriculum products and materials
to schools, including special educational needs
environments; and
Education Software: assessment, data solutions, school
management systems (‘SMS’), RM Books, RM Unify, learning
platforms and other software.
Review of the business
The information that fulfils the requirements of the Business
Review can be found in the Chairman’s Statement, the Chief
Operating Officer’s Report, the Chief Financial Officer’s Report, the
Audit Committee Report and the Remuneration Report, which are
incorporated into this report by reference.
The Corporate Governance Report is incorporated into this Report
of the Directors by reference.
monitor and mitigate them. The key business risks for the Group
are set out in the table on pages 11 to 13.
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report, the
Remuneration Report and the financial statements in accordance
with applicable UK law and regulations.
UK company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and have elected to
prepare the Company financial statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and the Group and of
the profit or loss of the Group for that year.
In preparing those financial statements, the Directors are required
to:
zz
select suitable accounting policies and then apply them
consistently;
zz make judgments and estimates that are reasonable and
zz
zz
prudent;
state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material
departures disclosed and explained in the financial
statements; and
prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and to enable them to
ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets
of the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Principal risks and uncertainties
The management of the business and the execution of the
Group’s strategy are subject to a number of risks. Risks are
reviewed by the Board and appropriate processes put in place to
Under applicable law and regulations, the Directors are also
responsible for preparing a Report of the Directors, Remuneration
Report and Corporate Governance Report that complies with that
law and those regulations.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 11
Each of the Directors, whose names and functions are listed at the
front of this report confirm that, to the best of their knowledge:
Group, together with a description of the principal risks and
uncertainties that it faces.
zz
zz
the Group financial statements, which have been prepared in
accordance with IFRSs, as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and
performance of the Group; and
the information contained in pages 01 to 08 of this Annual
Report includes a true and fair review of the development
and performance of the business and the position of the
A copy of the Group financial statements is posted on the Group’s
website www.rm.com. The Directors are responsible for the
maintenance and integrity of the Group’s website and the
financial information included on the website. Information
published on the website is accessible in many countries with
differing legal requirements but only legislation in the United
Kingdom governing the preparation and dissemination of
financial statements applies to the Group.
Principal risks and uncertainties table
Risk
Public policy
Education practice
Competition in IT markets and
international supply chain
Operational execution
The majority of RM’s business is funded from UK
government sources. Changes in political
administration, or changes in policy priorities,
might result in a reduction in education spending.
Global economic conditions might result in a
reduction in budgets available for public
spending generally and education spending
specifically.
Education practices and priorities may change
and, as a result, RM’s products and services may
no longer meet customer requirements.
The IT hardware market is subject to intense
global competition. RM has to react to continual
selling price reductions and margin pressures, as
well as to US Dollar rate fluctuations on purchase
of goods.
Mitigation
The Group seeks to understand the
education policy environment by regular
monitoring of policy positions and by
building relationships with education policy
makers.
The Group seeks to increase the diversity of
its revenue streams by developing a broad
product and service portfolio.
The Group seeks to maintain knowledge of
current education practice and priorities by
maintaining close relationships with
customers.
The Group seeks to reduce its exposure
to commodity hardware sales and has a
programme of foreign exchange hedging
activity. The Group has also sought to
diversify away from hardware dependent
activities.
RM provides sophisticated products and services,
which require a high level of technical expertise
to develop and support, and on which its
customers place a high level of reliance.
RM is engaged in the delivery of large, multi-year
education projects, typically involving the
development and integration of complex ICT
systems, and may have liability for failure to
deliver on time.
The Group invests in maintaining a high level
of technical expertise. The Group has in
place a range of customer satisfaction
programmes, which include management
processes designed to address the causes of
customers’ dissatisfaction.
Internal management control processes are
in place to govern the delivery of projects,
including regular reviews by relevant
management.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 12
Report of the Directors continued
Product safety
Data and business continuity
People
Innovation
Risk
Mitigation
RM is involved in the supply of electrical goods,
physical education resources and other products
that will be used by children of all ages and
abilities.
The Group’s product development processes
take account of international safety
regulations.
RM is engaged in storing and processing
sensitive data, where accuracy, privacy and
security are important.
The Group would be significantly impacted if, as
a result of a disaster, one of its major buildings,
systems or infrastructure components could not
function for a long period of time.
RM’s business depends on highly skilled
employees.
The Group’s IS function has invested in
developing its Data Centres, and has been
successfully certified to ISO/IEC 27001:2005
for the provision of systems, information and
hosting services.
The Group has established an Information
Security Committee to oversee the security
aspects of the Group’s information systems.
This covers data integrity and protection,
defence against external threats and
disaster recovery.
The Group seeks to protect itself against the
consequences of a disaster by implementing
a series of back up and safety measures.
The Group has property insurance covering
its properties.
The Group seeks to be an attractive
employer and regularly monitors the
engagement of its employees. The Group
has talent management and career
planning programmes.
The IT market is subject to rapid, and
often unpredictable, change. As a result
of inappropriate technology choices,
the Group’s products and services might become
unattractive to its customer base.
The Group monitors technology and market
developments and invests to keep its existing
products and services up-to-date as well as
seeking out new opportunities and initiatives.
Recent examples include RM Books and
RM Unify.
The Group’s continued success depends on
developing and/or sourcing a stream
of innovative and effective products for
the education market.
The Group works with teachers and
educators to understand opportunities and
requirements.
Financial – foreign exchange
The Group is exposed to foreign
currency risk with respect to purchases
of goods in US Dollars and from its operations in
India.
The Group enters into US Dollar and Indian
Rupee denominated hedging contracts with
approved banking organisations.
stock code: RM.RM plc Annual Report 2012GOVERNANCE Financial – liquidity
Pension
Financial – capital
Acquisitions
13
Risk
Mitigation
Changes in the banking environment increase
the risk of the Group failing to obtain adequate
banking facilities to support its financing
requirements.
The Group is exposed to counterparty
risk on liquid assets.
The Group operates a defined benefit pension
scheme in the UK, which is in deficit. The scheme
deficit can adversely impact the net assets
position of the trading subsidiary RM Education
Ltd.
The Group has agreed a committed revolving
credit facility with Barclays Bank which
expires on 27 March 2016.
Cash and cash reserves are deposited with
highly rated banks.
The Scheme was closed to new entrants in
2003 and closed to future accrual of
benefits in October 2012.
The Group’s ability to pay dividends to
shareholders depends on having sufficient
distributable reserves in the holding company,
RM plc. Losses incurred as a result of significant
increases in the pension scheme deficit could
impair the ability of RM Education Ltd to pay
dividends up to RM plc.
Acquisitions do not realise the value originally
expected.
The Group monitors the level of distributable
reserves in subsidiary companies and
considers their ability to make dividend
payments to the holding company.
The Group carries out analysis of potential
acquisitions. Prior to any acquisition an
integration plan will be developed and
reviewed following completion of the
acquisition.
The Group invests in maintaining a high level
of technical expertise. The Group has in
place a range of customer satisfaction
programmes, which include management
processes designed to address the causes of
customers’ dissatisfaction.
Dependence on key contracts
The performance of certain divisions is
dependent on the winning and extension
of long-term contracts with government,
local authorities, examination boards and
commercial customers.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 14
Report of the Directors continued
Going concern
The Directors, having made appropriate enquiries, consider that
the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future and
that therefore it is appropriate to adopt the going concern basis in
preparing the financial statements.
Health and safety
The Group has implemented a health and safety management
system which aims to continually improve health and safety
implementation and is designed to meet the requirements of
OHSAS 18001. The following objectives are incorporated into the
management system:
zz
zz
zz
zz
Accident reduction
Raising health and safety awareness
Effective training
Risk reduction and management
Donations
The Group made various charitable donations totaling £80,000
(2011: £126,000), the majority of which relates to legacy
commitments made prior to 2011 which expire in 2013. These
commitments are explained in more detail in note 29 to the
report and accounts.
No political donations have been made.
Articles of Association
The Company’s Articles of Association are available from
Companies House in the UK, or by writing to the Company
Secretary. Amendments to the Articles of Association can only be
made by means of a Special Resolution at a general meeting of
the shareholders of the Company.
Employment policies
The Group is committed to offering equal employment
opportunities and its policies are designed to attract, retain and
motivate the best staff regardless of gender, sexual orientation,
race, religion, age or disability. The Group gives proper
consideration to applications for employment when these are
received from disabled persons and will employ them in posts
whenever suitable vacancies arise. Employees who become
disabled will be retained whenever possible through retraining,
use of appropriate technology and making available suitable
alternative employment.
The Group encourages the participation of all employees in the
operation and development of the business and has a policy of
regular communications. The Group incentivises employees and
senior management through the payment of bonuses linked to
performance objectives, together with the other components of
remuneration detailed in the Remuneration Report.
The Group has a wide range of other written policies, designed to
ensure that it operates in a legal and ethical manner. These
include policies related to health and safety, ‘whistle blowing’, anti
bribery and corruption, business gifts, grievance, career planning,
parental leave, systems and network security. All of RM’s
employment policies are published internally,
Environmental policy
The Group recognises that its activities must be carried out in an
environmentally friendly and compliant manner. Good standards
of environmental performance are adopted to minimise the
potential negative environmental impact of products and
processes and also to promote sustainability. These actions
include: efficient utility usage, waste reduction/recycling and use
of energy saving features in products.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 15
Substantial shareholdings
On 19 February 2013 the Company had received notifications that the following parties were interested in accordance with DTR 5:
Shareholder
Schroder Investment Management Ltd*
Clients of Aberforth Partners LLP**
Artemis Investment Management LLP***
The Wellcome Trust Ltd
M. R. Ratcliffe
Legal & General Investment Management Ltd
Alliance Trust PLC
Standard Life Investments Ltd
No. of
shares
Percentage of Issued Share
Capital as at 19 February
No. of shares
Direct
No. of shares
Indirect
18,544,667
10,747,354
7,275,000
5,038,232
3,127,267
3,104,280
3,016,887
2,818,038
19.83%
11.49%
7.78%
5.39%
3.34%
3.32%
3.23%
3.01%
18,544,667
–
4,550,000
–
3,127,267
2,822,124
3,016,887
2,803,864
–
10,747,354
2,725,000
5,038,232
–
282,156
–
14,174
*
Included within Schroder Investment Management Ltd’s interest are 4,934,932 (5.28%) shares for which it does not hold
voting rights.
** Aberforth Partners LLP has a further indirect interest in 8,126,032 shares over which they do not control the voting rights.
*** Included within Artemis Investment Management LLP’s interest are 2,725,000 shares (2.91%) for which it does not hold voting rights.
The Takeovers Directive
The Company has one class of share capital, ordinary shares. All
the shares rank pari passu. There are no special control rights in
relation to the Company’s shares. As at 30 November 2012, the
RM plc Employee Share Trust owned 1,797,362 ordinary shares in
the Company (1.92% of the issued share capital); any voting or
other similar decisions relating to those shares would be taken by
the Trustees, who may take account of any recommendation of
the Board of the Company.
Share options granted to the Chairman under the 2004 RM plc
share option plan vest if there is a general offer for the Company
under Rule 9.1 of the Plan or a compulsory acquisition under Rule
9.2 of the Plan and the offer price exceeds 100p whether in cash
or any other form of consideration.
The Group enters into long-term contracts to supply ICT products
and services to its customers. Wherever possible, these contracts
do not have change of control provisions, but some significant
contracts do include such provisions.
In January 2012 the Group entered into a £30 million revolving
credit facility with Barclays Bank. This facility has a change of
control provision and is subject to termination in the event of
change of control of the Company.
Repurchase of own shares
At the annual general meeting held on 26 March 2012, members
renewed the authority under section 701 of the Companies Act
2006 to make market purchases on the London Stock Exchange
of up to 9,346,780 ordinary shares of 2p each, being 10% of the
issued share capital of the Company. The minimum price which
may be paid for each share is the nominal value. The maximum
price which may be paid for a share is an amount equal to the
higher of (1) 5% above the average of the middle market
quotations of the Company’s ordinary shares as derived from the
London Stock Exchange Daily Official List for the five business days
immediately preceding the day on which such share is contracted
to be purchased and (2) the amount stipulated by Article 5(1) of
the Buy-back and Stabilisation Regulation 2003. This authority has
not been used since the annual general meeting.
The Directors will seek to renew this authority at the next annual
general meeting scheduled for 24 April 2013.
Significant contracts
There did not exist at any time during the period any contract
involving the Company or any of its subsidiaries in which a
Director of the Company was directly or is materially interested or
any contract which was either a contract of significance with a
controlling shareholder or a contract for the provision of service by
a controlling shareholder. Related party transactions are disclosed
in note 29.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS
16
Report of the Directors continued
Directors
Details of Directors who have held office during the period and up
to the date of signing these financial statements are given below:
deposits for the Group and is also responsible for ensuring there
is sufficient headroom against any banking covenants contained
within its credit facilities, and for ensuring there are appropriate
facilities available to meet the Group’s strategic plans.
Lord Andrew Adonis
Sir Bryan Carsberg (retired 26 March 2012)
Jo Connell
Iain McIntosh
Deena Mattar
Martyn Ratcliffe
Rob Sirs (resigned 31 January 2012)
Sir Mike Tomlinson
David Brooks (appointed 1 July 2012)
Martyn Ratcliffe has advised the Board that he will be stepping
down as Chairman and as a Director of the Company in the
summer. A search for a new Non-Executive Chairman will
commence shortly.
Sir Mike Tomlinson has completed over nine years as a Director
and, accordingly, has advised the Board that he does not intend
to seek re-election at the next annual general meeting. Jo Connell
is to replace him as Chair of the Remuneration Committee
following the annual general meeting.
Biographical details of the current Directors are given on
page 09. As stated at the last annual general meeting, at the
forthcoming annual general meeting all continuing Directors will
stand for re-election in accordance with best practice and
guidance set out in the UK Corporate Governance Code 2010 as
issued by the Financial Reporting Council in June 2010 (‘UK
Corporate Governance Code 2010’). The Directors who are
proposed for re-election or election have either a letter of
appointment or a service contract, details of which can be found
in the Remuneration Report.
The Company has purchased and maintained throughout the
year Directors’ and Officers’ liability insurance in respect of itself
and its Directors. The Directors also have the benefit of a Deed
of Indemnity in respect of liabilities which may attach to them
in their capacity as Directors of the Company. These provisions
are qualifying third party indemnity provisions as defined by
section 234 of the Companies Act 2006.
In order to mitigate and manage exchange rate risk, the Group
routinely enters into forward contracts and continues to monitor
exchange rate risk in respect of foreign currency exposures.
All these treasury policies and procedures are regularly monitored
and reviewed. It is the Group’s policy not to undertake speculative
transactions which create additional exposures over and above
those arising from normal trading activity.
Creditor payment policy
The Group agrees terms and conditions for its business
transactions with suppliers. Payment is then generally made in
line with these terms, subject to the terms and conditions being
met by suppliers.
Independent auditor and disclosure of information
to auditor
As far as the Directors are aware, there is no relevant audit
information (as defined by section 418(3) of the Companies Act
2006) of which the Company’s auditor is unaware and each of the
Directors have taken reasonable steps in order to make
themselves aware of relevant audit information and to establish
that the Company’s auditor is aware of that information.
The auditor, KPMG Audit Plc, has indicated its willingness to
continue in office, and a resolution that it be re-appointed will be
proposed at the next annual general meeting.
Annual general meeting
The forthcoming annual general meeting will be held on 24 April
2013 at 140 Eastern Avenue, Abingdon, Oxfordshire OX14 4SB, at
a time set out in the annual general meeting notice. The notice of
the annual general meeting contains the full text of resolutions to
be proposed.
By Order of the Board
Treasury and foreign exchange
The Group has in place appropriate treasury policies and
procedures, which are approved by the Board. The treasury
function manages interest rates for both borrowings and cash
Greg Davidson
Company Secretary
21 February 2013
stock code: RM.RM plc Annual Report 2012GOVERNANCE Corporate Governance Report
17
Statement of compliance
The Group has applied the principles set out in the UK Corporate Governance Code 2010. The Company has complied with the UK
Corporate Governance Code 2010 throughout the 12 month period ended 30 November 2012, other than the exceptions which are
noted in the table below.
Compliance with the UK Corporate Governance Code 2010
Code of Best Practice – Principles
RM Statement of compliance
A DIRECTORS
1
The role of the Board
Every company should be headed by an effective board,
which is collectively responsible for the success of the
company.
2 Division of responsibilities
The Directors’ responsibilities are outlined in the Report of the
Directors. The Board meets regularly on a formal basis plus
additional ad hoc meetings as necessary.
There should be a clear division of responsibilities at the head
of the company between the running of the Board and the
executive responsibility for the running of the Company’s
business. No one individual should have unfettered powers of
decision.
The role of Chairman and Chief Executive was exercised by the
same individual throughout the period. As noted in last year’s
Report, it is recognised that this is out of line with best practice
and specific steps were taken by the Board during the period to
address this.
3 The Chairman
The Chairman is responsible for leadership of the Board and
ensuring its effectiveness on all aspects of its role.
In particular, on 1 July 2012, Mr David Brooks was appointed
Chief Operating Officer and he now oversees the day-to-day
running of the Group. In addition, each Division of the
Company has its own Managing Director.
As such, while the Chairman is primarily responsible for
strategy, corporate development and running of the Board,
the effective day-to-day management and running of the
Group is undertaken by the Chief Operating Officer, the Chief
Financial Officer and the Divisional Managing Directors.
The Chairman sets the Board’s agenda and ensures that
adequate time is available for the discussion of all agenda
items. The Chairman promotes a culture of openness and
debate. He also ensures constructive relations between the
Executive Directors and the Non-Executive Directors. The
Chairman ensures effective communication with shareholders.
On appointment the Chairman met the independence criteria.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS
18
Corporate Governance Report continued
Code of Best Practice – Principles
RM Statement of compliance
4 Non-Executive Directors
As part of their role as members of a unitary Board, Non-
Executive Directors should constructively challenge and help
develop proposals on strategy.
The Non-Executive Directors scrutinise the performance of
management and monitor the reporting of performance.
Ms Connell is Senior Independent Director and is available to
shareholders if they have concerns which contact through the
normal channels has failed to resolve.
B EFFECTIVENESS
1
The composition of the Board
The Board and its Committees should have the appropriate
balance of skills, experience, independence and knowledge of
the Company to enable them to discharge their respective
duties and responsibilities effectively.
2 Appointments to the Board
There should be a formal, rigorous and transparent procedure
for the appointment of new Directors to the Board.
The Chairman holds meetings with the Non-Executive Directors
without the other Executive Director(s) present when considered
appropriate. The Senior Independent Director meets with the
Non-Executive Directors without the Chairman being present on
such occasions as she considers appropriate.
The Board consists of the Chairman, Chief Operating Officer and
Chief Financial Officer plus, currently, four Non-Executive
Directors. All of the Non-Executive Directors are considered by
the Board to be independent of the management of the
Company and free from any business or other relationship
which could materially interfere with the exercise of their
independent judgment.The Directors have a combination of
financial, business and educational expertise which is suited to
the nature of the Company.
A separate Nomination Committee comprised of all Non-
Executive Directors and the Chairman, is responsible for
identifying and nominating candidates to fill Board vacancies.
The Board is committed to the changes to the UK Corporate
Governance Code 2010 in relation to board diversity announced
by the Financial Reporting Council in October 2011.
3 Commitment
All Directors should be able to allocate sufficient time to the
Company to discharge their responsibilities effectively.
The Board ensures that on appointment and thereafter all
Directors have sufficient time to carry out their duties.
4 Development
All Directors should receive induction on joining the Board and
should regularly update and refresh their skills and
knowledge.
All Non-Executive Directors receive an induction on joining the
Board. All Non-Executive Directors have extensive experience
and possess relevant skills and knowledge to perform their
duties.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 19
Code of Best Practice – Principles
RM Statement of compliance
5 Information and support
The Board should be supplied in a timely manner with
information in a form and of a quality appropriate to enable it
to discharge its duties.
6 Evaluation
The Board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees
and individual Directors.
7
Re-election
All Directors should be submitted for re-election at regular
intervals, subject to continued satisfactory performance.
C ACCOUNTABILITY
1
Financial and business reporting
The Board should present a balanced and understandable
assessment of the Company’s position and prospects.
2 Risk management and internal control
The Board is responsible for determining the nature and extent
of the significant risks it is willing to take in achieving its
strategic objectives. The Board should maintain sound risk
management and internal control systems.
3 Audit Committee and auditor
The Board should establish formal and transparent
arrangements for considering how they should apply the
corporate reporting and risk management and internal control
principles and for maintaining an appropriate relationship with
the Company’s auditors.
The Board is supplied with monthly management accounts and
detailed operational reviews.
All Directors have access to the advice and services of the
Company Secretary or suitably qualified alternative, and all the
Directors are able to take independent professional advice, if
necessary, at the Company’s expense. All Directors are also
invited to attend meetings of the Operating Board and have
access to managers within the Group.
Evaluation is an ongoing process. A performance evaluation is
undertaken for all Directors from time to time. The Chief
Operating Officer and Chief Financial Officer each receive an
annual performance appraisal as part of the Senior
Management Bonus Scheme. The performance of each Board
Committee is reviewed on an annual basis. The performance of
the Chairman is assessed by the Non-Executive Directors led by
the Senior Independent Director. The performance of the Chief
Operating Officer and Chief Financial Officer is assessed by the
Chairman, in consultation with the Non-Executive Directors.
All Directors are appointed for specific terms subject to annual
re-election.
In preparing the Annual Report to shareholders, the Directors
seek to present a summarised but fair, balanced and easily
understood assessment of the Group’s performance and
provide guidance on its future prospects.
The Company operates a risk management and internal control
process which is reviewed at least on an annual basis by the
Audit Committee and endorsed by the Board.
The Audit Committee is comprised of Non-Executive Directors
and meets at least three times a year. The Chairman, Chief
Operating Officer and Chief Financial Officer are invited to
attend. The Audit Committee meets separately with the
Company’s auditor without the other Directors present. Further
details are set out in the Audit Committee Report.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 20
Corporate Governance Report continued
Code of Best Practice – Principles
RM Statement of compliance
D REMUNERATION
1
The level and components of remuneration
Levels of remuneration should be sufficient to attract, retain
and motivate Directors of the quality required to run the
company successfully, but a company should avoid paying
more than is necessary for this purpose. A significant
proportion of Executive Directors’ remuneration should be
structured so as to link rewards to corporate and individual
performance.
2 Procedure
There should be a formal and transparent procedure for
developing policy on executive remuneration and for fixing the
remuneration packages of individual Directors. No Director
should be involved in deciding his or her own remuneration.
E
RELATIONS WITH SHAREHOLDERS
1 Dialogue with shareholders
There should be a dialogue with shareholders based on the
mutual understanding of objectives. The Board as a whole
has responsibility for ensuring that a satisfactory dialogue
with shareholders takes place.
2 Constructive use of the AGM
The Board should use the AGM to communicate with
investors and to encourage their participation.
Each of the Chief Operating Officer’s and Chief Financial Officer’s
remuneration consists of basic salary and a variable annual
bonus. Basic salaries are reviewed annually in the light of
individual performance and market comparisons for similar
jobs. Annual bonuses may be paid, at the sole discretion of the
Remuneration Committee, at a target level of up to 55% with an
overall cap of 110% of basic salary. The annual bonus payment
is determined on the basis of individual and Company
performance.
