RM plc
Annual Report 2021

Plain-text annual report

Annual Report and Financial Statements Year ended 30 November 2021 STRATEGIC REPORT 01 Operating Highlights 02 Chairman's Statement 04 Chief Executive Officer’s Statement 04 Market Trends 08 Strategy 12 Business Model and Operating Divisions 18 Key Performance Indicators 20 Purpose, Values and Culture 22 Section 172(1) Statement 25 Non-Financial Information Statement 25 Managing our Risks 27 Principal Risks and Uncertainties 32 Chief Financial Officer’s Statement 32 Group Financial Performance 38 Financial Viability Statement 40 Sustainability Report CORPORATE GOVERNANCE 56 Board of Directors 58 Corporate Governance Report 70 Audit Committee Report 77 Remuneration Committee Report 98 Nomination Committee Report 103 Directors' Report FINANCIAL STATEMENTS 108 Independent Auditor’s Report 118 Consolidated Financial Statements 123 Company Financial Statements 126 Notes to the Financial Statements 182 Shareholder Information OPERATING HIGHLIGHTS Improved 2021 performance despite continued COVID-19 disruption Satisfactory results versus the prior year taking into account continued disruption Revenue up 12% driven by strong trading in RM Resources enabling adjusted operating profit* improvement of 22% (Statutory profit after tax down 45% with £8.3m (2020: £1.7m) of investment program costs expensed following a change in accounting treatment) Balance sheet remains resilient with net debt* at £18m and an improvement in the pension funding position Paid and proposed final dividend of 4.7 pence per share (2020: 3.0p) Reset the strategy and established plans to deliver sustainable growth Good early progress *Alternative performance measure (APM), see reconciliation in Note 6. OPERATING DIVISIONS NOTE Following a review of strategy, the names of the Divisions have changed to align more closely to their customer proposition. RM Resources remains the same. RM Results becomes RM Assessment, acknowledging its broader product portfolio and the shift from a focus on digital marking only, to one engaged in digital solutions throughout the assessment lifecycle. RM Education becomes RM Technology highlighting the Division’s focus on improving the technology environment in schools and colleges to support learner outcomes. 01 CHAIRMAN’S STATEMENT Performance Detailed assessment of the Group’s 2021 performance is inevitably dominated by the pandemic. However, the results reflect the successful efforts of the Group to adapt to the resulting volatility of customer demand. The trading performance did not match pre-pandemic levels but was creditable in the light of the challenges presented, and addressed. In parallel with accommodating these day-to-day fluctuations, good progress has been made on the warehouse consolidation project and the Group-wide IT investment. The new RM Resources distribution facility is now complete, and the efficiency benefits will flow following systems integration and the transition of activities from existing sites. The IT project is in early testing and should also begin to deliver benefits in the current year and will be complete across all Divisions by the end of 2022. The Resources Division, which provides teaching and learning products to support the school curriculum, saw early demand impacted by school closures in the first quarter but experienced a strong and pleasing recovery in its UK market following the return to face-to-face teaching. This produced a sales rate which exceeded pre-pandemic levels. It is uncertain how much of this volume was catch-up from earlier weakness, but it appears that the Division has enjoyed a useful gain in UK market share. This increase coincided with the widely commented on supply chain constraints and the consequent necessity for price increases, all of which tested the organisation. Inevitably, operating costs increased as a result and margins suffered. The picture overseas was less buoyant as different regional effects of the pandemic made themselves felt. The outlook for RM Resources is positive, although unpredictable, given the short cycle nature of the business. The Assessment Division was again constrained by the absence of formal school examinations in the UK and the difficulties in negotiating new contracts overseas consequent upon lack of an ability to engage directly with customers. The business delivered a respectable result in the circumstances. Although the business has good forward visibility from longer term contracts, performance in 2022 will be affected by a low level of new awards in 2021 and the extent to which UK school public examinations return to normal. In the longer term, the increasing attention being given to on-line examinations and assessment should support positive progress in this Division. The Technology Division, providing managed IT services and software for schools had a steady, if unexciting, year as schools maintained their systems, irrespective of short-term attendance. The gradual trend to consolidation of schools into multi-academy trusts will subtly change the nature of the customer relationships and the Company will need to offer a more sophisticated service package. The short-term performance will be relatively flat but it is noteworthy that the historically beneficial long-term Building Schools for the Future contracts no longer make a contribution. The Board Neil Martin was appointed CEO, having previously been CFO, in March 2021. Mark Berry was appointed CFO, after a period as interim, in September 2021. Further appointments at below-Board executive level have subsequently been made to strengthen the management team. Corporate governance procedures require that I stand down as Chairman by the ninth anniversary of my appointment, which occurs in May 2022. Accordingly, the Board has conducted a process to identify and appoint Helen Stevenson as my successor and she will assume the Chairmanship the day after the announcement of the preliminary results in February. I welcome her and the new executive team and wish them all, and the Company, well. Dividend In the light of the results and the Group’s good cash performance, the Board considers it appropriate to recommend the payment of a final dividend of 3.0p/share, which together with the interim dividend would amount to a total of 4.7p/share. Outlook The short term remains subject to COVID-19 uncertainties, but the achievements of the Company in 2021 set a firm base from which to move forward, supported by the benefits of the current capital investments. John Poulter Chairman 14 February 2022 02 03 STRATEGIC REPORTCHIEF EXECUTIVE OFFICER'S STATEMENT RM delivered a resilient performance in 2021 in another year impacted by COVID-19 with school closures, travel restrictions and the cancellation of school exams in the UK and Ireland. Our trading was satisfactory taking into account the market conditions and the performance highlighted some areas of our portfolio that were particularly encouraging, such as the UK market share gains in our Resources Division alongside some areas which require more focused attention and a clearer direction such as in our Technology Division. Another year impacted by COVID-19 COVID-19 continued to impact the sector with UK schools closed for 8 weeks in the first quarter of 2021 and school exams cancelled for a second year. School attendance generally ran at a lower level due to isolation rules which deteriorated further in the fourth quarter as more children were forced to study from home. Disruption was not isolated to the UK and school closures were a common occurrence around the world, although we did see exams sat in the majority of geographies in which we operate. The related restrictions continued to impact the way we operated with work-from-home guidance and travel restrictions influencing the way we deliver projects and progress sales pipelines. Although the organisation has adapted, the changes have come at a time of significant change in the sector and across our organisation with new leadership, organisational structures, and the delivery of a complex IT programme. We also saw significant supply chain constraints build through the year which impacted pricing, margins, and customer engagement in some parts of the business. Our procurement teams were agile in establishing alternative supply channels to support the network and we did increase prices, but the overall impact was negative. Given the challenges of the year and the change profile in our organisation I have been delighted by the response of our colleagues who, despite facing a number of challenges, continued to deliver for our customers and each other. Whilst the current environment continues to remain uncertain as we enter 2022, with the added financial challenge of rising inflation impacting our costs and that of our customers, the pandemic has accelerated a number of important market trends that are positive to the longer-term outlook of RM. MARKET TRENDS The education marketplace is changing. Whilst in part, this is a direct response to COVID-19, much reflects an ongoing movement that has been evolving for some time. Looking beyond the disruption of the current pandemic, the longer-term market outlook should be positive for RM and our strategy has been refreshed to ensure it is aligned to capitalise on the benefit from these trends. Use of technology in education Accelerating as schools progress on long digital maturity journey Education has traditionally lagged many sectors with respect to digital penetration, with currently only c.4% of the $6.5tn global education and training market spend being digital. In the UK, spend on education technology (defined as spend on technology and support services, admin software and digital content and learning) was estimated at c.