In addition there are long-term incentive schemes in place as
detailed in the Remuneration Report. These long-term incentive
schemes include the Performance Share Plan and Share Option
Plans.
The remuneration of the Chairman comprises a base salary
and share options only. His remuneration is reviewed annually
by the Remuneration Committee in light of performance and
market comparisons. The Chairman does not receive any other
benefits or participate in the annual bonus scheme. Any bonus
is entirely at the discretion of the Remuneration Committee and
would only apply in exceptional circumstances. The Chairman
was granted share options as set out in the Report of the
Directors.
As at 30 November 2012, neither the Chief Operating Officer nor
the Chief Financial Officer held any Non-Executive positions with
other companies for which either of them receives
remuneration.
Remuneration packages for individual Directors are set by the
Remuneration Committee after, if required, receiving information
from independent sources and the Company’s Human
Resources function. The Chairman, Chief Operating Officer and
Chief Financial Officer may be invited to attend the Committee’s
meetings.
The Executive Directors meet on a regular basis with the
Company’s major shareholders. Non-Executive Directors are
available to meet institutional shareholders on an ad hoc basis.
All Directors make themselves available at the annual general
meeting to respond to any questions raised by the investors in
attendance.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 21
Board of Directors
The Board of Directors meets regularly to review strategic,
operational and financial matters, including proposed
acquisitions and divestments, and has a formal schedule of
matters reserved to it for decision. It approves the interim and
annual financial statements, the annual financial plan, significant
contracts and capital investment in addition to reviewing the
effectiveness of the internal control systems and business risks
faced by the Group. Where appropriate, it has delegated authority
to committees of Directors.
Board committees
There are four Board committees: Audit, Remuneration,
Nomination and Transactions; each of which, apart from the
Nomination Committee and Transactions Committee, comprises
only Non-Executive Directors.
During the period, the Audit Committee was chaired by Sir Bryan
Carsberg until 26 March 2012 and, since that date, it has been
chaired by Deena Mattar. The Audit Committee was comprised
solely of independent Non-Executive Directors. The Audit
Committee meets at least three times a year. The Company’s
external auditor, the Chairman, Chief Operating Officer, Chief
Financial Officer, Company Secretary, and the Group Financial
Controller, who is Head of Internal Audit, normally attend these
meetings. The Audit Committee is responsible for reviewing the
accounting policies, internal control assessment and the financial
information contained in the annual and interim reports. It
provides an opportunity for the Non-Executive Directors to make
independent judgments and contributions, thus furthering the
effectiveness of RM’s internal financial controls. Further details of
the Audit Committee’s activities are given in the Audit Committee
Report. The terms of reference for the Audit Committee are
published on www.rm.com.
During the period the Remuneration Committee was chaired by
Sir Mike Tomlinson and comprised solely independent Non-
Executive Directors. Following the annual general meeting
scheduled for 24 April 2013, Jo Connell will become Chair of the
Remuneration Committee. The Remuneration Committee meets at
least four times a year. Executive Directors and senior managers
may be invited to attend Committee meetings, but will not be
present during any discussion of their own pay arrangements.
The Remuneration Committee sets the remuneration of the
Executive Directors and senior management. It also considers
grants and performance conditions under RM’s share-based
payment schemes and reviews RM’s employment strategy
generally. Further details of the Remuneration Committee’s
activities are given in the Remuneration Report. The terms of
reference for the Remuneration Committee are published on
www.rm.com.
The Nomination Committee is chaired by the Chairman and
includes all of the independent Non-Executive Directors. The
Nomination Committee recommends to the Board candidates for
appointment as Directors. It meets at least once a year, with more
frequent meetings when the Group is actively selecting Directors.
The terms of reference for the Nomination Committee are
published on www.rm.com.
The Transactions Committee comprises the Chairman plus any
one independent Non-Executive Director and any one Executive
Director. The Transactions Committee meets at such times as are
required. The Transactions Committee approves, enters into and
authorises the execution of all deeds and documents and does
everything that is necessary to give effect to any ‘substantial
transaction’ that has already been approved in principle by the
Board. The terms of reference for the Transactions Committee are
published on www.rm.com.
Board attendance
Details of the number of meetings of the Board, including
sub-committees and individual attendances by Directors are
set out in the table below.
Board
Meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
Number of meetings
held in the period
Lord Andrew Adonis
David Brooks*1
Sir Bryan Carsberg*2
Jo Connell
Deena Mattar
Iain McIntosh
Martyn Ratcliffe
Rob Sirs*3
Sir Mike Tomlinson
12
8
3
4
12
12
12
11
1
11
*1 Appointed on 1 July 2012
*2 Retired on 26 March 2012
*3 Resigned on 31 January 2012
3
1
–
1
3
3
–
–
–
2
4
3
–
1
4
4
–
–
–
4
2
2
–
–
2
2
–
2
–
2
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 22
Corporate Governance Report continued
Operating Board
The Operating Board was introduced in January 2012. During the
period it was chaired by the Chairman but, with effect from
1 January 2013, is chaired by the Chief Operating Officer. The
Operating Board comprises the Chairman, Chief Operating
Officer, Chief Financial Officer and other senior managers within
the Group. The Operating Board normally meets on a monthly
basis to discuss policy and operational issues. Those issues
outside the delegated authority levels set by the Group Board are
referred to the Group Board for its decision. All Non-Executive
Directors are invited to attend the Operating Board.
Relations with shareholders
In order to maintain dialogue with institutional shareholders the
Executive Directors meet with them following interim and final
results announcements, or as appropriate, with other Directors
available to meet institutional shareholders on request. Where
practicable the Annual Report is sent to shareholders at least 20
working days before the annual general meeting and each issue
for consideration at the annual general meeting is proposed as a
separate resolution. All Directors generally attend the annual
general meeting.
Social, ethical and environmental risks
The Board takes regular account of the significance of social,
ethical and environmental (‘SEE’) matters related to the Group’s
business of providing IT services and solutions (including
software, managed services and consultancy) to educational
institutions.
The Board considers that it has received adequate information to
enable it to assess significant risks to the Company’s short and
long-term value arising from SEE matters and has concluded that
the risks associated with SEE matters are minimal. The Board will
continue to monitor those risks on an ongoing basis and will
implement appropriate policies and procedures if those risks
become significant.
Internal control
The Group maintains an ongoing process in respect of internal
control to safeguard shareholders’ investments and the Group’s
assets and to facilitate the effective and efficient operation of
the Group.
These processes enable the Group to respond appropriately, and
in a timely fashion, to significant business, operational, financial,
compliance and other risks, in line with the UK Corporate
Governance Code 2010, which may otherwise prevent the
achievement of the Group’s objectives.
The Group recognises that it operates in a highly competitive
market that can be affected by factors and events outside its
control. Details of the risks faced by the Group are set out in
the table on pages 11 to 13. It is committed to mitigating risks
arising wherever possible and accepts that internal controls,
applied and monitored, are an essential tool in achieving this
objective.
The key elements of Group internal control, which have been
effective during 2012 and up to the date of approval of these
financial statements, are set out below:
zz
zz
zz
zz
zz
The existence of a clear organisational structure with defined
lines of responsibility and delegation of authority from the
board to its executive directors and operating divisions
A procedure for the regular review of reporting business
issues and risks by operating divisions
Regular review meetings with the operating management
A planning and management reporting system operated by
each division and the executive directors
The establishment of prudent operating and financial policies
stock code: RM.RM plc Annual Report 2012GOVERNANCE 23
The Directors have overall responsibility for establishing financial
and other reporting procedures to provide them with a
reasonable basis on which to make proper judgments as to the
financial position and prospects of the Group, and have
responsibility for establishing the Group’s system of internal
control and for monitoring its effectiveness. The Group’s systems
are designed to provide Directors with reasonable assurance that
physical and financial assets are safeguarded, transactions are
authorised and properly recorded and material errors and
irregularities are either prevented or detected with the minimum
delay. However, systems of internal financial control can provide
only reasonable and not absolute assurance against material
misstatement or loss.
The key features of the systems of internal financial control
include:
zz
A financial planning process with an annual financial plan
approved by the board. The plan is regularly updated
providing an updated forecast for the year
zz Monthly comparison of actual results against plan
zz Written procedures detailing operational and financial
internal control policies which are reviewed on a regular
basis
Regular reporting to the board on treasury and legal matters
Defined investment control guidelines and procedures
Periodic reviews by the audit committee of the group’s
systems and procedures
zz
zz
zz
The majority of the Group’s financial and management
information is processed and stored on computer systems.
The Group is dependent on systems that require sophisticated
computer networks. The Group has established controls and
procedures over the security of data held on such systems,
including business continuity arrangements.
On behalf of the Board, the Audit Committee has reviewed the
operation and effectiveness of this framework of internal control
for the period and up to the date of approval of the Annual
Report.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 24
Audit Committee Report
The Audit Committee operates under terms of reference approved
by the Board, with the purposes of:
A resolution proposing that KPMG Audit Plc be reappointed as
auditor of the Company will be proposed at the next annual
general meeting.
zz
zz
zz
zz
Appointing the Group’s internal and external auditors
Reviewing the performance of and relationship with the
Group’s external auditors (including considering fee levels
and the provision of non-audit work)
Reviewing the performance of the Group’s internal audit
function
Reviewing the Group’s financial reporting and internal control
processes
zz Monitoring the integrity of the Group’s financial statements
zz
and announcements regarding performance
Ensuring that a system is operated for the assessment and
management of key risks
Composition and qualifications of the Audit Committee
During the period the Audit Committee comprised Sir Bryan
Carsberg MSc(Econ), FCA (Chair until 26 March 2012), Deena
Mattar BSc (Econ), FCA (Chair from 26 March 2012), Jo Connell,
Sir Mike Tomlinson and Lord Andrew Adonis all of whom are
independent Non-Executive Directors. The Group considers that
Deena Mattar as an FCA and former FTSE250 Finance Director has
significant recent technical accounting experience.
Martyn Ratcliffe (Chairman), David Brooks (Chief Operating
Officer), Iain McIntosh MA, FCA (Chief Financial Officer), Philip
Deakin MPhil, FCA (Group Financial Controller and Head of
Internal Audit) and Uche Ibekwa MChem MCIIA (Internal Audit
Manager) and other management as appropriate are invited to
attend Audit Committee meetings.
Schedule of meetings
The Audit Committee met three times during the period. All of
these meetings were part of the regular schedule of meetings set
out in the Committee’s terms of reference.
KPMG Audit Plc has been the Group’s auditors since 2011. The
external auditor is required to rotate the audit partner responsible
for the Group audit every five years and the current lead audit
partner has been in place since 2011.
There are no contractual obligations restricting the Group’s choice
of external auditor.
Oversight of external audit
The Audit Committee has reviewed the scope and results of the
audit services, and the cost effectiveness and independence and
objectivity of the external auditor.
Internal audit
The Audit Committee has approved the appointment of RM’s
Group Financial Controller, Philip Deakin MPhil, FCA as Head of
Internal Audit. For the purposes of this role, the Group Financial
Controller reports directly to the Chair of the Audit Committee. The
Audit Committee, with the advice and support of the Head of
Internal Audit, sets an internal audit plan. The Head of Internal
Audit reports on progress against this plan at Audit Committee
meetings.
Policy on non-audit work
The Audit Committee has considered the issue of the provision of
non-audit work by the external auditor and has agreed a policy
intended to ensure that the objectivity of the external auditor is not
compromised. The policy sets a limit for fees for non-audit work
and states that non-audit work should only be undertaken by the
external auditor where there is a clear commercial benefit in
doing so. Any significant activity must be approved, in advance,
by at least two Audit Committee Members.
Audit Committee meetings have formal agendas, which cover all
of the areas of responsibility set out in the Committee’s terms of
reference. These agendas include meetings with the external
auditors without Executive Directors or managers of the Company
present.
Appointment of external auditor
The Audit Committee recommended, and shareholders approved
at the Group’s annual general meeting on 26 March 2012, the
re-appointment of KPMG Audit Plc as Group external auditor.
The Audit Committee’s policy is to include a cap on fees for
non-audit work of 25% of the annual audit fee. This fee
incorporates a review of the Group’s interim results. Fees for total
non-audit work in the period were 16% of the annual audit fee.
Internal control
Control environment – The Board has put in place an
organisational structure with clearly defined lines of responsibility
and delegation of authority to Executive management. A revised
Group-wide approval matrix has been implemented in the year.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 25
Anti-bribery
RM conducts all its business in an honest and ethical manner and
seeks to ensure that all associates and business partners do the
same.
The Bribery Act 2010 sets clear standards of behaviour, which
govern the Group’s operations. The Group has implemented
policies and procedures to ensure that it is transparent and
ethical in all business dealings. The Group has an anti-corruption
and anti-bribery policy which sets out the legal standards the
Group enforces as part of its ongoing commitment to implement
adequate procedures to guard against illegal practices.
Statement of risks
As with any business, RM is exposed to risks as an inherent part
of creating value for shareholders. As described above, the Group
has put in place processes designed to identify these principal
risks and to manage and mitigate the effect of them. The Audit
Committee is responsible for ensuring that risks are properly
considered and the Board is responsible for deciding what risks
should be taken and how best to manage and mitigate the risks.
The Audit Committee is satisfied that the Group’s risk
management and internal control processes are appropriate to
the business and Executive management has identified and
addressed the principal risks affecting RM.
The most significant risks the Group is exposed to are set out in
the Report of the Directors.
Deena Mattar
Chair, Audit Committee
21 February 2013
Individuals are made aware of their level of authority and their
budgetary responsibility which enables them to identify and
monitor financial performance. There are established policies and
procedures, which are subject to regular review. The Boards of
the operating companies work within terms of reference and any
matters outside those terms or the agreed business plan are
referred to the Group Board for approval.
Identification and evaluation of business risks and control
objectives – The Board has the primary responsibility for
identifying the principal business risks facing the Group and
developing appropriate policies to manage those risks. It
delegates responsibility for operational risks to the Operating
Board which meets monthly.
Public reporting – The Audit Committee reviews and comments
upon both the Group’s Annual and Interim reports prepared by
management.
Management information – Executive managers are required to
produce a business plan for approval at the beginning of each
financial year and detailed financial reporting and cashflow
forecasts are formally compiled monthly and reviewed by the
Board. Consolidated management accounts are produced each
month and results measured against plan and the previous year
to identify significant variances.
Main control procedures – The existing finance systems and
procedures allow the Board to derive confidence in the
completeness and accuracy of the recording of financial
transactions. The processes in place and the level of analytical
detail given within the management accounts facilitate the
identification of unreliable data. The Group’s treasury activities are
operated within a defined policy designed to control the Group’s
cash and to minimise its exposure to foreign exchange and
liquidity risk.
Monitoring – The Audit Committee meets periodically to review
reports from management and the external auditor so as to
derive reasonable assurance on behalf of the Board that financial
control procedures are in place and operate effectively. An
internal audit function reports directly to the Audit Committee and
has annual plans agreed by the Audit Committee.
‘Whistle blowing’ policy
The Group has adopted a formal ‘whistle blowing’ policy, which
allows staff to raise concerns about possible improprieties. No
concerns were raised during the year.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 26
Remuneration Report
This report by the Remuneration Committee for the year ended
30 November 2012 has been approved by the Board for
submission to shareholders for their approval at the forthcoming
annual general meeting.
1. The Remuneration Committee
The Remuneration Committee operates under terms of reference
approved by the Board with the purposes of determining, on
behalf of the Board and shareholders, the fee level for the
Chairman and all elements of the remuneration of the Executive
Directors and Senior Executives and of overseeing major policy
changes to the overall reward structure throughout the Group. In
particular, the Committee keeps under review incentive plans
operated throughout the Group so as to ensure that these plans
are structured appropriately and that the incentive arrangements
for all Senior Executives are coherent. The Remuneration
Committee’s terms of reference can be found on the Group’s
website at www.rm.com. The Remuneration Committee
undertakes an annual appraisal of remuneration policy and
addresses any areas for improvement.
2. Membership of the Committee
The membership of the Remuneration Committee during the year
ended 30 November 2012 comprised Sir Mike Tomlinson (Chair),
Ms Jo Connell, Sir Bryan Carsberg (until 26 March 2012), Ms
Deena Mattar and Lord Andrew Adonis, all of whom are
independent Non-Executive Directors. The other directors attend
meetings by invitation. Following the retirement of Sir Mike
Tomlinson on 24 April 2013, Ms Jo Connell will become Chair of
the Committee.
None of the members of the Remuneration Committee has any
personal financial interest in the Company other than through
fees received or as a shareholder. They are not involved in the
day-to-day running of the business and have no personal
conflicts of interest which could materially interfere with the
exercise of their independent judgment.
As and when required, Hewitt New Bridge Street provide advice
on the Executive Directors’ remuneration and information on
market practice.
3. Remuneration policy
The Remuneration Committee is responsible for the remuneration
of Executive Directors and Senior Executives across the Group.
RM’s remuneration policy is designed to attract, retain and
motivate Senior Executives, both to achieve the Group’s business
objectives and to deliver outstanding shareholder returns, and
alignment of interest between Senior Executives and
shareholders. To achieve this, RM’s remuneration policy aims to
provide ‘median’ reward compared to RM’s comparator group
when acceptable levels of performance have been delivered. For
the achievement of outstanding performance, it aims to deliver
‘upper quartile’ remuneration compared to the comparator group.
The maximum incentive awards are made only when improved
business performance, future investment, customer satisfaction
and superior shareholder returns have been realised.
Under these arrangements, the variable component of the
remuneration package is designed to be focused on
performance. In the event that the Group has not met the targets
set none of the variable elements is earned. If outstanding
performance is achieved, the value of the total package could
double in comparison with an on-target performance. These
incentive arrangements enable Senior Executives to have the
opportunity to earn high levels of reward, but only if they enhance
shareholder returns by meeting the Group’s short-term and
long-term targets. The remuneration policy therefore seeks to
ensure that the Senior Executives are focused on the achievement
of key company objectives. The Remuneration Committee is
satisfied that this model provides appropriate alignment with
Group performance and shareholder returns and therefore acts
as a motivator to Senior Executives.
The Remuneration Committee, together with the entire Board,
also recognises the need for investment in the long-term future of
the Company, not just performance in a single year. Since such
measures are difficult to quantify, the Remuneration Committee
retains the ability to adjust annual bonus payments to ensure that
balance is maintained between short-term performance and
longer-term investment.
The Remuneration Committee has reviewed the level of risk
inherent in the remuneration policy and is satisfied that there is an
appropriate balance between encouraging entrepreneurial
behaviour from Senior Executives, whilst at the same time
ensuring that there are no areas of the policy which encourage
undue risk taking. In relation to the target setting process and
other matters arising in relation to the operation of the annual
bonus and long-term incentive plans, the Remuneration
Committee considers that the structure should not encourage
excessive risk taking.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 27
The remuneration of the Chairman in 2012 comprised a base
salary. The Chairman does not receive any other benefits or
participate in the annual bonus scheme. Any bonus payable is
entirely at the discretion of the Remuneration Committee and
would only apply in exceptional circumstances.
4. Components of remuneration for Executive Directors
a) Base salaries
The policy of the Remuneration Committee is that base salary is
one element of the entire package. The leverage and alignment
(with the strategy and shareholders’ interests) of the remuneration
package are derived from the variable remuneration. The
Remuneration Committee aims to set base salaries at median in
the market. During the year there were no increases in base
salary for Martyn Ratcliffe or Iain McIntosh and the increase for
David Brooks reflects his appointment as Chief Operating Officer.
However, certain benefits in kind were removed for David Brooks
and Iain McIntosh and base salaries adjusted to reflect the loss of
such benefits. In addition, Iain McIntosh’s holiday entitlement was
reduced to accord with the standard Group entitlement for other
staff.
b) Annual bonus
The annual bonus potential is limited to 110% of base salary.
The bonus payment made to the Senior Executives depends on
performance conditions set by the Remuneration Committee at
the beginning of the year. The performance targets align with the
Board’s defined strategy and the Remuneration Committee is
satisfied that the targets set are appropriate and aligned with
shareholders’ interests.
Bonus outcomes for 2012
In 2012 the maximum bonus Executive Directors earned was 55%
of salary. The bonus calculated for David Brooks was pro rated
and took account of his new role from July 2012. The total amount
of bonus received by David Brooks was 36% of his annual salary.
Iain McIntosh received 55% of his annual salary as a bonus.
Long-term incentives
c)
The RM plc Performance Share Plan (PSP), which is the Group’s
principal long-term incentive scheme, provides a competitive
long-term incentive which will target exceptional improvement in
returns to shareholders. Senior Executives may receive an award
of shares worth up to 120%, (or up to 150% in exceptional
circumstances), of salary in any one year, which will vest subject
to performance at the end of three years.
The vesting of all awards and the receipt of shares will be
dependent on continued employment and the satisfaction of
conditions linked to the performance of the Company. Details of
the performance conditions that apply to awards already made
can be found at section 7 (b).
d) Benefits
Benefits comprise principally of the provision of a company car
and fuel allowance, pension and private health insurance.
The Chairman is not eligible for any of these benefits.
5. Directors’ service contracts and letters
of appointment
The Remuneration Committee’s policy on Executive Directors’
service contracts is for them to contain a maximum notice period
of one year. Each service contract expires at the respective normal
retirement date of the Executive Director but is subject to earlier
termination for cause or if notice is given under the contract. The
contracts are designed to allow for flexibility to deal with each
case on its own particular merits in accordance with the law and
policy as they have developed at the relevant time. In the event
that the Company wishes to terminate the employment of an
Executive Director, it will take into account the Executive Director’s
obligations to mitigate their own losses when deciding on an
appropriate level of compensation.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS
28
Remuneration Report continued
Details of the Directors’ service contracts and/or letters of appointment who served for all or part of the year ended 30 November 2012
are shown in the table below:
Initial agreement
date
Expiry date of
current agreement
1 October 2011
1 July 2012
20 December 2007
22 October 2009
1 June 2011
1 June 2011
2 February 2004
1 September 2002
13 February 2002
30 September 2014
Indefinite
20 December 2013
Indefinite
31 May 2014
Indefinite
24 April 2013
-
-
Current Directors*
Lord Andrew Adonis
David Brooks
Jo Connell
Iain McIntosh
Deena Mattar
Martyn Ratcliffe
Sir Mike Tomlinson
Past Directors*
Sir Bryan Carsberg
Rob Sirs
* As at the date of this Report.
Audited information
6. Directors’ remuneration
The total amounts for Directors’ remuneration and other benefits were as follows:
Emoluments
Gains on exercise of share options
Amounts receivable under long-term incentive schemes
Notice to
be given by
employer
3 months
12 months
3 months
12 months
3 months
6 months
3 months
3 months
12 months
Notice to
be given by
individual
3 months
12 months
3 months
12 months
3 months
6 months
3 months
3 months
6 months
12 months to
30 November
2012
£000
14 months to
30 November
2012
£000
1,297
-
-
1,297
1,546
10
60
1,616
stock code: RM.RM plc Annual Report 2012GOVERNANCE 29
Directors’ emoluments in respect of the Directors of the Company who served during the year ended 30 November 2012 were as follows::
Name
Executive
David Brooks (from 01/07/12)
Iain McIntosh
Martyn Ratcliffe
Rob Sirs (until 31/01/12)
Terry Sweeney
Non-Executive
Lord Andrew Adonis
Sir Tim Brighouse
Sir Bryan Carsberg (until 26/03/12)
Jo Connell
John Leighfield
Deena Mattar
Sir Mike Tomlinson
John Windeler
Salaries
and
fees
£000
96
195
285
47
-
36
-
14
38
-
36
39
-
Taxable
benefits
£000
Annual
bonuses
£000
Termination
payments
£000
12 months to
30 November
2012
Total
£000
14 months to
30 November
2011
Total
£000
4
10
-
2
-
-
-
-
-
-
-
-
-
58
124
-
-
-
-
-
-
-
-
-
-
-
-
-
-
313
-
-
-
-
-
-
-
-
-
158
329
285
362
-
36
-
14
38
-
36
39
-
-
240
-
288
714
6
39
50
43
70
17
45
34
786
16
182
313
1,297
1,546
Rob Sirs resigned on 31 January 2012 and received payments totalling £312,697 in full settlement under the terms of his contract with
the Company.