£2bn in 2019. UK education budgets remain challenged, but despite this, it is anticipated that the proportion spent on technology will increase over the medium term, given the growing acceptance that technology can influence a reduction in teacher workload and an improvement in student attainment. That said, schools are at the start of a long digital maturity journey, beginning from different places and with different capabilities and resources. Digital delivery of assessment Aggregated school procurement Growing engagement on digital solutions post COVID-19 disruption Growth in larger school groups is key disrupter in buyer behaviour COVID-19 has been accountable for a wide-ranging cancellation of global examinations across a range of education sectors. This has accelerated a review of the resilience of exam systems and subsequently the wider value of digital assessment in not only delivering flexibility and business continuity but also the value it can bring to user experience and data feedback into the learning process. Business models across education sectors from schools to higher education and professional qualifications are assessing the impact of learners studying remotely and consuming materials in different ways and therefore the opportunity for assessment to adapt accordingly. Millions of exams are sat globally each year, and this continues to be predominantly on paper. Indicatively in 2019, 94% of the 38million UK examinations covering schools, professions, vocation, higher education, and national proficiency tests were done on paper rather than digitally. The UK is not a leader in digital assessment and RM works with several customers in different geographies who are further advanced in their digital engagement, but it does give an indication of the structural opportunity that exists globally for digital assessment solutions. There has been a transition in recent years in England from schools being maintained and managed by local authorities, to schools becoming academies and receiving funding directly from government. Many then come together as a collection of schools in multi-academy trusts (MATs), the average size of which continues to grow. This transition remains a government policy focus and a trend that we predict will continue. Larger MATs are more likely to centralise the procurement of some key services which leads to a demand for consistency across the school estate and a higher requirement for professionalism, partnering and demonstration of value delivery. Trends are also starting to demonstrate an increasing engagement with outsourced support in areas beyond teaching and learning. This is a positive dynamic for RM as a provider of services such as outsourced IT services with a national scale and reach that is more mature than many competitors. School volumes by type of school, England £2bn – Estimated size of the UK education technology market UK outsourced assessments, 2018/19 – 38 million, 94% on paper National/ Progress 18% 13% Higher education 100% 80% 60% 40% 20% 0% 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 Forecast State maintaned schools School trusts < 6 schools School trusts > 6 schools Professional/ Vocational Source: DfE/consultant advisor 61% School 8% Source: consultant advisor Support services 17% 45% Digital learning 25% ICT services 15% Admin software Source: consultant advisor 04 05 STRATEGIC REPORTLooking ahead Following my appointment as Chief Executive in the second quarter of 2021, it was clear that the priority for RM moving forward should be to establish a clear path to long-term sustainable growth for the benefit of all stakeholders. RM is a purpose-led organisation with a rich heritage in the education sector following almost 50 years of working exclusively with schools and education bodies globally. Our business has a unique breadth of knowledge and expertise, strong brands, market positions and industry renowned customers and partners. We combine this with a cash generative business model and a resilient balance sheet which provides a positive foundation on which to build. However, RM has not consistently delivered sustainable growth and the Company needs to adapt its go-to-market approach and customer propositions to the more competitive landscape and a market that is changing at an accelerating rate. Opportunities exist to improve operational and commercial execution, reduce complexity and establish clearer accountability. To address this, we undertook a review of RM’s strategy and business model in the second half of the year. This review has been positive in its output and plans are being progressed which will build on the strong business foundations and address the opportunities for improvement that I outlined above. We have made good early progress in changing the go-to-market divisional structure, maturing customer propositions and investing in leadership positions across the Group. Importantly in 2022, we move into the implementation phase of the programme to change our IT platform. The organisation is presently reliant on a legacy technology estate which results in a higher cost to serve than some competitors, a broader exposure to inflation and restricted digital and data capabilities. The transition to the new system, which should be complete by the end of 2022, will see us more than close the technology gap with our peers. 