The highest paid Director was Rob Sirs who received no gains on exercise of share options. (2011: Terry Sweeney: £Nil). Under long-term
incentive schemes Mr Sirs received no gains (2011: Terry Sweeney: £28,000).
The fees of Non-Executive Directors are a matter for the consideration of the Board as a whole. From 1 October 2011 all Non-Executive
Directors became members of all Board Committees and moved to a flat rate annual fee of £36,000. The Chairs of the Audit and
Remuneration Committees receive an additional annual fee of £5,000 and £3,000 respectively and the Senior Independent Non-
Executive Director receives an additional annual fee of £2,000. The Chairman did not receive any remuneration for membership of
Committees during the period.
Mr Brooks became a Director on 1 July 2012 and his remuneration reflects the period from that date until 30 November 2012. Mr Brooks’
annual base salary (before pension sacrifice) is £250,000.
Mr Ratcliffe waived all remuneration in 2011, from the date of his appointment as Chairman on 1 June 2011 until 30 November 2011.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 30
Remuneration Report continued
7. Directors’ long-term incentive plans
Performance graph
Total shareholder return
Value (£)
220
190
160
130
100
70
40
2007
2008
2009
2010
2011
2012
RM
FTSE All Share Software & Computer Services Index
FTSE Small Cap Index
This graph shows the value, by 30 November 2012, of £100 invested in RM plc on 30 November 2007 compared with the value of £100
invested in the FTSE Small Cap Index and the FTSE All Share Software & Computer Services Index on the same date. The other points
plotted are the values at intervening financial year-ends.
These indices have been used as RM is a constituent of both. £100 invested in RM shares on 30 November 2007 would have been
worth £49.14 at 30 November 2012. An investor who had invested the same amount in the FTSE All Share Software and Computer
Services Index and the FTSE Small Cap Index would have seen their investment increase to £216.65 and £109.86 respectively over the
same period
a) Co-Investment Plan
The Co-Investment Plan (CIP) is the predecessor plan to the PSP. The final award under the CIP was made in 2008 and lapsed in
December 2011 as the Earning Per Share (EPS) and Total Shareholder Return (TSR) performance conditions attached to the award were
not met. In accordance with the rules the CIP terminated on 29 January 2013 and therefore no further awards will be made.
b) Performance Share Plan
The performance conditions for the March and December 2010 awards made under the Plan were based on EPS and TSR measured
over a three year period and will vest on a sliding scale.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 31
March 2010
Threshold
Maximum
December 2010
Threshold
Maximum
Annual
compound growth
Less than RPI + 3%
RPI + 3%
RPI + 8.5%
EPS
EPS
Proportion of
award vesting
Nil
12.5%
50%
TSR
Position relative to
FTSE Small Cap
Below median
At median
Upper quartile
Proportion of
award vesting
Nil
12.5%
50%
Proportion of
award vesting
Position relative to
FTSE Small Cap
Proportion of
award vesting
TSR
Less than 17.5p
17.5p
Nil
25%
Between 17.5p and 20p
25% to 100%
Below median
At median
Between Median and
Upper quartile
Nil
25%
25% to 100%
At the time of these awards the Remuneration Committee considered that the mix of EPS and TSR performance conditions remained
appropriate measures for the following reasons:
zz
zz
The TSR condition provided a balance to the EPS condition by rewarding relative share price performance and ensured that there
was a share price based discipline in the package.
The EPS target rewards sustained increases in earnings and profitability.
For the TSR performance condition the TSR comparator group remained the FTSE Small Cap Index as at the date of grant.
December 2011 and February 2012
The performance conditions for the December 2011 and February 2012 awards made to other Senior Executives (including the Chief
Financial Officer but excluding the Chairman) were based on share price, namely 50% of the shares awarded will vest if the share price
is £1.00 or better for 20 consecutive trading days at any point between the date of grant and 30 November 2015. A further 50% of the
shares awarded will vest if the share price is £1.25 or higher for 20 consecutive trading days at any point between the date of grant and
30 November 2016. No award can vest before 2 December 2014. If either or both performance conditions are met before that date, then
vesting shall take place on 2 December 2014. If either or both performance conditions are met after 2 December 2014 but before 1
December 2016, then vesting shall take place within 90 days of the performance condition being achieved at the absolute discretion of
the Board.
The Remuneration Committee considers that the share price targets are appropriate measures and are clearly in shareholders’ interests
for the following reasons:
zz
zz
For the first 50% of shares to vest an increase of 36% in the value of the share price from the date of grant is required.
For the second 50% of shares to vest an increase of 70% in the value of the share price from the date of grant is required.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 32
Remuneration Report continued
August 2012
The performance conditions for the August 2012 award made to the Chief Operating Officer were based on TSR measured against the
FTSE Small Cap Index over a three year period and will vest on a sliding scale.
TSR ranking of the Company against the Comparator
Group over the Performance Period
Below median
Median
Between median and upper quartile
Upper quartile or above
Percentage of Award that vests (i.e. expressed as a percentage of
total number of shares originally subject to the Award)
0%
25%
Between 25% and 100%
100%
c) Deferred Bonus Plan
Under this plan 40% of any annual cash bonus payable to the Senior Executives was deferred in ordinary shares for a period of three
years and vested at the expiry of the same period. If a Senior Executive ceases to be an employee of the Group and is deemed not to be
a ‘good leaver’ under the rules of this plan then any shares held will lapse on the leave date. Following a review by the Remuneration
Committee during 2011 it was decided to make no further awards under this plan and this plan will be terminated when the outstanding
matters have been completed.
Audited information
d) Directors’ interests
The Directors’ interests in the Co-Investment Plan, Performance Share Plan and Deferred Bonus Plan are listed below:
Co-Investment Plan
Maximum
number of
matching
shares
at 01/12/11
Market
price on
award
date
Performance
period for
matching
shares
Number
of
matching
shares
released
11,571
148.0p
01/10/08 – 30/09/11
167,229
148.0p
01/10/08 – 30/09/11
126,915
148.0p
01/10/08 – 30/09/11
–
–
–
Market
price on
release
date
Maximum
number of
matching
shares
at 30/11/12
–
–
–
–
–
–
Release
date
–
–
–
Date
of award
David Brooks
16/12/08
Rob Sirs
16/12/08
Terry Sweeney
16/12/08
*The number of matching shares is the maximum (a match of 3 for 1) that could be received by the Executive Director if performance
conditions are fully met.
Awards made in December 2008 lapsed during the year as described in section 7 a) and this scheme has now been terminated.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 33
Performance Share Plan
Maximum
number of
awarded
shares
at 01/12/11
Market
price on
award
date
Performance
period for
awarded
shares
Number
of
awarded
shares
released
Market
price on
release
date
Maximum
number of
awarded
shares
at 30/11/12
Release
date
46,354
105,960
250,000
–
140,349
139,072
300,000
154,020
165,562
500,000
195,904
63,785
171p
151p
73.5p
80p
171p
151p
73.5p
171p
151p
73.5p
171p
151p
01/10/09 – 30/09/12
01/10/10 – 30/11/13
01/12/11 – 30/11/16
01/06/12 – 31/05/15
01/10/09 – 30/09/12
01/10/10 – 30/11/13
01/12/11 – 30/11/16
01/10/09 – 30/09/12
01/10/10 – 30/11/13
01/12/11 – 30/11/16
01/10/09 – 30/09/12
01/10/10 – 30/11/13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46,354
105,960
250,000
250,000
140,349
139,072
300,000
98,401
60,997
-
114,277
63,785
Date
of award
David Brooks
04/03/10
10/12/10
01/12/11
06/08/12
Iain McIntosh
04/03/10
10/12/10
01/12/11
Rob Sirs*
04/03/10
10/12/10
01/12/11
Terry Sweeney**
04/03/10
10/12/10
* Following Rob Sirs’ resignation the maximum number of awarded shares were either reduced on a pro rated basis or lapsed in total.
**Following Terry Sweeney’s resignation by mutual agreement the maximum number of awarded shares was reduced on a pro rated
basis.
Deferred Bonus Plan
Total
shares
deferred
at 01/12/11
Market
price on
award
date
Number
of
deferred
shares
released
Deferred
period for
shares
Market
price on
release
date
Total
shares
deferred
at 30/11/12
Release
date
25,151
£1.60
01/10/10 – 30/09/13
–
–
–
25,151
33,211
28,737
36,567
£1.47
£1.59
£1.60
01/10/08 – 30/09/11
01/10/09 – 30/09/12
01/10/10 – 30/09/13
33,211
28,737
36,567
07/02/12
07/02/12
07/02/12
£0.73
£0.73
£0.73
–
–
–
Date
of award
Iain McIntosh
15/12/10
Rob Sirs
16/12/08
15/12/09
15/12/10
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 34
Remuneration Report continued
8. Directors’ share options
The Remuneration Committee has determined that Senior Executives will not be granted share options, except in exceptional
circumstances. Senior Executives have been granted options in previous years and an exceptional share option grant was made to the
Chairman on 26 October 2011.
a) Share option scheme
The Company currently operates two executive share option schemes: the RM plc 2001 Executive Share Option Scheme (2001 Scheme);
and the RM plc 2004 Executive Share Option Scheme (2004 Scheme). RM share options are not offered at a discount.
2001 Scheme
Under the 2001 Scheme, options were granted at the market value at the time of grant and were exercisable three years after the date
of the grant, provided performance conditions were met. The performance conditions related to the Group’s EPS (set under UKGAAP
excluding goodwill and before exceptional charges) growth relative to RPI, with the number of options exercisable varying on a sliding
scale depending on the extent to which EPS growth exceeds RPI. The 2001 Scheme had a life of three years, and closed in 2004.
2004 Scheme
Shareholder approval was obtained in January 2004 for an extension of the 2001 Scheme with a reduced overall dilution limit of 13%
(down from 15% in the 2001 Scheme). RM has also committed to keep future years’ annual option grants to less than 1% pa dilution.
Maximum grants under the scheme are 200% of basic salary. Neither of these provisions applied to the Chairman’s October 2011 Share
Option grant which was approved by shareholders at the 2012 annual general meeting.
It is intended that the 2004 Scheme will only be used at Director level in exceptional circumstances. There will be no re-testing of
performance conditions.
No further 2004 Scheme awards will be made as under the rules of the scheme no options may be granted after 28 January 2013.
Audited information
b) Directors’ interests
The Directors’ interests in share options are listed below
Granted
in
year
Exercised
in
year
Lapsed
in
year
At
30/11/12
Exercise
price
Market
price at
date of
exercise
Date from
which
exercisable
Expiry
date
–
–
–
–
Nil
Nil
–
–
–
–
–
–
–
10,000
20,000
30,000
£1.742
£1.973
–
1,000,000
£0.51125
Nil
12,000
Nil
100,000
–
–
£1.445
£1.973
–
–
–
–
–
06/12/09
28/11/10
06/12/16
28/11/17
26/10/14
26/10/21
01/12/06
31/01/13
28/11/10
18/11/12
At
01/12/11
David Brooks
10,000
20,000
30,000
Martyn Ratcliffe
1,000,000
Rob Sirs
12,000
Terry Sweeney
100,000
stock code: RM.RM plc Annual Report 2012GOVERNANCE
35
The performance conditions for share options granted to Directors which were unexpired during the year are as follows:
2001 Scheme
Grant date
December 2002
December 2003
2004 Scheme
Grant date
6 December 2006
28 November 2007
26 October 2011
Performance condition
3-year growth EPS
RPI + 3%
RPI + 22%
3-year growth EPS
RPI + 7.5%
RPI + 17.5%
% of options vesting (with sliding scale)
25%
100%
33%
100%
Performance condition
% of Options vesting
3-year growth EPS
RPI + 5%
3-year growth EPS
RPI + 3%*
Closing mid-market share price must exceed
100 pence per share, in 20 consecutive trading
days, prior to 30 November 2015 and for each
two share options awarded Martyn Ratcliffe must
have purchased five RM shares prior to
30 November 2012.
100% (no sliding scale)
100% (no sliding scale)
On a sliding scale up to 100% depending on the
number of shares purchased by Martyn Ratcliffe.
*
The gain on the option will be restricted to 2.5 times the exercise price of the option.
The total number of options currently outstanding is 3,112,900 which represents 3.33% of RM’s shares in issue at 30 November 2012.
There were no gains on exercise of options during the year.
The market price of the ordinary shares at 30 November 2012 was 83.25p per share and the range during the period was 58.00p to
93.50p per share.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 36
Remuneration Report continued
9. Directors’ shareholdings
The beneficial interests of the Directors in the ordinary shares of RM plc as at 30 November 2012 were:
Lord Andrew Adonis
David Brooks
Jo Connell
Iain McIntosh
Deena Mattar
Martyn Ratcliffe
Sir Mike Tomlinson
*or date of appointment if later.
30 November
2012
30 November
2011*
–
8,508
35,000
50,151
20,495
3,127,267
–
–
8,508
35,000
50,151
20,495
1,527,267
–
No changes to the Directors’ shareholdings or share options took place between 1 December 2012 and the date of this Report.
10. Directors’ pensions
a) Defined benefit scheme
David Brooks and Rob Sirs were active members of the Group’s defined benefit pension scheme, the Research Machines plc 1988
Pension Scheme during the period. This scheme provides a pension of 1/60ths of a member’s final pensionable salary for each year of
service, subject to HMRC limits. Only base salary is pensionable.
Normal retirement age is 60 in respect of benefits accrued prior to 1 May 2002. For benefits accrued after 1 May 2002 normal retirement
age is 65, but members were able to choose to maintain the normal retirement age at 60 subject to paying a higher rate of
contributions:
Member contributions % salary
8.3%
14.1%
Normal retirement age
(Pre 1 May 2002 benefits)
Normal retirement age
(Post 1 May 2002 benefits)
60
60
65
60
David Brooks paid contributions at the higher rate whilst Rob Sirs paid at the lower rate.
The scheme also provides dependant pensions. Member contributions are notionally held in individual accounts that are increased in
line with the fund’s investment returns. Benefits received under the scheme are guaranteed to have a value at least as high as the value
of these individual accounts at retirement. The scheme closed to future accrual of benefits on 31 October 2012.
b) Defined contribution scheme
Iain McIntosh was a member of the Group’s main UK defined contribution pension scheme throughout 2012 and David Brooks joined
the scheme from 1 November 2012.
stock code: RM.RM plc Annual Report 2012GOVERNANCE 37
Audited information
c) Directors’ accrued pensions
The table below shows at the year end: the accrued pension had the Directors left employment at 30 November 2012; the increase in
the accrued pension during the period; the increase excluding inflation, and the transfer value of that increase less member
contributions and any increase/(decrease) in this value assessed on the transfer value basis of the scheme. Transfer values have been
calculated in accordance with the Occupational Pension Schemes (Transfer Value) Regulations 1996.
Accrued annual pension at 30 November 2011
Increase in accrued pension during the period
Accrued annual pension at 30 November 2012
Increase in accrued pension (net of inflation)
Transfer value of accrued pension at 30 November 2011
Increase/(decrease) in transfer value (net of Director’s contributions)
Transfer value of accrued pension at 30 November 2012
Transfer value of increase (net of inflation and Director’s contributions)
David Brooks
(age 43)
£000
Rob Sir
(age 51)
£000
25
3
28
2
382
11
393
29
75
–
75
–
1,198
(28)
1,170
8
Subsequent to 31 January 2012 Rob Sirs ceased pensionable service. As noted above in this Report, the scheme closed to future accrual
of benefits on 31 October 2012 and consequently the figures above include pension accrued prior to this date only.
All Executive Directors, except for the Chairman, were members of the SMART Scheme (Save Money and Reduce Tax - pension salary
sacrifice) and as such do not make employee contributions.
Payments of £49,983 (£16,473 Employer’s contribution and £33,510 personal contribution under SMART) in respect of Iain McIntosh and
£4,396 (£1,458 Employer’s contribution and £2,938 personal contribution under SMART) in respect of David Brooks were paid by the
Company to a defined contribution pension scheme during the period.
11. Compliance with regulations
This Report has been prepared in accordance with Schedule 8 of the Large and Medium-Sized Companies and Group (Accounts and
Reports) Regulations 2008. The Report also meets the relevant requirements of the Listing Rules of the UK Listing Authority and illustrates
how the principles of the UK Corporate Governance Code relating to Directors’ remuneration are applied by the Company.
The Group’s auditors are required to comment on whether certain sections of the Remuneration Report have been prepared in
accordance with Schedule 8 of the Large and Medium-Sized Companies and Group (Accounts and Reports) Regulations 2008.
Accordingly, sections 6, 7(d), 8(b) and 10(c) have been audited by KPMG Audit Plc.
The Remuneration Committee believes in dialogue with shareholders on remuneration matters and, when appropriate, consults with
leading shareholders about aspects of the Company’s reward programmes.
By Order of the Board
Sir Mike Tomlinson
Chair, Remuneration Committee
21 February 2013
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 38
Independent Auditor’s Report
We have audited the financial statements of RM plc for the year
ended 30 November 2012 set out on pages 40 to 101. We have
not audited the proforma information on pages 102 to 106. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and as regards
the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 10, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit,
and express an opinion on, the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for Auditors.
Opinion on financial statements
In our opinion:
zz
zz
zz
zz
the financial statements give a true and fair view of the
state of the Group’s and of the parent Company’s affairs as
at 30 November 2012 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
the parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
zz
zz
the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Report of the Directors for the
financial period for which the financial statements are
prepared is consistent with the financial statements.
Scope of the audit of the financial statements
A description of the scope of an audit of financial
statements is provided on the Financial Reporting
Council’s website at
www.frc.org.uk/auditscopeukprivate.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS 39
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
zz
zz
zz
adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by
law are not made; or
zz we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
zz
zz
zz
the Directors’ statement, set out on page 14, in relation to
going concern;
the part of the Corporate Governance Report on page 17
relating to the Company’s compliance with the nine
provisions of the UK Corporate Governance Code specified
for our review; and
certain elements of the report to shareholders by the Board
on Directors’ remuneration.
Tudor Aw
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
Arlington Business Park, Theale,
Reading, RG7 4SD, United Kingdom
21 February 2013
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 40
Consolidated income statement
for the year ended 30 November 2012
Year
ended
30 November
2012
Total
£000
288,688
(217,868)
70,820
(57,249)
14 months
ended
30 November
2011
Total
£000
350,785
(260,113)
90,672
(80,655)
Adjusted
£000
350,785
(260,113)
90,672
(80,655)
Adjustments
£000
–
–
–
–
Notes
3
5
Adjusted
£000
288,688
(217,868)
70,820
(57,249)
Adjustments
£000
–
–
–
–
(244)
(244)
–
–
–
–
–
–
–
–
–
–
(57,249)
13,571
926
(1,359)
13,138
(3,160)
(3,212)
(2,448)
(129)
(312)
(457)
715
195
1,324
–
(4,568)
(4,568)
–
(181)
(4,749)
(301)
–
–
–
–
–
–
–
–
–
32
(728)
(728)
(12,370)
(4,391)
(1,378)
(8,773)
(5,986)
–
–
–
(32)
(33,658)
(33,658)
–
–
(33,658)
3,887
(12,370)
(4,391)
(1,378)
(8,773)
(5,986)
–
–
–
–
(114,281)
(23,609)
1,079
(850)
(23,380)
271
(3,212)
(2,448)
(129)
(312)
(457)
715
195
1,324
–
(61,817)
(80,623)
9,003
926
(1,540)
8,389
(3,461)
10,049
1,079
(850)
10,278
(3,616)
9,978
(5,050)
4,928
6,662
(29,771)
(23,109)
10.9p
10.9p
(5.5)p
(5.5)p
5.4p
5.4p
0.75p
2.25p
7.3p
7.3p
(32.6)p
(32.6)p
(25.3)p
(25.3)p
1.47p
1.53p
Revenue
Cost of sales
Gross profit
Operating expenses
– Amortisation of acquisition related
intangible assets
– Impairment of goodwill, acquisition
related intangible assets, other
intangible assets and investments
– Loss on sale of operations
– Share-based payment charges
– Restructuring costs
– Increase in provision for dilapidations
on leased properties and onerous
lease contracts
– Exceptional credit on settlement
– Release of deferred consideration
– Exceptional net credit on defined
benefit pension scheme
Share of results of associate and joint venture
Profit/(loss) from operations
Investment income
Finance costs
Profit/(loss) before tax
Tax
Profit/(loss) for the period attributable
to equity holders of the parent
Earnings/(loss) per ordinary share:
Basic
Diluted
Paid and proposed dividends per share:
Interim
Final
5
3 & 7
8
9
10
11
Adjustments to profit have been presented to give a better guide to business performance (refer to Note 1).
All activities relate to continuing operations.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS Consolidated statement of comprehensive income
for the year ended 30 November 2012
Profit/(loss) for the period
Exchange differences on translation of foreign operations
Transfer of exchange reserves to income statement on sale of foreign operations
Actuarial gains and (losses) on defined benefit pension scheme
Fair value gain on hedged financial instruments
Current tax on items taken directly to equity
Deferred tax on items taken directly to equity
Other comprehensive expense for the period
Total comprehensive expense for the period attributable to equity holders
of the parent
Total tax credited to equity in the period was £1,481,000 (2011: £1,982,000).
41
Year ended
30 November
2012
£000
4,928
14 months
ended
30 November
2011
£000
(23,109)
(171)
–
(7,603)
5
2,086
(605)
(6,288)
(105)
(1,409)
(10,215)
145
(67)
2,049
(9,602)
(1,360)
(32,711)
Notes
28
9d
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 42
Consolidated balance sheet
as at 30 November 2012
Non-current assets
Goodwill
Acquisition related intangible assets
Other intangible assets
Property, plant and equipment
Interest in associate
Other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Tax assets
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Trade and other payables
Provisions
Liabilities directly associated with assets held for sale
Net current assets
Non-current liabilities
Retirement benefit obligation
Bank loans
Other payables
Provisions
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium account
Own shares
Capital redemption reserve
Hedging reserve
Translation reserve
Retained earnings
Total equity
At
30 November
2012
£000
At
30 November
2011
£000
Notes
12
13
13
14
18
9d
16
18
9e
20
24b
19
21
24b
28
20
19
21
22
23
14,395
960
2,278
11,440
58
1,911
6,331
37,373
14,787
58,000
847
37,823
–
111,457
148,830
(87,343)
(4,108)
–
(91,451)
20,006
(20,433)
–
(6,785)
(4,929)
(32,147)
(123,598)
25,232
1,870
26,997
(2,972)
94
(39)
(56)
(662)
25,232
17,349
1,202
3,607
16,600
316
2,590
6,973
48,637
18,827
62,270
2,058
24,529
6,791
114,475
163,112
(77,781)
(7,752)
(2,914)
(88,447)
26,028
(21,174)
(13,026)
(6,286)
(5,661)
(46,147)
(134,594)
28,518
1,869
26,963
(3,202)
94
(44)
115
2,723
28,518
These financial statements of RM plc, registered number 01749877, were approved and authorised for issue by the Board of Directors
on 21 February 2013.
Martyn Ratcliffe
Director
Iain McIntosh
Director
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS Company balance sheet
as at 30 November 2012
Non-current assets
Investments
Trade and other receivables
Current assets
Trade and other receivables
Tax assets
Total assets
Current liabilities
Trade and other payables
Net current liabilities
Non-current liabilities
Provisions
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium account
Own shares
Capital redemption reserve
Retained earnings
Total equity
43
Notes
15
18
19
21
22
23
At
30 November
2012
£000
At
30 November
2011
£000
55,654
1,661
57,315
–
94
94
58,735
712
59,447
31
48
79
57,409
59,526
(3,686)
(3,686)
(3,592)
(629)
(629)
(4,315)
53,094
1,870
26,997
(2,972)
94
27,105
53,094
(4,700)
(4,700)
(4,621)
(126)
(126)
(4,826)
54,700
1,869
26,963
(3,202)
94
28,976
54,700
These financial statements of RM plc, registered number 01749877, were approved and authorised for issue by the Board of Directors
on 21 February 2013.
Martyn Ratcliffe
Director
Iain McIntosh
Director
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 44
Consolidated cash flow statement
for the year ended 30 November 2012
Profit/(loss) from operations
Adjustments for:
(Gain)/loss on foreign exchange derivatives
Impairment of investment in associate
Amortisation of acquisition related intangible assets
Impairment of acquisition related intangible assets
Impairment of goodwill
Amortisation of other intangible assets
Impairment of other intangible assets
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Loss on disposal of other intangible assets
Loss on sale of operations
Increase in provisions
Release of deferred consideration
Share–based payment charges
Exceptional pension credit
Operating cash flows before movements in working capital
Decrease in inventories
Decrease in receivables
Increase/(decrease) in payables
Cash generated by operations
Defined benefit pension contribution in excess of current service cost
Tax paid
Income on sale of finance lease debt
Interest paid:
– bank overdrafts and loans
– borrowing facility arrangement fee and commitment fee
– other
Net cash inflow from operating activities
Investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of other intangible assets
Proceeds from sale of operations
Amounts advanced to third party
Amounts received from/(advanced to) joint venture undertaking
Net cash generated by/(used in) investing activities
Financing activities
Dividends paid
Proceeds from share capital issue, net of share issue costs
(Repayment of)/increase in borrowings
Purchase of own shares
Repayment of loan notes and deferred consideration
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of period
Year ended
30 November
2012
£000
9,003
14 months
ended
30 November
2011
£000
(23,609)
Notes
15
13
13
12
13
13
14
14
24a
28
28
7
8
8
8
11
(250)
258
244
–
2,954
1,254
–
5,701
144
302
496
2,448
841
(195)
129
(1,824)
21,505
3,610
3,895
4,529
33,539
(7,279)
(59)
644
(92)
(658)
–
26,095
258
856
(1,852)
(400)
2,481
(919)
1,878
2,302
(2,090)
35
(13,005)
–
–
(15,060)
13,337
24,529
(43)
37,823
234
660
728
443
10,992
1,272
275
8,173
–
(147)
62
4,391
11,660
–
1,378
–
16,512
3,079
29,589
(24,337)
24,843
(1,768)
(2,341)
817
(483)
–
(20)
21,048
141
483
(4,526)
(2,055)
3,775
–
(1,880)
(4,062)
(6,128)
46
1,507
(212)
(1,574)
(6,361)
10,625
13,814
90
24,529
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS Consolidated net funds
for the year ended 30 November 2012
45
Cash and cash equivalents
Bank loans
Net cash
Loan notes
Net funds
Deferred consideration
Net funds less deferred consideration
Non–cash movements
At
30 November
2011
£000
24,529
(13,026)
11,503
–
11,503
(195)
11,308
Cash flow
£000
13,337
13,005
26,342
–
26,342
–
26,342
Foreign
exchange
£000
(43)
21
(22)
–
(22)
–
(22)
At
30 November
2012
£000
37,823
–
37,823
–
37,823
–
37,823
Other
£000
–
–
–
–
–
195
195
Company cash flow statement
for the year ended 30 November 2012
Loss from operations
Adjustments for:
Impairment of investment in subsidiaries
Loss on disposal of investment in subsidiaries
Impairment of investment in associate
Operating cash flows before movements in working capital
Increase in receivables
(Decrease)/increase in payables
Cash (used in)/generated by operations
Dividends received – trading
Interest paid
Net cash inflow from operating activities
Investing activities
Amounts advanced to third parties
Interest received
Net cash (used in)/generated by investing activities
Financing activities
Dividends paid
Proceeds from share capital issue, net of share issue costs
Proceeds from disposal of investments
Purchase of own shares
Repayment of loan notes and deferred consideration
Net cash generated by/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning and end of period
Year ended
30 November
2012
£000
(21)
14 months
ended
30 November
2011
£000
(10,150)
Notes
4,638
1,300
258
6,175
–
(12,346)
(6,171)
6,480
–
309
(919)
295
(624)
(2,090)
35
2,370
–
–
315
–
–
7,565
1,243
698
(644)
(655)
2,484
1,185
4,410
(20)
5,575
–
486
486
(6,128)
46
903
(212)
(670)
(6,061)
–
–
11
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 46
Consolidated statement of changes in equity
for the year ended 30 November 2012
Share
premium
account
£000
Share
capital
£000
Capital
redemption
reserve
£000
Own
shares
£000
Notes
Hedging
reserve
£000
Translation
reserve
£000
Retained
earnings
£000
Total
equity
£000
1,868
26,918
(3,805)
94
(189)
1,629
39,630
66,145
At 1 October 2010
Loss for the period
Other comprehensive income
Exchange differences on translation of
foreign operations
Transfer of exchange reserves to
income statement on sale of foreign
operations
Actuarial gains and (losses) on defined
benefit scheme
Fair value gain on interest rate swap
Tax credit on items taken directly to equity
Total other comprehensive income/(expense)
Transactions with owners of the Company
Purchase of shares
Share issues
Share-based payment awards
exercised in period
Share-based payment fair value
charges
Dividends paid
At 30 November 2011
Profit for the year
23
22
6
11
Other comprehensive income
Exchange differences on translation of
foreign operations
Actuarial gains and (losses) on defined
benefit scheme
Fair value gain on hedged financial
instruments
Tax credit on items taken directly to equity
Total other comprehensive income/(expense)
Transactions with owners of the Company
Share issues
Share-based payment awards
exercised in year
Share-based payment fair value charges
Dividends paid
22
6
11
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
45
–
–
–
–
–
–
–
–
–
–
(212)
–
815
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
145
–
145
–
–
–
–
–
–
(23,109)
(23,109)
(105)
(1,409)
–
–
(105)
(1,409)
–
–
–
(10,215)
–
1,982
(10,215)
145
1,982
(1,514)
(8,233)
(9,602)
–
–
–
–
–
–
–
(212)
46
(815)
–
1,378
(6,128)
1,378
(6,128)
1,869
26,963
(3,202)
94
(44)
115
2,723
28,518
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
34
–
–
–
–
–
–
–
–
–
–
230
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
5
–
–
–
–
–
4,928
4,928
(171)
–
(171)
–
–
–
(7,603)
(7,603)
–
1,481
5
1,481
(171)
(6,122)
(6,288)
–
–
–
–
–
35
(230)
129
(2,090)
–
129
(2,090)
At 30 November 2012
1,870
26,997
(2,972)
94
(39)
(56)
(662) 25,232
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS 47
Company statement of changes in equity
for the year ended 30 November 2012
Share
premium
account
£000
Share
capital
£000
Capital
redemption
reserve
£000
Own
shares
£000
Retained
earnings
£000
Total
equity
£000
Notes
At 1 October 2010
Loss for the period
1,868
–
26,918
–
(3,805)
–
94
–
39,820
(5,279)
64,895
(5,279)
Total other comprehensive income
Transactions with owners of the Company
Purchase of shares
Share issues
Share-based payment awards exercised
in the period
Share-based payment fair value charges
Dividends paid
At 30 November 2011
Profit for the year
Total other comprehensive income
Transactions with owners of the Company
Share issues
Share-based payment awards exercised in the year
Share-based payment fair value charges
Dividends paid
–
–
1
–
–
–
–
–
45
–
–
–
–
(212)
–
815
–
–
1,869
26,963
(3,202)
–
–
1
–
–
–
–
–
34
–
–
–
–
–
–
230
–
–
23
6
11
22
6
11
–
–
–
–
–
–
94
–
–
–
–
–
–
–
–
–
(815)
1,378
(6,128)
–
(212)
46
–
1,378
(6,128)
28,976
54,700
320
320
–
–
–
(230)
129
(2,090)
35
–
129
(2,090)
At 30 November 2012
1,870
26,997
(2,972)
94
27,105
53,094
As permitted by section 408 of the Companies Act 2006, no separate income statement is presented in respect of the parent Company.
The Company made a profit for the year ended 30 November 2012 amounting to £0.3m (14 months ended 30 November 2011: loss of
£5.3m).
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 48
Notes to the report and accounts
1. General information
RM plc is a company incorporated in the United Kingdom. It is the parent company of a group of companies, the nature of whose
operations and its principal activities are set out in the Report of the Directors.
In the prior period, the financial year end of the Company and its subsidiaries changed from 30 September to 30 November. Following
the change of accounting reference date, these audited accounts disclose the financial performance and cash flows for the year ended
30 November 2012 and the financial position as at 30 November 2012. As a result, the comparative financial information which is for the
14 months ended 30 November 2011 covers an indirectly comparable time period. Proforma financial information for the comparable
year ended 30 November 2011 has been included within an appendix to this Report and Accounts and is unaudited.
The accounting policies are drawn up in accordance with those International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted for use in the EU and therefore
comply with Article 4 of the EU IAS Regulation applied in accordance with the provisions of the Companies Act 2006.
Income statement presentation
The income statement is presented in three columns. This presentation is intended to give a better guide to business performance by
separately identifying the following adjustments to profit: the amortisation of acquisition related intangible assets; the impairment of
goodwill, acquisition related intangible assets, other intangible assets and investments; the loss on sale of operations; share-based
payment charges; restructuring costs; increase in provision for dilapidations on leased properties and onerous lease contracts;
exceptional credit on settlement; release of deferred consideration; and an exceptional net pension credit on the Group’s defined
benefit pension scheme. The columns extend down the income statement to allow the tax and earnings per share impacts of these
transactions to be understood.
Adoption of new and revised International Financial Reporting Standards
The IFRIC interpretations, amendments to existing standards and new standards that are mandatory and relevant for the Group’s
accounting periods beginning on or after 1 December 2011 have been adopted. The following new standards and interpretations have
been adopted in the current period but have not impacted the reported results or the financial position:
zz
zz
IAS 34 Interim Financial Reporting, significant events and transactions
IFRS 7 Financial Instruments: Disclosures, transfers of financial assets
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
49
1. General information continued
New standards and interpretations not yet adopted
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in
these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
zz
zz
zz
zz
zz
zz
zz
zz
zz
zz
zz
zz
IFRS 7 Financial Instruments, Disclosures – offsetting financial assets and financial liabilities
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IAS 1 Presentation of Financial Statements, classification of the requirements for comparative data
IAS 1 Presentation of Financial Statements, presentation of items of other comprehensive income
IAS 19 (revised) Employee Benefits
IAS 27 (revised) Consolidated and Separate Financial Statements
IAS 32 Financial Instruments: Presentation, tax effect of distribution to holders of equity instruments offsetting financial assets
and liabilities
IAS 34 Interim Financial Reporting – segment information for total assets and liabilities
The Directors are finalising their analysis and do not expect that the adoption of the standards listed above will have a material impact
on the financial statements of the Group in future periods, except as follows:
zz
zz
zz
IFRS 9 will impact both the measurement and disclosures of Financial Instruments
IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures
IAS 19 (revised) will impact the measurement of the various components representing movements in the defined benefit pension
obligation and associated disclosures, but not the Group’s total obligation. It is likely that following the replacement of expected
returns on plan assets with a net finance cost in the income statement, the profit for the period will be reduced and accordingly
other comprehensive income increased, although this will ultimately depend on the scheme’s financial position, investment returns
and liability assumptions at the time
The Company intends to implement FRS 101 Reduced Disclosure Framework for the year ended 30 November 2013 unless objections are
received from shareholders holding in aggregate 5% or more of the total allotted shares in the Company. Objections must be received
in writing addressed to the Company Secretary at RM plc at its registered office by 24 April 2013. This will not affect the recognition and
measurement of the financial information presented however will reduce disclosures within the RM plc company financial statements
for future periods. This will not affect the consolidated financial statements of the Group.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed
review has been completed.
The principal IFRS accounting policies adopted by the Group are listed below.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 50
Notes to the report and accounts continued
2. Principal accounting policies
Basis of preparation
The financial statements have been prepared on the historical cost basis except for certain financial instruments, share-based
payments and pension assets and liabilities which are measured at fair value and disposal groups held for sale which are measured at
the lower of their carrying amount and fair value less costs to sell. The preparation of financial statements, in conformity with generally
accepted accounting principles, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are based on the Directors’ best knowledge of current events and
actions, actual results ultimately may differ from those estimates.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in
the Business Review. The financial position of the Group, its cash flows and borrowing facilities are described in the Chief Financial
Officer’s Report and the Report of the Directors. The Group’s risk management policies are outlined in the Principal risks and
uncertainties table in the Report of the Directors. Notes 18, 19, and 20 to the financial statements outline the Group’s financial assets
and liabilities, including details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Directors have assessed forecast future cash flows for the foreseeable future, being a period of at least a year following the
approval of the Accounts, and are satisfied that the Group’s agreed working capital facilities are sufficient to meet these cash flows.
Given the Group’s continued seasonality and long-term education project contractual commitments, cash flows are forecast to be at
their highest outflow between July and September.
Considering the above, the Directors believe that the Group is well placed to manage its business risks successfully despite the
continued current uncertain economic outlook and have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis of accounting in preparing
the annual financial statements.
Consolidation
The Group financial statements incorporate the financial statements of the Company and all its subsidiaries for the periods during which
they were members of the Group.
Inter-company balances and transactions between Group companies are eliminated on consolidation. On acquisition, assets and
liabilities of subsidiaries are measured at their fair values at the date of acquisition with any excess of the cost of acquisition over this
value being capitalised as goodwill.
Investment in subsidiaries
In the Company accounts, investments in subsidiaries are stated at cost less any provision for impairment where appropriate.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of exchange, of assets given and liabilities incurred or assumed in exchange for control. The acquired
company’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations are recognised at their fair value at the acquisition date.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
51
2. Principal accounting policies continued
Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather
than through continuing use, are classified as held for sale. This condition is regarded as met only when the sale is highly probable and
the asset (or disposal group) is available for immediate sale in its present condition. The identification of disposal groups includes the
allocation of goodwill from the relevant cash generating unit subject to the transaction.
Immediately before classification as held for sale, the assets, or components of a disposal group, are re-measured in accordance with
the Group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount
and fair value less costs to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and
liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or employee benefit
assets, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as
held for sale and subsequent gains and losses on re-measurement are recognised in profit or loss. Gains are not recognised in excess
of any cumulative impairment loss.
Intangible assets and property, plant and equipment once classified as held for sale are not amortised or depreciated.
Revenue
Revenue represents amounts receivable for goods supplied and services provided to third-parties net of VAT and other
sales-related taxes.
Revenue from the sale of goods and services is recognised upon transfer to the customer of the significant risks and rewards of
ownership. This is generally when goods are despatched to, or services performed for, customers. Revenue on hardware and perpetual
software licences is recognised on shipment providing there are no unfulfilled obligations that are essential to the functionality of the
delivered product and with consideration of any significant credit risk uncertainty. If such obligations exist, revenue is recognised as they
are fulfilled. Revenue from term licences is spread over the period of the licence, reflecting the Group’s obligation to support the relevant
software products or update their content over the term of the licence. Revenue from contracts for maintenance, support and annually
and other periodically contracted products and services is recognised on a pro-rata basis over the contract period. Revenue from
installation, consultancy and other services is recognised when the service has been provided. For multiple element arrangements
revenue is allocated to each element on a fair value basis. The portion of the revenue allocated to an element is recognised when the
revenue recognition criteria for that element have been met. Appropriate provisions for returns, trade discounts and other allowances
are deducted from revenue.
Investment income is recognised in the income statement in the period in which it arises.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 52
Notes to the report and accounts continued
2. Principal accounting policies continued
Long-term contracts
Revenue on long-term contracts is recognised while contracts are in progress. Revenue is recognised proportionally to the stage of
completion of the contract, based on the fair value of goods and services provided to date, taking into account the sign-off of milestone
delivery by customers.
Long-term contracts represent those accounted for in accordance with the principles of IAS 18 Revenue and related linkage with IAS 11
Construction Contracts.
Profit on long-term contracts is recognised when the outcome of the contract can be assessed with reasonable certainty, including
assessment of contingent and uncertain future expenses. Thereafter profit is recognised based upon the expected outcome of the
contract and the revenue recognised at the balance sheet date as a proportion of total contract revenue.
If the outcome of a long-term contract cannot be assessed with reasonable certainty, no profit is recognised. Any expected loss on a
contract as a whole, is recognised as soon as it is foreseen. The loss is calculated using a discounted cash flow model utilising a
discount rate that reflects an estimate of the market’s assessment of the time value of money and the risks specific to the liability. Any
unwinding of the discount is included in the income statement in finance costs.
Where the cumulative fair value of goods and services provided exceeds amounts invoiced the balance is included within trade and
other receivables as long-term contract balances. Where amounts invoiced exceed the fair value of goods and services provided the
excess is first set off against long-term contract balances and then included in amounts due to long-term contract customers within
trade and other payables.
Pre-contract costs are expensed until the awarding of the contract to the Group is considered to be virtually certain which is not before
the Group has been appointed sole preferred bidder. Once virtual certainty has been established and the contract is expected to be
awarded within a reasonable timescale and pre-contract costs are expected to be recovered from the contract’s net cash flows, then
pre-contract costs are recognised as an asset and accounted for as long-term contract costs.
Intangible assets
All intangible assets, except goodwill, are stated at cost less accumulated amortisation and any accumulated impairment losses.
Goodwill
Goodwill represents the amount by which the fair value of the cost of a business combination exceeds the fair value of net assets
acquired. Goodwill is not amortised and is stated at cost less any accumulated impairment losses. For business combinations occurring
before 1 October 2004, the Group’s transition date to IFRS, the cost of goodwill is deemed to be the UK GAAP net book value at this date.
The recoverable amount of goodwill is tested for impairment annually or when events or changes in circumstance indicate that it might
be impaired. Impairment charges are deducted from the carrying value and recognised immediately in profit or loss. For the purpose of
impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of the
combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying
amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to
the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
53
2. Principal accounting policies continued
Research and development costs
Research and development costs associated with the development of software products or enhancements and their related intellectual
property rights are expensed as incurred until all of the following criteria can be demonstrated, in which case they are capitalised as an
intangible asset:
zz
zz
zz
The technical feasibility of completing the intangible asset so that it will be available for use or sale
An intention to complete the intangible asset and use or sell it
Ability to use or sell the intangible asset
zz How the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the
existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness
of the intangible asset
The availability of adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset
An ability to measure reliably the expenditure attributable to the intangible asset during its development
zz
zz
The technological feasibility for the Group’s software products is assessed on an individual basis and is generally reached shortly before
the products are released to manufacturing, and late in the development cycle. Capitalised development costs are amortised on a
straight-line basis over their useful lives, once the product is available for use. Useful lives are assessed on a project-by-project basis.
Other intangible assets
Intangible assets purchased separately, such as software licences that do not form an integral part of hardware and the costs of
internally generated software for the Group’s use, are capitalised at cost and amortised over their useful lives of 2-8 years.
For business combinations occurring after 1 October 2004, net assets acquired includes an assessment of the fair value of separately
identifiable acquisition related intangible assets, in addition to other assets, liabilities and contingent liabilities purchased. These are
amortised over their useful lives which are individually assessed.
Property, plant and equipment
Property, plant and equipment assets are stated at cost, less depreciation and provision for impairment where appropriate. Property,
plant and equipment are depreciated by equal annual instalments to write down the assets to their estimated disposal value at the end
of their useful lives as follows:
Freehold property
Leasehold building improvements
Plant and equipment
Computer equipment
Vehicles
Up to 50 years
Up to 25 years
3 – 10 years
2 – 5 years
2 – 4 years
Computer units produced by the Group which are used for the purposes of administration, research and development and customer
demonstrations are capitalised and carried at cost less accumulated depreciation.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 54
Notes to the report and accounts continued
2. Principal accounting policies continued
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior periods. A reversal of an
impairment loss is recognised as income immediately.
Financial instruments
Trade and other receivables
Trade and other receivables are not interest bearing and are stated at their original invoiced value reduced by appropriate allowances
for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with a maturity of three months or less. Bank
overdrafts are included in cash and cash equivalents only to the extent that the Group has the right of set-off.
Trade and other payables
Trade payables on normal terms are not interest bearing and are stated at original invoiced amount.
Derivative financial instruments
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.
On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging
instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the
hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an
assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are
expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to
the hedged risk, and whether the actual results of each hedge are within a range of 80% to 125%. For a cash flow hedge of a forecast
transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could
ultimately affect reported profit or loss.
Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss as incurred. Subsequent
to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Fair value
measurements are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
55
2. Principal accounting policies continued
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk
associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective
portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve
in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.
When the hedged item is a non-financial asset, the amount accumulated in equity is included in the carrying amount of the asset when
the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period that the
hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold,
terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is
no longer expected to occur, then the balance in equity is reclassified in profit or loss.
Other non-trading derivatives
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its
fair value are recognised immediately in profit or loss.
Inventories
Finished goods and work-in-progress are valued at cost on a first in first out basis, including appropriate labour costs and other
overheads. Raw materials and bought in finished goods are valued at purchase price. All inventories are reduced to net realisable value
where lower than cost. Provision is made for obsolete, slow moving and defective items where appropriate.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the liability. The unwinding of the discount is recognised as finance cost.
Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring
either has commenced or has been announced publicly. Future operating losses are not provided for.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than
the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the
expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the
Group recognises any impairment loss on the assets associated with that contract.
Dilapidations provision
A dilapidations provision is recognised when the Group has an obligation to rectify, repair or reinstate a leased premises to a certain
condition in accordance with the lease agreement. The provision is measured at the present value of the estimated cost of rectifying,
repairing or reinstating the leased premises at a specified future date. To the extent that future economic benefits associated with
leasehold improvements are expected to flow to the Group, this cost is capitalised within the leasehold improvement category of
property, plant and equipment and is depreciated over its useful economic life.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 56
Notes to the report and accounts continued
2. Principal accounting policies continued
Leasing activity
The Group offers customers the option to finance lease assets. Where these transactions are entered into, the lease debt is
subsequently sold to a finance institution. At this stage profit on sale of the lease debt is recognised as a financing item within
investment income.