06 07 STRATEGIC REPORTSTRATEGY Operational excellence At a Group level, we have established five simple overarching objectives which are critical to deliver our growth agenda:- Reach more customers WHY IS IT IMPORTANT? WHERE ARE WE TODAY? IN PROGRESS Defined target customers RM Resources Refreshed propositions Critical to optimise market share RM Assessment New technology platform RM Technology New structure and leadership As an organisation focused on a single sector, customer market share is critical and provides broader commercial opportunities to a portfolio group. It also highlights the value in looking at adjacent markets in education where we are not currently focused but where the same customer need exists. Example opportunity: whilst we are one of the leading brands in the sector, only 2% of UK schools have an RM Technology managed service in a market where this need is increasing. Improve share of customer spend WHY IS IT IMPORTANT? WHERE ARE WE TODAY? IN PROGRESS Optimise return on investment where cost to sell is high RM Resources RM Assessment RM Technology RM Group Refreshed propositions New technology platform New structure and leadership The cost to acquire new customers is relatively high and therefore it is critical that once a relationship is established, it is maintained, and the share of customer spend maximised. Example opportunity: almost 90% of UK primary schools buy from the RM Resources brand, TTS. The opportunity exists to further leverage the trust in this brand through this channel. For example, only one third of TTS customers buy wider school supplies from their sister resources brand, Consortium. WHY IS IT IMPORTANT? WHERE ARE WE TODAY? IN PROGRESS Customer focus on trust Tight budgets High-touch requirements Operational efficiency is behind some competitors New technology platform Single automated warehouse Good customer service and operational efficiency is essential to a sector that delivers a critical public service to its end customers. Example opportunity: RM currently trades with a higher cost to serve than some of its competitors due to its legacy IT platform making it more people intensive to maintain the high customer service levels required by our customers. As outlined, this platform is being replaced in the year ahead which will more than close the technology gap on our peers. Attract and retain talent WHY IS IT IMPORTANT? WHERE ARE WE TODAY? IN PROGRESS Talent has functional expertise Sector knowledge Customer empathy Purpose-led organisation but very challenging labour market Employee engagement focus New structure and leadership New technology platform RM prides itself on a workforce that has functional expertise, deep sector knowledge and customer empathy. Acquiring, developing and retaining this talent and building a culture of positive employee engagement is a key success factor. Example opportunity: in the year, we undertook a culture audit and are refreshing our employee engagement approach based on the feedback. We have also recently appointed a number of senior leaders from the education sector and specialisms in broader industry such as cloud and managed services, to support the strategy execution and broader empowerment. Maintain strong financial discipline WHY IS IT IMPORTANT? WHERE ARE WE TODAY? IN PROGRESS Need to invest whilst balancing risk and stakeholder needs Resilient balance sheet Good cash generation Prudent fiscal approach Large capital programmes conclude in 2022 RM has a resilient balance sheet, a cash generative business model and a track record of prudent fiscal management. It is imperative that this is maintained and remains a focus on the path to more ambitious growth. Example Opportunity: our large multi-year investment programmes will be completed in 2022 facilitating a reduction in investment spend and delivery of the financial benefits. 08 09 STRATEGIC REPORTENABLERS TO UNLOCK GROWTH New digital and automated platforms Integrated end-to-end platform and automated warehouse enable improved customer service and data insight Portfolio and operating model New divisional structure and operating model to ensure the whole is greater than the sum of the parts Talent and culture Building talent and inspiring leadership in a purpose-led organisation Against the backdrop of these Group-level objectives and coupled with an assessment of our current execution in light of the changes in our respective markets, the three Divisions revisited their strategies to ensure that they were ambitious and aligned to the growth agenda. This exercise reconfirmed the need to continue to build on our unique breadth and depth of domain knowledge, brand strength and capabilities. It also highlighted the necessity to focus and be clear on the opportunities where we can grow at scale and sustainably differentiate in the market. This has crystallised a number of activities and exciting changes that are critical to our growth agenda centred around the clarity of the customer need in a post COVID-19 environment and the impact of the market trends previously outlined. Opportunities to unlock growth Underpinning the five strategic objectives to unlock more ambitious growth are three key opportunities that we will progress and mature over the next 18 months. The new digital and automated platforms that will be implemented during 2022 constitute a significant transformation for the Group. Replacing eight core, but disparate, IT systems alongside consolidating five distribution centres into a single automated facility will deliver key benefits which include: • a secure technology and data estate through connected Group systems, a common financial system and a Microsoft cloud estate for resiliency; • • improved efficiency and