Operating leases
Rentals under operating leases are charged to profit on a straight line basis over the lease term.
Share-based payments
The Group operates a number of executive and employee share schemes. For all grants of share-based payments, the fair value as at
the date of grant is calculated using a pricing model and the corresponding expense is recognised over the vesting period. At vesting
the cumulative expense is adjusted to take into account the number of awards actually vesting as a result of survivorship and where
this reflects non-market-based performance conditions.
Employee benefits
The Group has both defined benefit and defined contribution pension schemes. For the defined benefit plan, based on the advice of a
qualified independent actuary at each balance sheet date and using the projected unit method, the employers’ portion of past and
current service cost is charged to operating profit, with the interest cost, net of expected return on assets in the plan, reported as a
financing item. Actuarial gains or losses are recognised directly in equity such that the balance sheet reflects the scheme’s surplus or
deficit as at the balance sheet date.
Contributions to defined contribution plans are charged to operating profit as they become payable. An accrual is maintained for paid
holiday entitlements which have been accrued by employees during a period but not taken during that period.
Employee share trusts
Employee share trusts, which hold ordinary shares of the Company in connection with certain share schemes, are consolidated into the
financial statements where the Company controls the trust. Any consideration paid to the trusts for the purchase of the Company’s own
shares is shown as a movement in shareholders’ equity.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates
and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in computation
of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences except in respect of investments in
subsidiaries where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary difference can be utilised. Their carrying amount is reviewed at each balance sheet date on the same basis.
Deferred tax is measured on an undiscounted basis, and at the tax rates that are expected to apply in the periods in which the asset or
liability is settled. It is recognised in the income statement except when it relates to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by
the same taxation authority and when the Group intends to settle its current tax assets and liabilities on a net basis.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
57
2. Principal accounting policies continued
Foreign currencies
The Group presents its financial statements in Sterling because this is the currency in its primary operating environment. Balance sheet
items of subsidiary undertakings whose functional currency is not Sterling are translated into Sterling at the period-end rates of
exchange. Income statement items and the cash flows of subsidiary undertakings are translated at the average rates for the period.
Exchange differences on the translation of subsidiary opening net assets at closing rates of exchange and the differences arising
between the translation of profits at average and closing exchange rates are recorded as movements in the currency translation
reserve.
Transactions denominated in foreign currencies are translated into Sterling at rates prevailing at the dates of the individual transactions.
Foreign currency monetary assets and liabilities are translated at the rates prevailing at the balance sheet date. Exchange gains and
losses arising are charged or credited to the income statement within operating costs. Foreign currency non-monetary amounts are
translated at rates prevailing at the time of establishing the fair value of the asset or liability.
Dividends
Dividends are recognised as a liability in the period in which the shareholders’ right to receive payment has been established.
Key sources of estimation uncertainty and critical accounting judgments
In applying the Group’s accounting policies the Directors are required to make judgments, estimates and assumptions. Actual results
may differ from these estimates. The Group’s key risks are set out in the Report of the Directors and give rise to the following estimations
and judgments which are disclosed within the relevant note to the Report and Accounts:
zz Goodwill valuation and impairment – see note 12
zz
Long-term contract outcome – see note 17
Retirement benefit scheme valuation – see note 28
zz
zz Onerous lease provision – see note 21.
3. Revenue
An analysis of transactions accounted for under IAS 18 Revenue is shown below:
Revenue from supply of products
Revenue from rendering of services
Revenue from the sale of licences and receipt of royalties
Investment income
Total revenue per IAS 18 Revenue
12 months
2012
£000
153,401
114,878
20,409
926
289,614
14 months
2011
£000
184,460
140,768
25,557
1,079
351,864
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 58
Notes to the report and accounts continued
4. Operating segments
The Group’s business is supplying products, services and solutions to the UK and international education markets.
Following the September 2011 Strategic Review, from 1 December 2011 the Group was restructured into four operating divisions:
Education Technology, Managed Services, Education Resources and Education Software. From 1 December 2011, the Group changed the
presentation of financial information included in the consolidated management accounts to reflect the new reporting structure with this
information being presented to the chief operating decision maker. Segmental information for the Group is reported on this basis for the
year ended 30 November 2012 and prior period financial information has been restated to be in line with this new basis.
The nature of the products/services sold within each segment is explained below:
zz
Education Technology – a UK focused business supplying schools with IT hardware, networks, internet services and related
installation and support
zz Managed Services – implementation, management and support of IT infrastructure within schools and colleges, including the
zz
zz
Building Schools for the Future contracts
Education Resources – provides schools with curriculum focused classroom resources including teaching equipment and materials
Education Software – comprises Assessment Services, Data Solutions, School Management Systems, Learning Platforms and other
software. The largest contributor of revenue to the division is the Assessment business, providing e-marking and e-testing solutions
and services for examining boards
The following disclosure shows the result and total assets of these segments:
Segmental result
Year ended
30 November 2012
Revenue
Adjusted operating
profit/(loss)*
Investment income
Finance costs
Adjusted profit
before tax*
Adjustments*
Profit before tax
Education
Technology
£000
Managed
Services
£000
Education
Resources
£000
Education
Software
£000
Corporate
Services
£000
Total retained
operations
£000
Exited
operations**
£000
Total
£000
109,036
81,368
59,809
35,662
–
285,875
2,813
288,688
3,609
2,855
8,927
1,353
(2,722)
14,022
(451)
13,571
926
(1,359)
13,138
(4,749)
8,389
* Refer to note 1 for an explanation of adjustments to profit.
** Exited operations represent operations sold following the September 2011 strategic review.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
59
4. Operating segments continued
Segmental result
Education
Technology
£000
Managed
Services
£000
Education
Resources
£000
Education
Software
£000
Corporate
Services
£000
Total retained
operations
£000
Exited
operations**
£000
Total
£000
14 months ended
30 November 2011
Revenue
Adjusted operating
profit/(loss)*
Investment income
Finance costs
Adjusted profit
before tax*
Adjustments*
Loss before tax
143,152
69,261
64,491
43,902
-
320,806
29,979
350,785
7,326
6,449
4,952
2,750
(3,853)
17,624
(7,575)
10,049
1,079
(850)
10,278
(33,658)
(23,380)
* Refer to note 1 for an explanation of adjustments to profit.
** Exited operations represent operations sold following the September 2011 strategic review.
Inter-segment revenue has been eliminated in the segment in which it is generated hence the revenue disclosed above is that earned
by the Group from third parties.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 60
Notes to the report and accounts continued
4. Operating segments continued
Segmental assets
Segmental assets include all assets except for tax balances, balance due from joint venture and investment undertakings and cash and
cash equivalents which are shown as non-segmental balances:
Education
Technology
£000
Managed
Services
£000
Education
Resources
£000
Education
Software
£000
Corporate
Services
£000
Total retained
operations
£000
Exited
operations**
£000
Total
£000
2012
Total assets
– Segmental
– Other
2011
Total assets
– Segmental
– Other
33,350
20,339
36,524
11,248
116
101,577
–
101,577
47,253
148,830
Education
Technology
£000
Managed
Services
£000
Education
Resources
£000
Education
Software
£000
Corporate
Services
£000
Total retained
operations
£000
Exited
operations**
£000
Total
£000
38,190
23,432
41,045
16,909
20
119,596
6,791
126,387
36,725
163,112
** Exited operations represent operations sold following the September 2011 strategic review.
The Group’s operations are predominately located in the United Kingdom, with operations also in India. The Group sells to the markets
of these countries and also the European, North American, Asian and Australasian continents. Revenues of £10.6m (2011: £30.2m) were
earned on non-UK sales and include Education Technology sales of £0.3m (2011: £2.6m) largely in Europe, £7.2m (2011: £6.1m) of
Education Resources sales largely in Europe, £3.1m (2011: £3.7m) of Education Software sales largely in Europe and £nil (2011: £17.8m)
of exited operations sales, largely in the United States.
Included within the disclosed segmental assets are non-current assets (excluding financial instruments, deferred tax assets and other
financial assets) of £28.3m (2011: £41.3m) located in the United Kingdom and £0.8m (2011: £1.0m) located in India.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
61
12 months
2012
£000
14 months
2011
£000
2,913
2,788
5,701
1,254
–
244
1,498
2,954
–
–
258
3,212
30,944
8,162
18,143
57,249
18,143
244
3,212
2,448
129
312
457
(715)
(195)
(1,324)
22,711
302
496
3,885
4,288
8,173
1,272
32
728
2,032
10,992
443
275
660
12,370
46,815
13,452
20,388
80,655
20,388
728
12,370
4,391
1,378
8,773
5,986
–
–
–
54,014
(147)
62
82,030
128,874
4,675
130
6,986
35
108,736
141,146
(1,522)
563
5. Profit from operations
Profit is stated after charging/(crediting):
Depreciation of property, plant and equipment:
– charged in cost of sales
– charged in operating expenses
Amortisation:
– other intangible assets
– acquisition related intangible assets – associate
– acquisition related intangible assets
Impairment:
– goodwill
– acquisition related intangible assets
– other intangible assets
– investment in associate
Selling and distribution costs
Research and development costs
Administrative expenses – adjusted
Operating expenses – adjusted
Administrative expenses – adjusted
Amortisation of acquisition related intangible assets
Impairment of goodwill, acquisition related intangible assets, other intangible assets and investments
Loss on sale of operations
Share-based payment charges
Restructuring costs
Increase in provision for dilapidations on leased properties and onerous lease contracts
Exceptional credit on settlement
Release of deferred consideration
Exceptional net credit on defined benefit scheme
Total administrative expense
Loss/(profit) on sale of property, plant and equipment
Loss on disposal of other intangible assets
Staff costs (see note 6)
Operating lease expense
Foreign exchange loss
Amount of inventories recognised as an expense
(Decrease)/increase in stock obsolescence provision
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 62
Notes to the report and accounts continued
5. Profit from operations continued
The Group undertakes a programme of research and development, in which advancement of technical knowledge and innovative
solutions are used to substantially improve the performance of product areas, to develop new products related to existing markets and
to enhance access to potential new markets. During the periods reported the Group has reviewed its research and development
expenditure against the criteria outlined in the Accounting Policies. No material expenditure is considered to have met the capitalisation
criteria. Consequently capitalised research and development expenditure is £nil (2011: £nil).
Auditor’s remuneration:
Fees payable to the Company’s auditor and its associates for:
– The audit of the Company’s annual accounts
– The audit of the Company’s subsidiaries, pursuant to legislation
– Review of the interim financial statements
Fees payable to the Company’s auditor and its associates for other non-audit services:
– Other services pursuant to legislation
– Corporate pensions advisory
12 months
2012
£000
14 months
2011
£000
8
176
184
14
11
20
31
229
8
211
219
14
20
93
113
346
A description of the work of the Audit Committee is set out in their report and includes an explanation of how auditor objectivity and
independence is safeguarded when non-audit services are provided by the auditor.
6. Staff costs
The average monthly number of persons (including Executive Directors, temporary employees and contractors) employed by the Group
during the period was as follows:
Research and development, products and services
Marketing and sales
Corporate services
12 months
2012
Number
employed
1,854
243
208
2,305
14 months
2011
Number
employed
2,131
389
279
2,799
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
63
12 months
2012
£000
71,631
6,004
4,266
129
82,030
14 months
2011
£000
110,126
8,960
8,410
1,378
128,874
12 months
2012
£000
14 months
2011
£000
258
644
24
926
141
817
121
1,079
12 months
2012
£000
14 months
2011
£000
176
–
424
181
759
1,540
483
20
–
–
347
850
6. Staff costs continued
Their aggregate employment costs comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge – equity settled
There are no staff (2011: nil) employed by the Company.
Information in relation to the Directors’ remuneration is shown in the Remuneration Report.
Note 27 contains details of the share-based payment awards to employees.
7.
Investment income
Bank interest
Income from sale of finance lease debt
Other finance income
8. Finance costs
Interest on bank overdrafts and loans
Interest on loan notes
Borrowing facility arrangement fee and commitment fee
Unwind of discount on provisions
Net finance costs on defined benefit pension scheme
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 64
Notes to the report and accounts continued
9. Tax
a) Consolidated income statement
Analysis of tax charged in income statement:
Current taxation
UK corporation tax
Adjustment in respect of prior years
Overseas tax – current year
Total current tax charge/(credit)
Deferred taxation
Temporary differences
Adjustment in respect of prior years
Overseas tax – current year
Total deferred tax charge
Total income statement tax charge/(credit)
b) Other comprehensive income
Analysis of tax charged in other comprehensive income:
UK corporation tax – defined benefit pension scheme
Deferred tax – defined benefit pension scheme
UK corporation tax – share based payments
Deferred tax – share based payments
UK corporation tax – foreign investment hedge
Total other comprehensive income credit
Further analysis of the Group’s deferred tax assets and liabilities is shown below.
12 months
2012
£000
14 months
2011
£000
3,124
(154)
411
3,381
348
(288)
20
80
3,461
(489)
(194)
184
(499)
189
(175)
214
228
(271)
12 months
2012
£000
14 months
2011
£000
(2,086)
594
–
11
–
(1,481)
–
(2,339)
(6)
290
73
(1,982)
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
65
9. Tax continued
c) Reconciliation to standard UK tax rate
The difference between the total tax shown above and the amount calculated by applying the standard rate of UK corporation tax to
the profit before tax is as follows:
Year ended 30 November 2012
Profit/(loss) before tax
Tax at 24.67% thereon:
Effects of:
– impact of change in tax rate on carried forward deferred tax asset
– other expenses not deductible for tax purposes
– temporary differences unrecognised for deferred tax
– other temporary timing differences
– research and development tax credit – current period
– effect of profits/losses in various overseas tax jurisdictions
– impairments
– loss on sale of operations
– prior period adjustments – other
Tax charge
Effective tax rate
14 months ended 30 November 2011
Profit/(loss) before tax
Adjusted
£000
Adjustments
£000
Total
£000
13,138
(4,749)
8,389
3,241
(1,172)
2,069
157
100
107
211
(468)
312
(58)
–
(442)
3,160
24.1%
(19)
32
–
112
–
–
792
556
–
301
(6.3)%
Adjusted
£000
Adjustments
£000
138
132
107
323
(468)
312
734
556
(442)
3,461
41.3%
Total
£000
10,278
(33,658)
(23,380)
Tax at 26.86% thereon:
2,761
(9,041)
(6,280)
Effects of:
– impact of change in tax rate on carried forward deferred tax asset
– other expenses not deductible for tax purposes
– temporary differences unrecognised for deferred tax
– other temporary timing differences
– research and development tax credit – current period
– research and development tax credit – prior period adjustment
– effect of profits/losses in various overseas tax jurisdictions
– impairments
– loss on sale of operations
– prior period adjustments – other
Tax charge/(credit)
Effective tax rate
145
228
1,388
54
(775)
(76)
184
–
–
(293)
3,616
35.2%
(42)
150
191
367
–
–
–
3,215
1,273
–
(3,887)
11.5%
103
378
1,579
421
(775)
(76)
184
3,215
1,273
(293)
(271)
1.2%
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 66
Notes to the report and accounts continued
9. Tax continued
c) Reconciliation to standard UK tax rate continued
Factors that may affect future tax charges
The Autumn Statement on 5 December 2012 included an announcement that the UK corporation tax rate will reduce to 21% by 2014.
Prior to that statement, a reduction in the rate from 26% to 25% (effective from 1 April 2012) had been substantively enacted on 5 July
2011, and further reductions to 24% (effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26
March 2012 and 3 July 2012 respectively. This will reduce the Group’s future current tax charge accordingly. The deferred tax asset at
30 November 2012 has been calculated based on the rate of 23% which had been substantively enacted at the balance sheet date. It
has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will further
reduce the Group’s future current tax charge and reduce the Group’s deferred tax asset accordingly.
d) Deferred tax
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current year
and prior period:
Accelerated
tax
depreciation
£000
Retirement
benefit
obligations
£000
Share-based
payment
£000
Short-term
timing
differences
£000
Acquisition
related
intangible
assets
£000
Group
At 1 October 2010
(Charge)/credit to income
(Charge)/credit to equity
Disposed on sale of business
Reclassified to held for sale
At 30 November 2011
(Charge)/credit to income
(Charge)/credit to equity
Disposed on sale of business
At 30 November 2012
1,076
14
–
–
(16)
1,074
137
–
12
1,223
3,342
(387)
2,339
–
–
5,294
–
(594)
–
4,700
580
(138)
(290)
–
(2)
150
(110)
(11)
1
30
869
(77)
–
–
(38)
754
(185)
–
30
599
Certain deferred tax assets and liabilities have been offset above.
The following analysis shows the deferred tax balances as shown in the balance sheet:
Group
Deferred tax assets
Deferred tax liabilities
Total
£000
4,825
(228)
2,049
156
171
6,973
(80)
(605)
43
6,331
2011
£000
6,973
–
6,973
(1,042)
360
–
156
227
(299)
78
–
–
(221)
2012
£000
6,331
–
6,331
The Group has recognised deferred tax assets in jurisdictions where these are expected to be recoverable against profits in future
periods. At the balance sheet date, the Group has an unrecognised gross deferred tax asset of £2.4m (2011: £2.3m) which is available
for offset against future profits within the United States of America. Included within this balance are unrecognised tax losses of £1.7m
(2011: £1.8m). A deferred tax asset has not been recognised in respect of any of this amount due to uncertainty surrounding the future
use of these losses (2011: £nil).
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
67
9. Tax continued
d) Deferred tax continued
No deferred tax liability is recognised on temporary differences of £240,000 (2011: £343,000) relating to the unremitted earnings of
overseas subsidiaries as the Group is able to control the timings of the reversal of these temporary differences and it is probable that
they will not reverse in the foreseeable future.
e) Tax assets/liabilities
Corporation tax balances are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities.
The following is an analysis of the current tax assets and liabilities for financial reporting purposes:
Group
Current tax assets
Current tax liabilities
2012
£000
847
–
847
2011
£000
2,058
–
2,058
10. Earnings per ordinary share
The calculation of basic and diluted earnings per ordinary share is shown below. As explained in note 1, adjusted earnings per share
have also been presented.
Basic earnings per ordinary share:
Year ended 30 November 2012
14 months ended 30 November 2011
Weighted
average
number
of shares
'000
91,543
–
91,543
Pence
per share
(Loss)/profit
after tax
£000
5.4
5.5
10.9
(23,109)
29,771
6,662
Weighted
average
number of
shares
'000
91,260
91,260
Pence
per share
(25.3)
32.6
7.3
Profit
after tax
£000
4,928
5,050
9,978
Basic earnings/(loss) per ordinary share
Effect of adjustments*
Adjusted basic earnings per ordinary share*
* Adjustments made to profit after tax are as set out within the consolidated income statement.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 68
Notes to the report and accounts continued
10. Earnings per ordinary share continued
Diluted earnings per ordinary share:
Basic earnings/(loss) per ordinary share
Effect of dilutive potential ordinary shares: share
options
Diluted earnings/(loss) per ordinary share
Effect of adjustments*
Adjusted diluted earnings per ordinary share*
Year ended 30 November 2012
14 months ended 30 November 2011
Weighted
average
number of
shares
'000
Pence
per share
(Loss)/profit
after tax
£000
Weighted
average
number of
shares
'000
Pence
per share
91,543
5.4
(23,109)
91,260
(25.3)
116
91,659
–
91,659
–
5.4
5.5
10.9
–
(23,109)
29,771
6,662
27
91,287
91,287
–
(25.3)
32.6
7.3
Profit
after tax
£000
4,928
–
4,928
5,050
9,978
* Adjustments made to profit after tax are as set out within the consolidated income statement.
11. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the 14 months ended 30 November 2011 of 1.53p (2010: 5.25p) per share
Interim dividend for the year ended 30 November 2012 of 0.75p (2011: 1.47p) per share
12 months
2012
£000
1,402
688
2,090
14 months
2011
£000
4,786
1,342
6,128
The proposed final dividend of 2.25p per share was approved by the Board on 20 February 2013. The dividend is subject to approval
by shareholders at the annual general meeting and the expected cost of £2.1m has not been included as a liability as at 30 November
2012.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
12. Goodwill
Group
Cost
At 1 October 2010
Exchange differences
Derecognised on disposal of operations
Derecognised on dissolution of subsidiary
Assets reclassified as held for sale
At 30 November 2011
Derecognised on dissolution of subsidiary
At 30 November 2012
Accumulated impairment losses
At 1 October 2010
Impairment losses in the period
Derecognised on dissolution of subsidiary
Assets reclassified as held for sale
At 30 November 2011
Impairment losses in the year
Derecognised on dissolution of subsidiary
At 30 November 2012
Carrying amount
At 30 November 2012
At 30 November 2011
69
£000
36,689
176
(4,103)
(1,247)
(6,532)
24,983
(1,222)
23,761
2,469
10,992
(1,247)
(4,580)
7,634
2,954
(1,222)
9,366
14,395
17,349
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (‘CGUs’) that are expected to
benefit from that business combination. As explained within note 4, for the year to 30 November 2012 the Group has operated under
four operating divisions: Education Technology, Managed Services, Education Resources and Education Software which each consist of
various business units. The Group’s CGUs are at the business unit level and it is this level to which goodwill has been allocated.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 70
Notes to the report and accounts continued
12. Goodwill continued
The carrying amount of goodwill has been allocated as follows:
Group
Education Software:
– RM Data Solutions
Education Resources:
– TTS Group
– RM-SpaceKraft
Group
Education Software:
– RM Data Solutions
– RM Education – RM Software
Education Resources:
– TTS Group
– RM-SpaceKraft
Pre-tax
discount rate
2012
£000
10.1%
2,956
13.3%
13.1%
Pre-tax
discount rate
13.8%
13.8%
13.5%
13.4%
11,111
328
14,395
2011
£000
2,956
1,550
11,111
1,732
17,349
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Following
continuing challenging market conditions and ongoing tightening of public sector budgets, impairment indicators were evident. The
following impairments have been recognised in the year:
Education Software
zz
After considering the likely future cash flows of RM Data Solutions Ltd, it was determined that no impairment was required. The
business is heavily reliant on one public sector contract and the impairment analysis is performed on the basis that the contract is
retained. In the event this contract is not renewed, a goodwill impairment charge will be recorded
Following a review of forecast future cash flows, the goodwill on RM Education Ltd’s (formerly RM Education plc’s) software business
has been fully impaired
zz
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
71
12. Goodwill continued
Education Resources
zz
zz
Following a review of the forecast future cash flows, no impairment was required on Group subsidiary TTS Group Ltd.
An impairment of £1.4m has been recognised in relation to goodwill allocated to Space Kraft Ltd. This has arisen due to a reduction
in public sector spending, which has led to a reduction in forecast net future cash flows.
The total impact of the items identified above is an impairment charge on the carrying value of goodwill of £3.0m (2011: £11.0m), which
has been recognised in the year within operating expenses in the consolidated income statement.
The recoverable amounts of the CGUs are determined from value in use. The key assumptions for the value in use calculations are
those regarding the discount rates and growth rates.
The Group monitors its post-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering the
discount rates applying to CGUs, the Directors have considered the relative sizes, risks and the inter-dependencies of its CGUs and their
relatively narrow operation within the education products and services market. The impairment reviews use a discount rate adjusted for
pre-tax cash flows. Analysis of the sensitivity of the resultant impairment reviews to changes in the discount rate is included below.
The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates cash flows
for the following two years based on forecast growth rates of the CGUs. The growth rates are based on internal growth forecasts of
between 0% and 3% (2011: -7% and 3%). The terminal rates used for the value in use calculation are between 0% and 3% (2011:
between 0% and 3%).
Sensitivity analysis
No reasonably possible change in a key assumption would produce a significant movement in the carrying value of goodwill allocated
to a CGU and therefore no sensitivity analysis is presented.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 72
Notes to the report and accounts continued
Notes to the report and accounts continued
13. Intangible assets
Group
Cost
At 1 October 2010
Additions
Exchange differences
Disposals
Disposal on sale of operations
Assets reclassified as held for sale
At 30 November 2011
Additions
Exchange differences
Disposals
At 30 November 2012
Accumulated amortisation and impairment
At 1 October 2010
Charge for the period
Impairment loss
Exchange differences
Disposals
Disposal on sale of operations
Assets reclassified as held for sale
At 30 November 2011
Charge for the year
Exchange differences
Disposals
At 30 November 2012
Carrying amount
At 30 November 2012
At 30 November 2011
Customer
relationships
£000
Brands
£000
Intellectual
property &
database
assets
£000
Acquisition
related
intangible
assets
sub-total
£000
Other
software
assets*
£000
1,495
–
–
–
(265)
(905)
325
–
–
–
325
734
206
248
–
–
(224)
(642)
322
3
–
–
325
8,105
–
–
–
(1,606)
(4,011)
2,488
–
–
–
2,488
4,415
728
443
–
–
(1,195)
(3,105)
1,286
244
(2)
–
1,528
21,085
2,055
(29)
(10,377)
–
(84)
12,650
422
(14)
(2,722)
10,336
17,899
1,272
275
(28)
(10,315)
–
(60)
9,043
1,254
(13)
(2,226)
8,058
Total
£000
29,190
2,055
(29)
(10,377)
(1,606)
(4,095)
15,138
422
(14)
(2,722)
12,824
22,314
2,000
718
(28)
(10,315)
(1,195)
(3,165)
10,329
1,498
(15)
(2,226)
9,586
–
3
960
1,202
2,278
3,607
3,238
4,809
5,142
–
–
–
(1,053)
(2,490)
1,599
–
–
–
1,599
3,065
404
109
–
–
(782)
(1,952)
844
152
(2)
–
994
605
755
1,468
–
–
–
(288)
(616)
564
–
–
–
564
616
118
86
–
–
(189)
(511)
120
89
–
–
209
355
444
*Purchased and internally developed software assets amounted to net book values of £0.2m and £2.1m respectively (2011: £0.6m and
£3.0m). This included respective additions of £nil and £0.4m (2011: £0.2m and £1.8m). The net book value of capitalised research and
development expenditure is £nil (2011: £nil).
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
73
13. Intangible assets continued
In the prior period, an impairment loss on acquisition related intangible assets of £443,000 and an impairment loss on other software
assets of £275,000 were recognised within operating expenses in the consolidated income statement. These arose following the
Group’s September 2011 strategic review where certain operations were identified as being non-core to the Group’s continuing strategy
and an active disposal programme was initiated, with a number of subsidiaries and businesses being sold at 30 November 2011 and
others identified as held for sale. The acquisition intangible assets were impaired under the requirements of IFRS 5 Non-current Assets
Held for Sale and Discontinued Operations. The other software assets were fully impaired following the disposal of businesses that
benefitted from the assets’ use. The prior period impairments are allocated to the segmental assets as follows: Learning Technologies
£436,000, Education Resources £282,000. No impairment was recognised in the year ended 30 November 2012.
14. Property, plant and equipment
The movement in the period was as follows:
Group
Cost
At 1 October 2010
Additions
Exchange differences
Transfer between categories
Disposals
Disposal on sale of operations
Assets reclassified as held for sale
At 30 November 2011
Additions
Exchange differences
Disposals
At 30 November 2012
Accumulated depreciation
At 1 October 2010
Charge for the period
Exchange differences
Transfers between categories
Disposals
Disposal on sale of operations
Assets reclassified as held for sale
At 30 November 2011
Charge for the year
Exchange differences
Impairment loss
Disposals
At 30 November 2012
Carrying amount
At 30 November 2012
At 30 November 2011
Freehold
land and
buildings
£000
Short
leasehold
improvements
£000
Plant and
equipment
£000
Computer
equipment
£000
Vehicles
£000
2,817
97
–
(134)
–
–
–
2,780
2
–
(3)
2,779
458
112
–
119
–
–
–
689
98
–
–
(2)
785
1,994
2,091
3,940
1,046
(41)
–
(79)
(165)
(79)
4,622
191
(24)
(296)
4,493
2,207
383
(8)
–
(50)
(111)
–
2,421
495
(6)
68
(225)
2,753
1,740
2,201
9,349
1,265
(103)
17
(887)
(366)
(92)
9,183
617
(66)
(548)
9,186
6,733
911
(60)
(46)
(901)
(234)
(77)
6,326
786
(41)
76
(387)
6,760
2,426
2,857
41,828
2,010
(82)
117
(4,524)
(1,090)
(211)
38,048
542
(35)
(25,008)
13,547
31,608
4,859
(52)
(73)
(4,007)
(908)
(175)
31,252
3,251
(51)
–
(24,291)
10,161
3,386
6,796
7,888
995
(31)
–
(1,963)
(120)
(484)
6,285
522
(10)
(2,583)
4,214
3,762
1,908
(17)
–
(1,633)
(95)
(295)
3,630
1,071
(6)
–
(2,375)
2,320
1,894
2,655
Total
£000
65,822
5,413
(257)
–
(7,453)
(1,741)
(866)
60,918
1,874
(135)
(28,438)
34,219
44,768
8,173
(137)
–
(6,591)
(1,348)
(547)
44,318
5,701
(104)
144
(27,280)
22,779
11,440
16,600
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 74
Notes to the report and accounts continued
15. Investment in subsidiary undertakings
All principal subsidiaries of the Group are involved in the education market and are consolidated into the financial statements.
At 30 November 2012 these were as follows:
Group
DACTA Ltd
RM Books Ltd
RM Group US LLC
RM Data Solutions Ltd
RM Education Ltd (formerly RM
Education plc)
RM Education Solutions
India Pvt Ltd*
Space Kraft Ltd
TTS Group Ltd
Principal activity
Resource supply
Software services
Software, services and systems
Data analysis and reporting
Country of
incorporation
England
England
USA
England
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Software, services and systems
England
Ordinary
Software and Corporate Services
Resource supply
Resource supply
India
England
England
Ordinary
Ordinary
Ordinary
* Held through subsidiary undertaking
In the Company, equity investments in subsidiary undertakings are held at cost less provision for impairment:
Proportion
of voting
rights and
shares held
100%
100%
100%
100%
100%
100%
100%
100%
Total
£000
59,416
12,000
(2,020)
1,378
70,774
4,700
(13,704)
129
61,899
3,776
7,565
698
12,039
4,638
258
(10,690)
6,245
Investment
in share
capital
£000
Capital
contribution:
share-based
payments
£000
Quasi-equity
loan
£000
45,203
12,000
(2,020)
–
55,183
4,700
(13,602)
–
46,281
3,776
7,565
698
12,039
4,638
258
(10,690)
6,245
40,036
43,144
7,136
–
–
1,378
8,514
–
(102)
129
8,541
–
–
–
–
–
–
–
–
7,077
–
–
–
7,077
–
–
–
7,077
–
–
–
–
–
–
–
–
8,541
8,514
7,077
7,077
55,654
58,735
Company
Cost
At 1 October 2010
Increase in investment in subsidiary
Disposal of investments
Share-based payments
At 30 November 2011
Increase in investment in subsidiary
Disposal of investments
Share-based payments
At 30 November 2012
Impairment
At 1 October 2010
Impairment in cost of investment of subsidiaries
Impairment in cost of investment in associate
At 30 November 2011
Impairment in cost of investment of subsidiaries
Impairment in cost of investment in associate
Disposal of investments
At 30 November 2012
Carrying value
At 30 November 2012
At 30 November 2011
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
75
15. Investment in subsidiary undertakings continued
Loans to subsidiary undertakings are not repayable in the foreseeable future and are considered to form part of the Company’s
investment.
An impairment loss on the investment in subsidiaries of £4.6m (2011: £7.6m) and £0.3m (2011: £0.7m) on the investment in an associate
has been recognised in the year within operating expenses in the parent company income statement. These impairments arose due to
a reduction in profitability of certain businesses due to difficult market conditions and ongoing tightening of public sector budgets (2011:
The impairments arose following the Group’s September 2011 Strategic Review where certain operations were identified as being
non-core to the Group’s continuing strategy and an active disposal programme was initiated, with a number of subsidiaries and
businesses being sold or held for sale at 30 November 2011).
Refer to note 12 for further information on the impairment reviews performed and calculation of recoverable amount.
A further investment of £4.7m (2011: £12.0m) was made during the year in Group subsidiary RM Education Ltd (formerly RM Education
plc) in order to offset continuing reductions in the subsidiary’s capital position from the inclusion of the retirement benefit obligation
within its balance sheet (refer to note 28).
16. Inventories
Group
Components
Work in progress
Finished goods
2012
£000
3,425
151
11,211
14,787
2011
£000
4,840
165
13,822
18,827
17. Long-term contracts
The following disclosure relates to long-term contracts accounted for under the principles of IAS 18 Revenue and related linkage to IAS 11
Construction Contracts. These contracts do not represent the Group’s only long-duration business.
Group
Contracts in progress at the balance sheet date:
Contract cost incurred plus recognised profits less recognised losses to date
Less: progress billings
Amounts due from contract customers included in trade and other receivables
Amounts due to contract customers included in trade and other payables
Total revenue recognised from long-term contracts amounted to £109.2m (2011: £101.1m).
2012
£000
408,519
(417,417)
(8,898)
8,748
(17,646)
(8,898)
2011
£000
321,597
(319,085)
2,512
9,407
(6,895)
2,512
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 76
Notes to the report and accounts continued
17. Long-term contracts continued
Long-term contract outcome – estimation uncertainty
The Group’s long-term contracts represent a significant part of the Group’s business. As a result of the accounting for these contracts, as
outlined in note 2, it is necessary for the Directors to assess the outcome of each contract and also estimate future costs and contracted
revenues to establish ultimate contract profitability. Key judgments include performance indicator outcomes, future inflation rates and
implementation/software development costs. Profit is then recognised based on these judgments and therefore, depending on the
maturity of the contract portfolio, a greater or lesser proportion of Group profit will arise from long-term contracts.
18. Trade and other receivables
Group
Company
Current
Financial assets:
Trade receivables
Long–term contract balances (Note 17)
Other receivables
Derivative financial instruments: forward foreign exchange contracts
Accrued income
Non financial assets:
Prepayments
Non–current
Financial assets:
Other receivables – amount owed by joint venture undertaking
Other receivables – other
2012
£000
41,978
8,748
759
1
334
51,820
6,180
58,000
–
1,911
1,911
2011
£000
43,938
9,407
2,046
67
782
56,240
6,030
62,270
1,878
712
2,590
2012
£000
2011
£000
–
–
–
–
–
–
–
–
–
1,661
1,661
–
–
31
–
–
31
–
31
–
712
712
Other non-current receivables includes £1.7m (2011: £0.7m) of gross amounts receivable from the Group’s equity investments in BSF
delivery companies, Newham Learning Partnership (PSP) Ltd and Essex Schools (Holdings) Ltd.
The currency profile of receivables is shown below:
Sterling
US Dollar
Euro
Indian Rupee
Group
Company
2012
£000
58,941
626
65
279
59,911
2011
£000
61,746
941
1,878
295
64,860
2012
£000
1,661
–
–
–
1,661
2011
£000
743
–
–
–
743
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
77
18. Trade and other receivables continued
The average credit period on sales of goods is 46 days (2011: 62 days). An allowance has been made for estimated irrecoverable
amounts of trade receivables of £1.6m (2011: £2.2m) based on management’s knowledge of the customers, externally available
information and expected payment likelihood. This allowance has been determined by reference to specific receivable balances and
past default experience. New customers are subject to credit checks, using third-party databases prior to orders being accepted.
Analysis of trade receivables by type of customer:
Group
Government customers
Commercial customers
Analysis of allowance for estimated irrecoverable amounts of trade receivables:
Group
At start of period
(Charge)/credit to income statement
Utilised
Transfer to held for sale
At end of period
Ageing of trade receivables:
Group
Neither impaired nor past due
Not impaired but overdue by less than 60 days
Not impaired but overdue by between 60 and 90 days
Not impaired but overdue by more than 90 days
Impaired
Allowance for estimated irrecoverable amounts
2012
£000
27,540
14,438
41,978
2012
£000
2,194
(98)
(472)
–
1,624
2012
£000
34,734
5,359
733
814
1,962
(1,624)
41,978
2011
£000
23,974
19,964
43,938
2011
£000
1,024
1,734
(421)
(143)
2,194
2011
£000
19,839
15,520
4,320
4,695
1,758
(2,194)
43,938
Included within trade receivables are £0.4m (2011: £0.6m) of receivables relating to finance lease debt awaiting sale to a financial
institution, which completed shortly after the balance sheet date. Upon sale the margin implicit will be recognised as a financing item
within investment income.
All impaired receivables are overdue by more than 90 days.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 78
Notes to the report and accounts continued
19. Trade and other payables
Current
Financial liabilities:
Trade payables
Amounts due to subsidiary undertakings
Other taxation and social security
Other payables
Derivative financial instruments:
– forward foreign exchange contracts
– interest rate swap
Accruals
Long-term contract balances (Note 17)
Deferred consideration
Non financial liabilities:
Deferred income
Non-current
Non financial liabilities:
Deferred income:
– due after one year but within two years
– due after two years but within five years
– due after five years
The currency profile of payables is shown below:
Currency profile of payables:
Sterling
US Dollar
Euro
Indian Rupee
Group
Company
2012
£000
14,302
–
5,857
574
31
–
22,533
17,646
–
60,943
26,400
87,343
3,799
2,986
–
6,785
2011
£000
16,206
–
5,307
2,628
273
72
22,327
6,895
195
53,903
23,878
77,781
3,627
2,576
83
6,286
2012
£000
–
3,686
–
–
–
–
–
–
–
3,686
–
3,686
–
–
–
–
2011
£000
–
4,505
–
–
–
–
–
–
–
195
4,700
–
4,700
–
–
–
–
Group
Company
2012
£000
92,200
1,279
98
551
94,128
2011
£000
81,258
2,005
20
784
84,067
2012
£000
3,686
–
–
–
3,686
2011
£000
4,700
–
–
–
4,700
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
79
19. Trade and other payables continued
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 32 days (2011: 35 days). The Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 require creditor days to be calculated using the year end trade creditors balance as a ratio of expenditure in
the period. However due to the Group’s seasonality, average creditor days are considered by management to give a better reflection of
the Group’s payment profile. Creditor days calculated in accordance with the Companies Act 2006 is 25 days (2011: 28 days).
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
No loan notes or deferred consideration were settled during the year (2011: £1.4m and £0.2m respectively). Following the measurement
of performance conditions, the remaining deferred consideration balance of £195,000 was derecognised through the consolidated
income statement.
The maturity profile of payables is presented below:
Maturity profile of payables:
– due within one year
– due after one year but within two years
– due after two years but within five years
– due after five years
Group
Company
2012
£000
87,343
3,799
2,986
–
94,128
2011
£000
77,781
3,627
2,576
83
84,067
2012
£000
3,686
–
–
–
3,686
2011
£000
4,700
–
–
–
4,700
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 80
Notes to the report and accounts continued
20. Financial instruments
Carrying of financial assets and financial liabilities:
Financial assets
Trade and other receivables (current)
Trade and other receivables (non-current)
Assets held for sale (current)
Cash and cash equivalents
Notes
18
18
Group
2012
£000
2011
£000
51,820
1,911
–
37,823
91,554
56,240
2,590
6,791
24,529
96,150
Company
2012
£000
–
1,661
–
–
1,661
2011
£000
31
712
–
–
743
All financial assets are classified as loans and receivables except for the forward foreign exchange contract of £1,000 (2011: £67,000)
which is classified as at fair value through profit or loss.
The Directors consider that the carrying amount of financial assets approximates their fair value.
Financial liabilities
Trade and other payables (current)
Liabilities directly associated with assets
classified as held for sale
Provisions (current)
Provisions (non–current)
Bank loans
Notes
19
21
21
Group
2012
£000
2011
£000
Company
2012
£000
2011
£000
60,943
53,903
3,686
4,700
–
4,108
4,929
–
69,980
2,914
7,752
5,661
13,026
83,256
–
–
629
–
4,315
–
126
–
–
4,826
All liabilities classified as financial liabilities are held at amortised cost except for forward foreign exchange contracts of £31,000 (2011:
£273,000) which are classified at fair value through profit or loss and the interest rate swap of £nil (2011: £72,000) which is designated
and effective as a cash flow hedge.
The main risks arising from the Group’s financial assets and liabilities are market risk (foreign currency risk and interest rate risk), credit
risk and liquidity risk. The Board reviews and agrees policies on a regular basis for managing the risks associated with these assets and
liabilities.
It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken
and the Group does not hold or issue derivative financial instruments for speculative purposes.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
81
20. Financial instruments continued
Foreign currency risk
a) Translation
During the year the Group has held operations in the United States of America and India and trades within Europe, hence exposing the
Group to foreign exchange risk on non-Sterling assets, liabilities and cash flows. The Group has £nil borrowings denominated in foreign
currencies (2011: the Group’s acquisition borrowing facility included an amount of £6.6m ($10.4m) denominated in US Dollars) and the
Group also has long-term intra-group loans of £9.5m ($15.2m) (2011: £10.2m ($16.0m)) denominated in US Dollars and the Group
applies net investment hedging to the balances.
The Group also maintains foreign currency denominated cash accounts, but only holds balances required to settle its payables. .
b) Transaction
Operations are also subject to foreign exchange risk from transactions in currencies other than their functional currency, and once
recognised, the revaluation of foreign currency denominated assets and liabilities. Principally, this relates to transactions arising in US
Dollars and Indian Rupees. Specifically, the Group purchases significant amounts of its components in US Dollars and operating costs in
the Group’s subsidiary RM Education Solutions India Pvt Ltd are in Indian Rupees.
In order to manage these risks the Group enters into derivative transactions in the form of forward foreign currency contracts. To
manage the US Dollar to Sterling risk, the forward foreign currency contracts are designed to cover 80-90% of forecast currency
denominated purchases and the contracts are renewed on a revolving basis of approximately three months. To manage the Indian
Rupee to Sterling risk, the contracts are designed to cover 80% of forecast Rupee costs and are renewed on a revolving basis of
approximately eleven to twelve months.
At the balance sheet date, total notional amount of outstanding forward foreign exchange contracts that the Group has committed to
are as below:
Group
Forward foreign currency exchange contracts
2012
2011
Nominal
value
£000
5,816
Fair value
£000
(30)
Nominal
value
£000
14,300
Fair value
£000
(206)
The fair value of the derivative financial instruments is estimated by discounting the future contracted cash flow, using readily available
market data and represents a level 2 measurement in the fair value hierarchy under IFRS 7. These fair value gains/(losses) are included
within trade and other receivables and trade and other payables respectively.
Of these, forward foreign currency exchange contracts with a nominal value of £0.1 million (2011: £9.8 million) have been designated as
effective hedges in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The movement in fair value of hedged
derivative financial instruments was a credit of £1,000 (2011: credit of £27,000) which has been recognised in other comprehensive
income and presented in the hedging reserve in equity.
The remaining forward foreign currency exchange contracts with a nominal value of £6.1 million (2011: £4.5 million) have not been
designated as effective hedges in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The movement in the
fair value of these instruments of £32,000 (2011: £232,000) have therefore been charged to income.
Commercially effective hedges may continue to lead to income statement volatility in the future, particularly if the hedges do not meet
the criteria of an effective hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 82
Notes to the report and accounts continued
20. Financial instruments continued
c) Foreign exchange rate sensitivity
The following table details how the Group’s income and equity would increase/(decrease) if there was a 10% increase in the amount of
the respective currency which could be purchased with £1 Sterling (assuming all other variables remain constant), for example from
$1.60:£1 to $1.76:£1 at the balance sheet date. The sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates and is shown after
considering the impact of the Group’s foreign exchange forward contracts and net investment hedge positions. A positive number
indicates an increase in profit and equity where Sterling strengthens 10% against the relevant currency and a negative number indicates
a reduction in profit and equity. For a 10% weakening of Sterling against the relevant currency, there would be a comparable but
opposite impact on the profit and equity.
Group
10% increase in foreign exchange rates against Sterling:
US Dollar
Indian Rupee
Euro
12 months to
30 November
2012
Income
sensitivity
£000
318
28
3
14 months to
30 November
2011
Income
sensitivity
£000
94
66
(169)
2012
Equity
sensitivity
£000
977
(134)
(36)
2011
Equity
sensitivity
£000
844
(154)
(165)
In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the period end exposure
does not reflect the exposure during the period, as the analysis does not reflect management’s proactive monitoring methods for
exchange risk.
Interest rate risk
The only significant interest bearing financial assets held by the Group are cash and cash equivalents which comprise cash held by the
Group and Company and short-term bank deposits with an original maturity of three months or less. Surplus sterling balances are
invested in the money market, or with financial institutions on maturing terms from within 24 hours up to a period of three months with
interest earned based on the relevant national inter-bank rates available at the time of investing. During the year, average cash and
cash equivalents were £23.7m (2011: £6.1m), and the maximum bank overdraft was £nil (2011: £11.8m), excluding amounts drawn
under the acquisition facility. The interest and currency profile of cash and cash equivalents is shown below:
Group
Sterling
US Dollar
Euro
Danish Kroner
Indian Rupee
Polish Zloty
Floating rate
£000
34,200
–
–
–
57
–
2012
Interest free
£000
2,393
974
72
1
126
–
34,257
3,566
Total
£000
36,593
974
72
1
183
–
37,823
Floating rate
£000
18,761
1
–
–
74
–
2011
Interest free
£000
1,189
3,931
180
16
369
8
18,836
5,693
Total
£000
19,950
3,932
180
16
443
8
24,529
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
83
20. Financial instruments continued
The Group’s main interest bearing financial liability is a committed Barclays revolving credit facility. The £30m revolving credit facility,
signed on 27 January 2012 replaced the $39.5m uncommitted HSBC Sterling dealing line and $25m committed acquisition facility. In
addition to the revolving credit facility, the Group also has a £3m working capital facility held with Barclays. Neither the committed
revolving credit facility nor the working capital overdraft facility has been utilised during the year.
Interest payable on any utilised revolving credit facility is fixed at 2.8% above LIBOR until 27 January 2013 and reduces to 2.5% above
LiBOR for the remainder of the three year committed term subject to certain financial ratios. A commitment fee of 1.2% is payable on the
unutilised balance and an arrangement fee of £0.4m has been paid and is recognised in the consolidated income statement on an
effective interest rate basis over the duration of the facility.