customer experience through automated, integrated processes, self-serve capability, an integrated service management platform, and a modern website with improved user interface; improved revenue opportunities delivered through better data insight from a single view of the customer, and a consolidated CRM alongside tailored, targeted market capabilities and delivery through upgraded digital channels; • supply chain optimisation through improved warehouse efficiency and fulfilment performance and integration of demand with suppliers. In parallel we have revisited our portfolio and operating model establishing a new divisional structure with three leadership teams aligned to the divisional model and market focus. This provides greater customer and domain focus and improved go-to-market execution. We are now developing the operating model to ensure that the value of RM Group is greater than the sum of its parts. This is being approached in two ways: • a focus on leveraging the relationships held in each Division to bring broader value to our customers and a greater awareness of the unique breadth of our Group-wide knowledge and expertise we have in the sector; and • revisiting the operating model to ensure that the organisation is delivering efficiently and effectively. This has identified centres of excellence that can deliver value across the whole Group rather than being separately delivered in each Division. Initial changes have seen the creation of a single bid management function and architecture and digital product development centres. Talent and culture should always be at the heart of a successful organisation, and this is particularly important to RM. We have a strong purpose-led culture and committed employees who care about education and learners, and we see exciting opportunities to continue to evolve and develop that culture. To support employee engagement, we have undertaken a culture audit, initiated several equality, diversity and inclusion initiatives and launched a new quarterly engagement survey which will provide valuable information to support our activities in this area. In addition, the establishment of the new leadership structure and the appointments made to key leadership positions in the organisation are designed to foster greater empowerment. Outlook The evolving market backdrop provides convincing reasons to believe that the sector is developing in a constructive and commercially positive way. The actions taken in the last year and the plans we have in place to unlock growth will take time to mature and be fully embedded. With the new IT platform and automated warehouse expected to be fully operational by the end of 2022 and the changes we are making associated with the strategy refresh and new leadership structure, we are entering an 18 month period of transition. Following this, we will move into a phase whereby we are able to leverage the changes and investments made in the business alongside a greater customer and market focus. It is at this stage where we move beyond pre-COVID-19 levels of financial and operational performance and will be able to more fully capitalise on the organisation’s potential to deliver sustainable growth with greater agility to exploit customer and market opportunities as they arise in the future. All of this represents material change for the organisation, which is essential to achieve its potential and deliver a sustainable pathway for growth and meet the changing needs of the education sector. It has been a challenging time to be involved in delivering and supporting education over the last two years, but this now feels like an exciting time for the sector and for RM. Our plans rely on dedicated and passionate people to be successful and I continue to be impressed by the commitment of our colleagues and their desire to not only develop and advance the organisation but importantly improve educational outcomes for our customers. Neil Martin Chief Executive Officer 14 February 2022 10 11 STRATEGIC REPORTBUSINESS MODEL AND OPERATING DIVISIONS RM RESOURCES RM is a portfolio organisation with a common vision that aspires to enable the improvement of education outcomes around the world through bringing together inspiring resources, digital assessment solutions and harnessing technology to support and improve teaching and learning. We do this through our three business Divisions: • RM Resources – providing unique and innovative teaching resources and education supplies to schools and nurseries globally. • RM Assessment – providing assessment software to help our customers accelerate their adoption of digital practices and transform assessment across practice, progress, evidence collection and exams to unlock teaching and learning benefits. • RM Technology – providing strategic IT services to UK schools and colleges that deliver an environment that improves learning outcomes and makes the most of their IT investments. Our Divisions are aligned to the trajectory of their respective markets whilst aspiring to bring the breadth of their expertise and relationships together to create a cohesive organisation, ensuring the resources available to us have the biggest impact: Strong market positions Strong and distinctive