The weighted average effective interest rates at the balance sheet date were as follows:
Group
Financial assets:
Cash and cash equivalents
Trade and other receivables (non-current)
Financial liabilities:
Bank loans
Deferred consideration
2012
2011
Weighted
average
interest rate
%
Floating rate
£000
Weighted
average
interest rate
%
Floating rate
£000
34,257
1,911
0.29
11.28
18,836
2,590
–
–
–
–
(13,026)
(195)
0.27
5.77
1.24
–
Interest rate risk sensitivity (assuming all other variables remain constant):
Group
1% increase in interest rates
1% decrease in interest rates
12 months to
30 November
2012
Income
sensitivity
£000
154
(154)
14 months to
30 November
2011
Income
sensitivity
£000
51
(51)
2012
Equity
sensitivity
£000
154
(154)
2011
Equity
sensitivity
£000
51
(51)
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 84
Notes to the report and accounts continued
20. Financial instruments continued
Credit risk
The Group’s principal financial assets are bank balances and trade and other receivables. The Group’s credit risk is primarily attributable
to its trade receivables. Credit checks are performed on new customers and before credit limits are increased. The amounts presented
in the balance sheet are net of allowances for doubtful receivables.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread
over a large number of counterparties and customers and a large proportion are ultimately backed by the UK Government.
The Group’s maximum exposure to credit risk at 30 November 2012 is £91.6m (2011: £83.4m). The Group does not hold any collateral.
Liquidity risk
Cash is managed to ensure that sufficient liquid funds are available with a variety of counterparties, to meet short, medium and
long-term cash flow forecasting requirements.
The Group meets its seasonal working capital requirements from current funds. At the balance sheet date, the Group has a £30m three
year committed revolving credit facility held with Barclays Bank. In addition to the revolving credit facility, the Group also has a £3m
working capital facility with Barclays Bank which is reviewed annually each March. These facilities combined gave £33m of working
capital funding capacity during the year. At 30 November 2012 none of these facilities were drawn-down (2011: £nil).
The acquisition facility was fully repaid during the year resulting in £nil loan balance at the balance sheet date (2011: £13.0m).
Capital risk management
The Group manages capital employed as shareholders’ equity less net funds less deferred consideration:
Group
Shareholders’ equity
Less: net funds less deferred consideration
Capital employed
2012
£000
25,232
(37,823)
(12,591)
2011
£000
28,518
(11,308)
17,210
During the year to 30 November 2012, the Group did not utilise any borrowings under the credit facilities.
The financial covenants were all comfortably met during the year ended 30 November 2012 and in the period to the signing of the
accounts. The covenants under the Group’s new facility, agreed with Barclays Bank on 27 January 2012 contain measurements against
net debt, which is to be less than 2.5 times earnings before interest, tax, depreciation and amortisation (‘EBITDA’) and net debt interest,
which is to be less than 0.25 times EBITDA. Based on the results for 2012 and management’s plan for 2013 and subsequent years, there
is adequate headroom over these covenant measures.
During 2012 return on capital has been measured using economic profit on operating and non-operating assets at costs of capital
which are monitored compared with market data.
The Group’s risk management policies, including financial and market risks, are explained in the Audit Committee Report.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
85
Onerous
leases and
dilapidations
provisions
£000
678
6,897
–
Restructuring
provisions
£000
536
4,838
(1,590)
(15)
3,769
464
(3,103)
(677)
-
453
(78)
7,497
776
(1,656)
(389)
181
6,409
Other
£000
–
2,147
–
–
2,147
1,003
(187)
(788)
-
2,175
Total
£000
1,214
13,882
(1,590)
(93)
13,413
2,243
(4,946)
(1,854)
181
9,037
21. Provisions
Group
At 1 October 2010
Increase in provisions
Utilisation of provisions
Transfer to held for sale
At 30 November 2011
Increase in provisions
Utilisation of provisions
Release of provisions
Unwind of discount
At 30 November 2012
The Company has £629,000 provisions at 30 November 2012 (2011: £126,000), relating to warranties on businesses sold.
Restructuring provisions relate to employee related costs arising from restructuring to meet the future needs of the Group and are all
expected to be utilised during the following financial year.
In the prior period, as part of the strategic review and with the subsequent business disposal and consolidation programme, a full
assessment was made of the Group’s use of its leased property portfolio. As a result, the Group identified that, with its reduced space
requirements, additional provision of £6.9m was required for ongoing lease obligations and associated costs for premises expected to
be vacated. In the current year, a further provision of £0.8m was required. These provisions are expected to be utilised over the
remaining lives of the leases, which is an average of 3.8 (2011: 3.2) years. Of the provision at balance date, £4.2m (2011: £5.1m) relates
to onerous leases.
Provisions for onerous leases and dilapidations have been recognised at the present value of the expected obligation at discount rates
of 3% reflecting a risk free discount rate, applicable to the liabilities. These discounts will unwind to their undiscounted value over the
remaining lives of the leases via a finance charge within the income statement.
Included within the increase in other provisions and the release of other provisions are £503,000 (2011: £1,454,000) and £716,000 (2011:
£nil) respectively that have been recognised on the exit of operations included within the loss on sale of operations within the
consolidated income statement and consolidated cash flow statement.
The above balances reconcile to the balance sheet as follows:
Group
Current provision
Non-current provision
2012
£000
4,108
4,929
9,037
2011
£000
7,752
5,661
13,413
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 86
Notes to the report and accounts continued
22. Share capital
Allotted, called-up and fully paid ordinary shares of 2p each:
Company and Group
At 1 October 2010
Issued on options
At 30 November 2011
Issued on options
At 30 November 2012
Number
'000
93,420
48
93,468
47
93,515
£000
1,868
1
1,869
1
1,870
47,650 (2011: 47,750) ordinary shares of 2p each were allotted in the period, for consideration of £35,000 (2011: £46,000).
The Company has the authority to repurchase 9,346,780 shares (2011: 9,342,005) and repurchased nil shares during the period
(2011: nil).
The Company has one class of ordinary shares which carries no right to fixed income.
23. Own shares
The RM plc Employee Share Trust (EST) was established in March 2003 to hedge the future obligations of the Group in respect of shares
awarded under the RM plc Co-Investment Plan, RM plc Performance Share Plan and Deferred Bonus Plan. The trustee of the EST,
Computershare Trustees (C.I.) Ltd, purchases the Company’s ordinary shares in the open market with financing provided by the
Company on the basis of regular reviews of the anticipated share-based payment liabilities of the Group. The EST has waived any
entitlement to the receipt of dividends in respect of all of its holding of the Company’s ordinary shares. The EST’s waiver of dividends
may be revoked or varied at any time.
Company and Group
At 1 October 2010
Acquired in period
Disposed on exercise of co-investment plan and deferred bonus plan
At 30 November 2011
Disposed on exercise of co-investment plan and deferred bonus plan
At 30 November 2012
Number
2,306,350
136,609
(500,402)
1,942,557
(145,195)
1,797,362
Cost
£000
3,805
212
(815)
3,202
(230)
2,972
These shares are shown at weighted average cost within equity in the Group and Company balance sheets.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
87
24. Held for sale and exited businesses
As a result of the September 2011 strategic review, the Board concluded that several Group subsidiaries and businesses would be
disposed. These have been determined to not meet the IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations definition
of discontinued operations.
a) Loss on disposals
On 19 January 2012, 100% of the equity of AMI Education Solutions Ltd, containing the Easytrace business was sold to Jonas Computing
(UK) Ltd for £0.7m plus an adjustment for net assets at completion. On 4 January 2012, the Group entered into a sale agreement to
dispose of its 49% stake in Lego Education Europe Ltd and the business assets including employment contracts of Dacta Ltd to Lego A/S
for €4.4m, which included repayment of a loan of €2.2m. On 10 May 2012, the Group entered into a sale agreement to dispose of its
subsidiary Isis Concepts Ltd for a cash consideration of £0.2m.
The net assets disposed and the impact on the income statement of these disposals are detailed below:
Group
12 months to 30 November 2012
Goodwill
Acquisition related intangible assets
Other intangible assets
Interest in joint venture
Property, plant and equipment
Deferred tax assets
Inventories
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net assets disposed
Other exit costs/(income)
Total consideration
Loss on disposal
AMI
£000
–
906
1
–
143
–
266
973
(695)
(227)
1,367
–
549
(818)
Lego
Education
£000
1,952
–
–
37
–
–
–
–
(204)
–
1,785
–
1,780
(5)
Isis
£000
–
–
–
–
132
11
890
1,787
(993)
–
1,827
–
205
(1,622)
RM Asia
Pacific
£000
US hardware
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
708
–
(708)
(705)
–
705
Total
£000
1,952
906
1
37
275
11
1,156
2,760
(1,892)
(227)
4,979
3
2,534
(2,448)
Other exit costs principally relate to asset impairments, termination and exit costs and provisions.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 88
Notes to the report and accounts continued
24. Held for sale and exited businesses continued
b) Held for sale operations
At the prior period balance sheet date, certain businesses identified for disposal were being actively marketed for sale but had not been
disposed. These were recorded as held for sale at 30 November 2011. These businesses were all subsequently sold during the year
ended 30 November 2012 (as disclosed above in note 24(a)) and hence the net assets held for sale at 30 November 2012 are £nil (2011:
£3.9m).
The major classes of assets and liabilities comprising the operations classified as held for sale at 30 November 2011 were as follows:
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax assets
Investment in joint venture
Inventories
Trade and other receivables
Total assets held for sale
Trade and other payables
Provisions
Deferred tax liabilities
Total liabilities directly associated with assets held for sale
Net assets of disposal group
Net assets
before
impairment on
classification to
held for sale
£000
6,532
1,373
319
33
37
727
2,793
Impairment on
classification to
held for sale
£000
(4,580)
(443)
–
–
–
–
–
Net assets
held for sale at
30 November
2011
£000
1,952
930
319
33
37
727
2,793
11,814
(5,023)
6,791
(2,617)
(93)
(204)
(2,914)
8,900
–
–
–
–
(5,023)
(2,617)
(93)
(204)
(2,914)
3,877
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
89
25. Commitments
a) Operating leases
The Group leases certain assets under operating leases and recognised expenses in the period of:
Group
Minimum lease payments under operating leases recognised as an expense in the year/period
12 months to
30 November
2012
£000
4,675
14 months to
30 November
2011
£000
6,986
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Group
Within one year
In the second to fifth years inclusive
After five years
2012
£000
2,804
7,749
4,601
2011
£000
2,984
9,289
6,308
Operating lease payments represent rentals payable by the Group for certain of its office properties and include the period up to the
earliest commercial exit date which is normally the first break clause of the lease. The balances disclosed above exclude commitments
of £2.4m (2011: £3.1m) which have been included within onerous lease provisions at the balance sheet date. The terms of these leases
are subject to renegotiation on an average term of 3.8 years (2011: 3.3 years) and rentals are fixed for an average of 3.6 years (2011: 3.6
years). If all rights of renewals within the operating leases are included, the leases have an average term of 13.4 years (2011: 12.5 years).
b) Capital commitments
The Group has the following capital expenditure commitments:
Group
Contracted for but not provided for
2012
£000
191
2011
£000
1,257
26. Guarantees and contingent liabilities
a) Guarantees
The Company has entered into guarantees relating to the performance and liabilities of its subsidiaries’ major contracts. The Directors
are not aware of any circumstances that have given rise to any liability under such guarantees and consider the possibility of any
arising to be remote. A fair value of £nil (2011: £nil) has been applied to these guarantees.
b) Contingent liabilities
The Group has provided performance guarantees and indemnities relating to performance bonds and letters of credit issued by its
banks on its behalf, in the ordinary course of business. The Directors are not aware of any circumstances that have given rise to any
liability under such guarantees and indemnities and consider the possibility of any arising to be remote. A fair value of £nil (2011: £nil)
has been applied to these guarantees and indemnities.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 90
Notes to the report and accounts continued
27. Share-based payments
The Group operates a number of executive and employee equity settled share-based payment schemes including co-investment plans,
performance share plans, deferred bonus plans, share options and staff share schemes. The fair values of these schemes have been
assessed using Black-Scholes and Monte Carlo models, as appropriate to the scheme, at the date of grant. The fair values of the
schemes are expensed over the period between grant and vesting.
Share-based payment awards exercised in the period disclosed in the statement of changes in equity represents the impact on retained
earnings of releasing the fair value charge accrued under IFRS 2 Share-based payment, which for the co-investment scheme and
deferred bonus scheme is partially matched by the release of own-shares held.
a) Employee share option schemes
The Group has in place share option schemes which issue options over shares in the Company. There are various performance
conditions attaching to share option grants which are yet to vest, including EPS, share price and share purchase conditions. Options are
forfeited if the employee leaves the Group before the options vest.
Details of share options outstanding during the period/year are as follows:
Group
Outstanding at 1 October 2010
Granted during the period
Lapsed during the period
Exercised during the period
Outstanding at 30 November 2011
Lapsed during the period
Exercised during the period
Outstanding at 30 November 2012
Weighted
average
exercise price
£
1.72
0.51
1.72
0.96
1.45
1.71
0.73
1.37
Number of
share options
3,825,200
1,000,000
(486,033)
(47,750)
4,291,417
(1,130,867)
(47,650)
3,112,900
Weighted
average
share price
at exercise
£
Exercise
price range
£
0.79 – 2.05
1.54
0.77
0.51 – 2.05
0.51 – 2.05
Included within the total outstanding options at 30 November 2012 are 1,710,900 (30 November 2011: 2,286,750) options which are
exercisable.
The options outstanding at 30 November 2012 had a weighted average contractual life of 6.0 years (2011: 6.7 years).
In the 12 months ended 30 November 2012, no option grants were made. In the prior period an option grant was made on 26 October
2011 to Martyn Ratcliffe on his appointment as Chairman. The estimated fair value of the options granted were £0.16 per option,
determined using a Monte Carlo model owing to the share price and share purchase performance conditions within the award. It has
been assumed that the share purchase condition will be met.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
91
27. Share-based payments continued
b) Co-investment plans
The Group has in place co-investment plans for the remuneration of senior management. In the period to 30 November 2012, no
co-investment rights were granted (2011: none). Details of co-investment plan maximum matching share commitments are included
below:
Group
Outstanding at 1 October 2010
Lapsed during the period
Exercised during the period
Outstanding at 30 November 2011
Lapsed during the period
Outstanding at 30 November 2012
Maximum
number of
matching
shares
1,574,430
(466,282)
(243,098)
865,050
(865,050)
–
All of the above instruments lapsed on 16 December 2011 owing to the non-achievement of the plan performance conditions.
c) Performance share plans
The Group uses performance share plans for the remuneration of senior executives and senior management. Details of senior executive awards
are contained within the Remuneration Report. Senior management participation has been subject to various vesting conditions, including EPS,
total shareholder return and share price conditions. If the vesting conditions are either not met or the participants leave the Group’s employment
then in most circumstances the award lapses. Details of performance share plan shares during the period are included below:
Group
Outstanding at 1 October 2010
Granted during the period
Lapsed during the period
Exercised during the period
Outstanding at 30 November 2011
Granted during the period
Lapsed during the period
Exercised during the period
Outstanding at 30 November 2012
Market price
on grant
£
1.51
0.75
Maximum
number of
awarded
shares
1,554,145
2,333,269
(907,674)
(7,248)
2,972,492
3,230,000
(1,110,987)
–
5,091,505
The plan outstanding at 30 November 2012 had a weighted average contractual life of 1.4 years (2011: 1.8 years).
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 92
Notes to the report and accounts continued
27. Share-based payments continued
c) Performance share plans
In the period to 30 November 2012, 2,730,000 performance share plan rights were granted to executive and senior management on
1 December 2011 and 250,000 on 29 February 2012 (2011: 10 December 2010). Both awards were made under the same share price
based performance conditions and performance periods. The fair values are determined using Monte Carlo models which give fair
values of £0.47 per share for share price performance conditions until 2015 and £0.40 per share for share price performance conditions
until 2016 (2011: £1.29 per share for EPS vesting conditions and £0.86 per share for TSR vesting conditions). A further 250,000 share plan
rights were granted on 6 August 2012 to David Brooks on his appointment to Chief Operating Officer. The fair value is determined using
the Monte Carlo simulation which gave £0.48 for the TSR vesting conditions. The fair values are charged to income evenly over the
vesting period with adjustments made for non-market based vesting conditions. Inputs to the models are as follows:
Group
Share price at grant (£)
Exercise price (£)
Expected life
Expected dividends
1 December 2011
29 February 2012
6 August 2012
2015
0.74
Nil
4 years
3.60%
2016
0.74
Nil
5 years
3.60%
2015
0.83
Nil
4 years
3.60%
2016
0.83
Nil
5 years
3.60%
TSR
0.80
Nil
3 years
2.44%
The expected life used in the modelling has been adjusted based on management’s best estimate, for the effects of non-transferability
and exercise restrictions.
Comparator company volatility is assessed using annualised, daily historic TSR growth assessed over a period prior to the date of grant
that corresponds to the performance period of three years. The company correlation uses historic pairwise correlations of the
companies over a three year period. The fair value of the TSR element is based on a large number of stochastic projections of Company
and comparator TSR.
In March 2003 the Company established the RM plc Share Trust to hedge the future obligations of the Group in respect of shares
awarded under the RM plc Co-Investment Plan. In order to hedge the Group’s liability to provide shares in the Company under the
performance share plans the Trustees periodically purchase shares on the open market using funds provided by the Group. These
shares are used to hedge the estimated liability but until vesting represent own shares held – see note 23.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
93
27. Share-based payments continued
d) Deferred bonus plan
The Group has in place a deferred bonus plan for the remuneration of Executive Directors. This plan was not used for the year ended
30 November 2012. Under historic plans 40% of the Directors’ annual cash bonus was deferred in ordinary shares for a period of three
years and vested at the expiry of the same period. Any unvested shares lapse immediately if the Executive Director ceases to be an
employee of the Group in circumstances where they would not be considered to be a “good leaver” under the rules of the plan.
Details of deferred bonus grants outstanding during the period are as follows:
Group
Outstanding at 1 October 2010
Granted during the period in relation to 2010
Released during the period
Lapsed during the period
Outstanding at 30 November 2011
Released during the period
Lapsed during the period
Outstanding at 30 November 2012
Market price
on setting
entitlement
£
Market price
on grant
£
1.57
1.60
Number of
bonus shares
319,879
120,476
(250,056)
(3,690)
186,609
(145,195)
(1,340)
40,074
The number of shares outstanding at 30 November 2012 had a weighted average contractual life of 1.2 years (2011: 1.1 years).
In the 12 months ended 30 November 2012 no awards have been granted under the deferred bonus plan (2011: 15 December 2010).
Inputs to the model are as follows:
Group
Share price at grant
Exercise price
Expected life
Risk free rate
Expected dividends
15 December
2010
£1.60
Nil
3 years
0.9%
4.0%
The expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability,
exercise restrictions and behavioural considerations.
In order to hedge the Group’s liability to provide shares in the Company under the deferred bonus plans the Trustees periodically
purchase shares on the open market using funds provided by the Group. These shares are used to hedge the estimated liability but
until vesting represent own shares held – see note 23.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 94
Notes to the report and accounts continued
27. Share-based payments continued
e) Staff share schemes
The RM plc 2002 Staff Share Scheme has historically made annual grants of shares in RM plc to almost all employees. No award was
made in the year to 30 November 2012. The shares vest to the employees after a minimum of three years, but normally after five years.
The scheme is an HMRC approved employee share scheme constituted under a trust deed and was introduced to replace the RML Staff
Share Scheme.
At grant, the Trustees of the scheme purchase shares on the open market and hold these in trust on behalf of the employees. The
schemes hold the following shares in RM plc:
Group
RM plc 2002 Staff Share Scheme
RML Staff Share Scheme
At 1 October 2010
Vested
RM plc 2002 Staff Share Scheme
RML Staff Share Scheme
At 30 November 2011
Vested
RM plc 2002 Staff Share Scheme
RML Staff Share Scheme
At 30 November 2012
Weighted
average
cost
£000
856
1
857
(110)
747
1
748
(159)
588
1
589
Number
of shares
522,273
1,361
523,634
(67,064)
455,209
1,361
456,570
(96,375)
358,834
1,361
360,195
These shares are held for the benefit of staff and are therefore not consolidated into the Group or Company balance sheets.
Performance conditions – estimation uncertainty
Assigning a fair value charge to share-based payments requires: estimation of the projected share price; the number of instruments
which are likely to vest; other non-market based performance conditions. Assigning a fair value charge requires continuing
reassessment of these estimates.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
95
28. Retirement benefit schemes
a) Defined contribution schemes
The Group operates or contributes to a number of defined contribution schemes for the benefit of qualifying employees in its subsidiary
companies. The assets of these schemes are held separately from those of the Group. The total cost charged to income of £3.7m (2011:
£5.1m) represents contributions payable to these schemes by the Group at rates specified in employment contracts. As at 30 November
2012 £0.4m (2011: £0.3m) due in respect of the current reporting period had not been paid over to the schemes.
b) Local government pension schemes
Through its long-term contract portfolio the Group has TUPE employees who retain membership of Local Government Pension schemes.
The Group makes payments to these schemes for current service costs in accordance with its contractual obligations which are capped
and collared. The Group has insignificant deficit risk for these schemes.
c) Defined benefit scheme
The Group operates one defined benefit pension scheme, the Research Machines plc 1988 Pension Scheme. The scheme provides
benefits to qualifying employees and former employees of RM Education Ltd, 3T Productions Ltd and Softease Ltd, but was closed to
new members with effect from 1 January 2003. Under the scheme, employees are entitled to retirement benefits of 1/60th of final
pensionable salary for each qualifying year on attainment of retirement age of 60 or 65 years and additional benefits based on the
value of individual accounts. No other post-retirement benefits are provided. The scheme is a funded scheme.
The assets of the scheme are held separately from those of the Group in a trustee-administered fund. The most recent actuarial
valuation of plan assets and the present value of the defined benefit obligation were carried out for statutory funding purposes at 31
May 2012 by a qualified independent actuary. IAS 19 Employee Benefits liabilities have been rolled forward based on this valuation’s
base data. Plan assets are measured at bid-price at 30 November 2012. The present value of the defined benefit obligation and the
related current service cost was measured using the projected unit credit method.
As at 31 May 2012, the triennial valuation for statutory funding purposes showed a deficit of £53.5 million (31 May 2009: £16.6 million).
The Group agreed with the Scheme Trustees to repay this amount via deficit catch up payments of £5 million in October 2012, £4 million
per annum until 31 May 2013 and thereafter at £3.6m per annum until 31 May 2027.
Following employee consultation and negotiation with Scheme Trustees, the Group announced on 31 October 2012 that the scheme
would close to future accrual of benefits. As a result of the closure to accrual, a £1.8m curtailment gain has been recognised in the
consolidated income statement.
During the period until closure to accrual, the cost of future provision, on a valuation basis as a percentage of pension contribution
salary, was 31.6% for Normal Retirement Age 60 (2009: 20.9%, 2006: 21.4%, 2003: 20.4%) and 23.6% for Normal Retirement Age 65
(2009: 15.1%, 2006: 15.3%, 2003: 13.1%). The costs post 2006 and pre 2010 take into account the benefit of the implementation of a
contribution salary cap at 5% per annum and from 2010 the lowering of the cap to 2.5%.
RM plc has entered into a guarantee to irrevocably undertake with the Trustees that, if ever the subsidiary company, RM Education Ltd,
does not pay any amount when due in respect of its Guaranteed Obligations, it must immediately on demand by the Trustees pay that
amount (that was due but unpaid) as if it were the principal obligor. The guarantee for the catch up payments remains in place on
condition that the assumptions underlying the valuation in 2012 are the same for all subsequent triennial valuations undertaken.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 96
Notes to the report and accounts continued
28. Retirement benefit schemes continued
IAS 19 valuation
Defined benefit pension scheme charges/(credits) recognised in income are as follows:
Group
Current service cost, recognised within operating profit
Curtailment gain
Operating charge
Interest cost
Expected return on scheme assets
Expense recognised within finance costs
12 months
2012
£000
14 months
2011
£000
2,241
(1,824)
417
6,379
(5,620)
759
1,176
3,122
–
3,122
7,137
(6,790)
347
3,469
Of the £2.2m (2011: £3.1m) current service cost, £1.0m (2011: £1.6m) is included in cost of sales and £1.2m (2011: £1.5m) in operating
expenses. The curtailment gain of £1.8m is included within the exceptional net credit on the defined benefit scheme in the consolidated
income statement. This exceptional item is shown net of a pension related obligation of £0.5m to be met directly by the Group, not
through the pension scheme.
The amount included within the balance sheet arising from the Group’s obligations in respect of its defined benefit scheme, and the
expected rate of return on scheme assets are as follows:
Group
Equities
Bonds, gilts and cash
Total fair value of scheme assets
Present value of defined benefit obligations
Deficit in scheme and liability recognised in balance sheet
Related deferred tax asset
Net pension deficit
2012
2011
%
6.5%
3.2%
£000
64,858
64,857
129,715
(150,148)
(20,433)
4,700
(15,733)
%
6.5%
3.4%
£000
54,594
56,821
111,415
(132,589)
(21,174)
5,294
(15,880)
The actual return on scheme assets in the period was a gain of £10.4m (2011: gain of £5.9m). The expected return on scheme equity
assets is based upon the expected out-performance of equities over government bonds over the long-term and includes an allowance
for future expenses. The bond rate is based on the addition of a risk loading to the long-term risk free rate of return and also includes
an allowance for future expenses.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
97
12 months
2012
£000
(10,855)
3,252
(7,603)
14 months
2011
£000
(10,215)
-
(10,215)
28. Retirement benefit schemes continued
Amounts recognised directly in equity in respect of the defined benefit pension scheme are as follows:
Group
Actuarial gains and (losses)
Experience gains and (losses)
Cumulative actuarial gains and losses recognised in the statement of recognised income and expense since 1 October 2004 are losses
of £40.5m (2011: losses of £32.9m).
Key assumptions used:
Rate of increase in salaries
Rate of increase of pensions
(pre 6 April 1997, pre 1 June 2005, post 31 May 2005)
Discount rate
Inflation assumption:
- CPI
- RPI
12 months
2012
14 months
2011
2.4%
1.35%, 2.8%, 2.0% 1.3%, 2.9%, 2.0%
2.4%
4.5%
2.2%
2.9%
4.8%
2.3%
3.0%
Mortality assumptions align with those used in the triennial valuation and are the SAPS 03 Normal year of birth, medium cohort tables
with a 1% mortality improvement underpin. These give average life expectancies as follows:
Pensioner member age 65 (current life expectancy)
Non-pensioner member age 45 (life expectancy at 65)
2012
Male
22.4
24.1
Female
24.8
26.8
2011
Male
21.3
23.2
Female
24.1
26.0
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 98
Notes to the report and accounts continued
28. Retirement benefit schemes continued
Movements in fair value of scheme assets were as follows:
Group
At start of period
Expected return on scheme assets
Actuarial gains and (losses) – actual return less expected return
Contributions from sponsoring companies:
– In respect of current service cost
– In excess of current service cost
Contributions from scheme members
Benefits paid
At end of period
Movements in fair value of defined benefit obligations were as follows:
Group
At start of period
Current service costs
Curtailment gain – exceptional credit from closure to future accrual
Interest cost
Contributions from scheme members
Actuarial (gains) and losses:
– Movement from RPI to CPI
– Other
12 months
2012
£000
111,415
5,620
4,714
14 months
2011
£000
102,292
6,790
(927)
2,241
7,279
9,520
10
(1,564)
129,715
12 months
2012
£000
132,589
2,241
(1,824)
6,379
10
3,122
1,768
4,890
36
(1,666)
111,415
14 months
2011
£000
114,672
3,122
–
7,137
36
–
12,317
12,317
(4,714)
14,002
9,288
(1,564)
150,148
(1,666)
132,589
Benefits paid
At end of period
The history of experience adjustments is as follows:
Group
Difference between expected and actual return on
scheme assets:
– amount (£000)
– as a percentage of scheme assets
Experience gains and (losses) on scheme liabilities:
– amount (£000)
– as a percentage of scheme liabilities
12 months
2012
14 months
2011
12 months
2010
12 months
2009
12 months
2008
4,793
4%
3,252
2%
(927)
(1)%
–
–
3,695
4%
–
–
4,540
5%
(1,100)
(1)%
(15,189)
(20)%
–
–
The amount of contributions expected to be paid to the Scheme during the year to 30 November 2013 have been set at £4.0m per
annum until 31 May 2013 and thereafter at £3.6m per annum until 31 May 2027.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
99
28. Retirement benefit schemes continued
Defined benefit pension parameters
The defined benefit pension scheme accounting entries require a number of estimates to be made including the discount rate applied
to liabilities, the current and past service costs and appropriate mortality assumptions. The financial position and performance of the
scheme are sensitive to these parameters owing to the long duration of the liabilities.
Sensitivity to these assumptions is shown in the table below:
Group
Discount rate increase of 0.1%
Inflation increase of 0.1%
1 year additional life expectancy
Increase/
(decrease)
in pre-tax
deficit
£000
(3,584)
3,278
2,532
Current
assumption
4.5%
2.85%
SAPS 03 Normal
with 1% mortality
improvement
underpin
If the above assumptions were decreased by 0.1%, this would result in an approximately equal and opposite effect on the pre-tax
deficit.
29. Related party transactions
Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not included in
this note. Transactions between the Group and its joint venture are disclosed below.
a) Remuneration of key management personnel
The remuneration of the key management personnel of the Group, recognised in the income statement, is set out below in aggregate.
Key management are defined as the Executive and Non-Executive Directors of the Company and other persons classified as “persons
discharging management responsibility under the rules of the Financial Services Authority”. Further information about the remuneration
of individual Directors, including waived remuneration, is provided in the audited section of the Remuneration Report.
Group
Short-term employee benefits
Post-employment benefits
Termination payments
Share-based payments
12 months
2012
£000
2,570
222
313
141
3,246
14 months
2011
£000
2,716
392
365
694
4,167
Share-based payments includes charges made under the long-term incentive deferred bonus, performance share, co-investment and
share option plans. There are no other long-term incentive plans.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 100
Notes to the report and accounts continued
29. Related party transactions continued
b) Transactions between the Group and Joint venture
During its period of ownership, the Group provided services of £nil (2011: £1.5m) to its joint venture undertaking Lego Education Europe
Ltd and at 30 November 2012, a trading balance of £nil was receivable from the joint venture (2011: £0.1m). The joint venture
undertaking was sold during the year ended 30 November 2012 (refer to note 24). The Group provided financing of £1.9m in the prior
period to the joint venture on which interest was charged at an effective interest rate of 3.13%. This was fully repaid to the Group during
the year ended 30 November 2012 as part of the terms of the sale of the joint venture.
c) Transactions between the Company and its subsidiaries
A list of the Company’s principal subsidiaries is set out in note 15. Transactions with subsidiaries relate principally to management
recharges, intra-group dividends and interest. The table below shows transactions between the Company and its subsidiaries
impacting profit for the period:
Company
Management recharges
Net intercompany interest income
Dividends received
12 months
2012
£000
(501)
116
6,480
14 months
2011
£000
(626)
474
4,410
Total outstanding balances held with subsidiaries are listed in notes 18 and 19.
The Company also operates several share-based payment schemes for the benefit of employees of Group companies, as outlined
above. A fair value charge of £0.1m (2011: £1.4m) for these schemes has been recharged to the employing Group company.
d) Sponsorship and donations
RSA and RSA Tipton Academy
In 2008 the Group agreed to support the building costs of the RSA Tipton Academy (‘Academy’) via an agreement with the Royal Society
of Arts (‘RSA’). In total £160,000 has been paid to the RSA and the Academy for this purpose. During the year, the Academy has
purchased products and services from the Group to the value of £138,000. The Group’s remaining commitments to the Academy are to
jointly fund an ICT role and provide information technology hardware at cost up to 31 July 2013.
RM Board Director Sir Mike Tomlinson became Chair of Governors at the Academy in 2008 (a non-fee earning position), after the initial
arrangements with the Academy were negotiated. He did not participate in any of these negotiations. He ceased being Chair of the
Governors in July 2012.
21st Century Learning Trust
During the year ended 30 November 2012 the Group ceased its sponsorship of teaching fellowships spending £nil (2011:
£9,000) through 21st Century Learning, a trust in respect of which Board Director Sir Mike Tomlinson is a Co-Chair (in a non-fee earning
position).
e) Other related party transactions
Microgen plc
During 2012 the Group has entered into two contracts with Microgen plc to purchase products and software development services. One
contract relates to upgrading internal business reporting analysis capability and the other to product and software development
services for RM Books and RM Unify. RM Chairman, Martyn Ratcliffe, is Chairman of, and equity holder in, Microgen plc. The cost of
software and services provided to the Group by Microgen plc was £364,000 (2011: £nil). Martyn Ratcliffe did not participate in the
negotiation of these contracts.
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
101
29. Related party transactions continued
Cabot Learning Federation
Former RM Board Director Rob Sirs was a Director of the Cabot Learning Federation, an Academy provider. Cabot Academies have
purchased products and services from RM of approximately £32,000 (2011: £65,000) in the year to 30 November 2012, with these being
at arms-length prices and following competitive tendering.
Teach First
The Group purchased services to the value of £nil (2011: £10,000) in the year to 30 November 2012 from Teach First Trust where RM
Board Director Lord Andrew Adonis is a Trustee (in a non-fee earning position).
City & Guilds
RM Board Director Sir Mike Tomlinson is Chair of the Quality & Standards Committee of City & Guilds. City & Guilds purchased services
and products of £nil (2011: £158,000) in the year to 30 November 2012.
Dods (Group) PLC
RM Board Director Lord Andrew Adonis is a Director of Dods (Group) PLC. The Group has purchased products and services from Dods
of £nil (2011: £1,000) in the period to 30 November 2012, with these being at arms-length prices.
Isis Concepts Ltd
On 10 May 2012, RM plc completed the sale of ISIS Concepts Ltd (‘ISIS’) to ISIS Concepts Holdings Ltd (‘ISIS HoldCo’). ISIS HoldCo was a
new company formed by Nick Topliss, who owned ISIS prior to it being purchased by the Group in 2009 and who acted as Managing
Director of ISIS during the period of RM plc’s ownership. Rob Sirs, a former Director of RM plc also invested in ISIS HoldCo. The
transaction followed an extensive marketing process through third party advisors. As part of the transaction, RM agreed to provide a
short-term working capital loan facility of up to £850,000, secured on freehold property and other assets valued in excess of that figure.
That loan facility has since been repaid in full.
PricewaterhouseCoopers LLP
The Group uses PricewaterhouseCoopers LLP to provide certain consultancy and assurance services, but excluding external audit
services. RM Board Director Iain McIntosh’s wife is an equity partner in PricewaterhouseCoopers. She has not been involved in any
services provided to the Group.
The Group encourages its Directors and employees to be Governors, Trustees or equivalent of educational establishments. The Group
trades with these establishments in the normal course of its business.
30. Subsequent events disclosure
Subsequent to the balance sheet date, on 23 January 2013 the Group signed an extended £30m committed revolving credit facility with
Barclays Bank which has a termination date of March 2016.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 102
Proforma financial information
for the year ended 30 November 2012
As explained in note 1, the financial year end of the Company and its subsidiaries changed from 30 September to 30 November in 2011.
In order to present data for comparable time periods, proforma financial information showing the Group’s financial performance and
cash flows for the year ended 30 November 2012 is presented below with comparative financial information for the year ended 30
November 2011. This data has been prepared as if the Group had always had a 30 November year end.
This proforma financial information is unaudited.
Proforma consolidated income statement
for the year ended 30 November 2012
Notes
Adjusted
£000
288,688
(217,868)
70,820
(57,249)
Adjustments
£000
–
–
–
Year ended
30 November
2012
Total
£000
288,688
(217,868)
70,820
(57,249)
Year ended
30 November
2011
Total
£000
310,055
(228,686)
81,369
(67,264)
Adjusted
£000
310,055
(228,686)
81,369
(67,264)
Adjustments
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(57,249)
13,571
926
(1,359)
13,138
(3,160)
33
(244)
(244)
(3,212)
(2,448)
(129)
(312)
(3,212)
(2,448)
(129)
(312)
(457)
715
195
(457)
715
195
1,324
1,324
–
–
–
–
–
–
–
–
–
–
(4,568)
(4,568)
–
(181)
(4,749)
(301)
–
37
(61,817)
(67,227)
9,003
926
(1,540)
8,389
(3,461)
14,142
940
(510)
14,572
(4,724)
(604)
(604)
(12,370)
(4,391)
(1,087)
(8,576)
(5,986)
–
–
–
(28)
(33,042)
(33,042)
–
–
(33,042)
3,868
(12,370)
(4,391)
(1,087)
(8,576)
(5,986)
–
–
–
9
(100,269)
(18,900)
940
(510)
(18,470)
(856)
9,978
(5,050)
4,928
9,848
(29,174)
(19,326)
10.9p
10.9p
(5.5)p
(5.5)p
5.4p
5.4p
10.8p
10.8p
(32.0)p
(32.0)p
(21.2)p
(21.2)p
Revenue
Cost of sales
Gross profit
Operating expenses
– Amortisation of acquisition related
intangible assets
– Impairment of goodwill, acquisition
related intangible assets, other
intangible assets and investments
– Loss on sale of operations
– Share–based payment charges
– Restructuring costs
– Increase in provision for
dilapidations on leased properties
and onerous lease contracts
– Exceptional credit on settlement
– Release of deferred consideration
– Exceptional net credit on defined
benefit pension scheme
Share of results of associate and joint
venture
Profit/(loss) from operations
Investment income
Finance costs
Profit/(loss) before tax
Tax
Profit/(loss) for the year attributable
to equity holders of the parent
Earnings/(loss) per ordinary share:
Basic
Diluted
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS
103
Year
ended
30 November
2012
£000
9,003
Year
ended
30 November
2011
£000
(18,900)
(250)
–
258
244
–
2,954
1,254
–
5,701
144
302
496
2,448
841
(195)
129
(1,824)
21,505
3,610
3,895
4,529
33,539
(7,279)
(59)
644
(92)
(658)
–
26,095
258
856
(1,852)
(400)
2,481
(919)
1,878
2,302
607
(9)
660
604
443
10,992
1,114
275
7,051
–
(125)
62
4,391
11,660
–
1,087
–
19,912
3,461
9,316
6,801
39,490
(1,638)
(1,698)
683
(396)
–
(12)
36,429
136
412
(4,055)
(1,579)
3,775
–
(1,880)
(3,191)
Proforma consolidated cash flow statement
for the year ended 30 November 2012
Profit/(loss) from operations
Adjustments for:
(Gain)/loss on foreign exchange derivatives
Share of results of associate and joint venture
Impairment of investment in associate
Amortisation of acquisition related intangible assets
Impairment of acquisition related intangible assets
Impairment of goodwill
Amortisation of other intangible assets
Impairment of other intangible assets
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Loss on disposal of other intangible assets
Loss on sale on operations
Increase in provisions
Release of deferred consideration
Share-based payment charges
Exceptional pension credit
Operating cash flows before movements in working capital
Decrease in inventories
Decrease in receivables
Increase in payables
Cash generated by operations
Defined benefit pension contribution in excess of current service cost
Tax paid
Income on sale of finance lease debt
Interest paid:
– bank overdrafts and loans
– borrowing facility arrangement fee and commitment fee
– other
Net cash inflow from operating activities
Investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of other intangible assets
Proceeds from sale of operations
Amounts advanced to third party
Amounts received from/(advanced to) joint venture undertaking
Net cash used in investing activities
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 104
Proforma consolidated cash flow statement continued
for the year ended 30 November 2012
Financing activities
Dividends paid
Proceeds from share capital issue, net of share issue costs
(Repayment of)/increase in borrowings
Purchase of own shares
Repayment of loan notes and deferred consideration
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of year
31. General information
Year
ended
30 November
2012
£000
Year
ended
30 November
2011
£000
(2,090)
35
(13,005)
–
–
(15,060)
13,337
24,529
(43)
37,823
(6,128)
46
670
(212)
(670)
(6,294)
26,944
(2,414)
(1)
24,529
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS Notes to the proforma financial statements
105
The proforma financial information for the year ended 30 November 2012 does not constitute statutory accounts as defined in section
434 of the Companies Act 2006.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union. The proforma financial information has been prepared applying the accounting policies and
presentation that were applied in the preparation of the Group’s published consolidated financial statements for the year ended 30
November 2012.
32. Operating segments
As explained in note 4, the Group was restructured into four operating divisions and the segmental results within this proforma
information is presented in accordance with the Group’s revised management structure. Comparative financial performance for the
year ended 30 November 2011 has been provided under this new basis.
Segmental result
Year ended
30 November 2012
Revenue
Adjusted operating
profit/(loss)*
Investment income
Finance costs
Adjusted profit
before tax*
Adjustments*
Profit before tax
Year ended
30 November 2011
Revenue
Adjusted operating
profit/(loss)*
Investment income
Finance costs
Adjusted profit
before tax*
Adjustments*
Loss before tax
Education
Technology
£000
109,036
Managed
Services
£000
81,368
Education
Resources
£000
59,809
Education
Software
£000
35,662
Corporate
Services
£000
-
Total
retained
operations
£000
285,875
Exited
operations**
£000
2,813
Total
£000
288,688
3,609
2,855
8,927
1,353
(2,722)
14,022
(451)
13,571
926
(1,359)
13,138
(4,749)
8,389
Education
Technology
£000
125,712
Managed
Services
£000
61,487
Education
Resources
£000
57,961
Education
Software
£000
38,538
Corporate
Services
£000
-
Total
retained
operations
£000
283,698
Exited
operations**
£000
26,357
Total
£000
310,055
8,303
6,137
5,415
3,229
(3,420)
19,664
(5,522)
14,142
940
(510)
14,572
(33,042)
(18,470)
* Adjustments to profit are as stated within the proforma consolidated income statement.
** Exited operations represent the results from operations sold following the September 2011 strategic review.
stock code: RM.RM plc Annual Report 2012 www.rm.comBUSINESS REVIEWGOVERNANCEFINANCIAL STATEMENTS 106
Notes to the proforma financial statements continued
33. Tax
The effective tax rate for the 12 months ended 30 November 2012 is shown below:
Year ended
30 November
2012
Total
£000
Adjusted
£000
Adjustments
£000
Profit/(loss) before tax
Tax (charge)/credit
Effective tax rate
13,138
(3,160)
24.1%
(4,749)
(301)
(6.3)%
8,389
(3,461)
41.3%
Year ended
30 November
2011
Total
£000
(18,470)
(856)
(4.6)%
Adjusted
£000
Adjustments
£000
14,572
(4,724)
32.4%
(33,042)
3,868
11.7%
stock code: RM.RM plc Annual Report 2012FINANCIAL STATEMENTS W
E
I
V
E
R
S
S
E
N
S
U
B
I
E
C
N
A
N
R
E
V
O
G
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
RM plc Annual Report 2012
stock code: RM.
www.rm.com
107
Shareholder Information
Financial calendar
Ex-dividend date for 2012 final dividend
Record date for 2012 final dividend
Annual general meeting
Payment of 2012 final dividend
Announcement of 2013 interim results
Preliminary announcement of 2013
results
17 April 2013
19 April 2013
24 April 2013
15 May 2013
July 2013
Electronic communication
Shareholders are able to receive company communication via
email. By registering your email address, you will receive emails
with a web link to information posted on our website. This can
include our report and accounts, notice of meetings and other
information we communicate to our shareholders.
February 2014
Electronic communication brings numerous benefits including:
Corporate website
Information about the Group’s activities is available from RM at
www.rm.com.
Investor information
Information for investors is available at www.rm.com/investors
Enquiries can be directed to Greg Davidson, Company Secretary,
at the Group head office address or at
companysecretary@rm.com.
zz
zz
zz
zz
zz
Environmental: helping us reduce our impact on the
environment
Security: your documents cannot be lost in the post or read
by others
Faster notification of information and updates
Easy access: check your shareholding and account
transactions online at any time
Convenience: change your name, address or dividend
mandate details online
Registrars and shareholding information
Shareholders can access the details of their holdings in RM plc via
the Shareholder Services option within the investor section of the
corporate website at www.rm.com/investors. Shareholders can
also make changes to their address details and dividend
mandates online.
All enquiries about individual shareholder matters should be
made to the registrars either via email at ssd@capitaregistrars.
com or telephone: 0871 664 0300 (calls cost 10p per minute plus
network extras; lines are open 8.30am to 5.30pm, Monday to
Friday). To help shareholders, the Capita website at www.
capitaregistrars.com contains a shareholders’ frequently asked
questions section.
To sign-up to receive e-communications simply go to Capita
Registrars’ Share Portal at www.capitashareportal.com and
follow the instructions.
Beneficial shareholders with ‘information rights’
Please note that beneficial owners of shares who have been
nominated by the registered holders of those shares to receive
information rights under section 146 of the Companies Act 2006
are required to direct all communications to the registered holder
of their shares rather than to Capita Registrars, or to the Company
directly.
Multiple accounts on the shareholder register
If you have received two or more copies of this document, it may
be because there is more than one account in your name on the
shareholder register. This may be due to either your name or
address appearing on each account in a slightly different way.
For security reasons, Capita will not amalgamate the accounts
without your written consent. If you would like to amalgamate
your multiple accounts into one account, please write to Capita
Registrars.
RM plc Annual Report 2012.indd 107
22089-04 18 March 2013 12:48 PM
Proof 6
19/03/2013 09:18:59
108
Shareholder Information continued
Company Secretary
Greg Davidson
Group head office and registered office
New Mill House
183 Milton Park
Abingdon
Oxfordshire OX14 4SE
United Kingdom
Telephone: +44 (0) 8450 700300
Fax: +44 (0) 8450 700400
Registered number
RM plc’s registered number is 01749877
Banker
Barclays Bank PLC
Technology & Telecoms Team, Barclays Corporate
United Kingdom House
7th Floor, 180 Oxford Street
London W1D 1EA
Independent Auditor
KPMG Audit Plc
Arlington Business Park
Theale
Reading RG7 4SD
Financial Adviser and Stockbroker
Numis Securities Ltd
10 Paternoster Square
London EC4M 7LT
Financial Public Relations
FTI Consulting Ltd
Holborn Gate
26 Southampton Buildings
London WC2A 1PB
Registrar
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Legal Adviser
Allen & Overy LLP
One Bishops Square
London E1 6AD
stock code: RM.RM plc Annual Report 2012GOVERNANCE Perfect Image is a white uncoated paper and
board, made from FSC® certified pulp.
R
M
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
2
RM plc
New Mill House
183 Milton Park
Abingdon
Oxfordshire
OX14 4SE
Telephone: 08450 700300
www.rm.com
Stock code: RM.