brands that are well respected in the UK and internationally. Breadth and depth of knowledge RM has a rich heritage in education, trading since 1973, and across the Divisions has established an extensive sector knowledge to enable it to bring unique breadth of value to the customer. Market-leading products We have leading products and services in each of our respective markets focussed on the domains of curriculum content, digital assessment and the use of technology to improve education environments. Insight from working with the leading organisations in education We benefit from long relationships with some of the leading organisations in their field from globally renowned assessment organisations to ministries of education, leading schools, trusts and nurseries, thought leaders and educators, universities and partners that include the largest global technology organisations. This creates a unique network of knowledge and insight with which to create value for our customers. Highly-skilled people with deep domain knowledge We employ some of the best and most passionate people in the education services sector combining functional expertise, a deep sector knowledge and customer empathy. Purpose-led culture Above all we recognise our role in society and our people are united in seeking to enrich the lives of learners worldwide. WHAT WE DO We improve learning outcomes by providing unique and innovative teaching resources and education supplies to schools and nurseries worldwide. We are the UK market leader with 2 distinctive brands – TTS and Consortium – whilst also selling internationally to over 80 countries through a network of distributors or directly to international school groups. AMBITION We will build on the trust of our market-leading position to continue to grow share as the foremost provider of resources to improve children's attainment in school and nursery settings in the UK and internationally. MARKET FOCUS Leverage our market leading position and significant customer reach in the UK to ensure that we are meeting the evolving needs of educators to deliver the curriculum to improve child attainment. Invest internationally, building on our existing presence in scaleable markets to leverage the TTS brand as experts in our core strengths of STEAM, robotics, early years and 21st century skills. MARKET CHARACTERISTICS UK Resources Market Growth Share c.£1bn 0-3% c.9% International Resources Market Growth Share >£1bn 2-5% <2% UK Digital Content Market Growth Share c.£81m 5-10% 0% WHAT MAKES US DIFFERENT We work with educationalists, practitioners, and experts to develop unique ranges which address the educational goals for learners worldwide. We offer resources that cover the whole English curriculum and are closely mapped to the improvement of learning outcomes. We are recognised experts and innovators with core strength in early years, STEAM, robotics and 21st century skill development. OPPORTUNITY APPROACH • Sell to c.90% of UK primary schools and • Assess further product penetration opportunities c.30% of nurseries • New technology platform will improve digital • Only ⅓ of existing customers buy both brands buying experience • • Increase international penetration • Follow post-COVID-19 global funding initiatives Improve operational efficiency • New technology platform and automated warehouse 12 13 STRATEGIC REPORTRM ASSESSMENT RM TECHNOLOGY WHAT WE DO We provide software that helps our customers accelerate their adoption of digital practices and transform assessments to unlock teaching and learning benefits. AMBITION To become the essential digital assessment partner to the world’s leading awarding and education organisations. Innovating approaches to digital assessment across practice, progress, evidence collection and exams, and work with customers throughout the lifelong learning journey. MARKET FOCUS Continue to build market share in digital assessment globally as the market transforms. Focussing on general school examinations, professional and vocational awarding organisations and higher education. MARKET CHARACTERISTICS Global Assessment Services Market Growth Share >£1bn >5% <5% Addressable market primarily digital adoption of paper-based processes. RM supports 2.5m online tests and 21m online marked tests across 180 countries. WHAT MAKES US DIFFERENT Our customers choose us because we navigate the journey to digital assessment maturity irrespective of their start point and make it easier to digitise across practice, progress, evidence collection and exams. We stand out because we don’t just provide a technology platform. Our customers rely on our proven domain expertise and experiences of working with the world’s leading organisations to pre-empt and overcome the challenges and barriers they face. WHAT WE DO We are the strategic IT services partner for UK schools and colleges to deliver a technology environment that improves learning outcomes and make the most of IT investments. AMBITION To become the preferred technology partner for UK trusts, schools and colleges and to lead the market through a period of digital maturity. MARKET FOCUS Focussing on the UK schools market, building on our customer reach of 19% and to improve our share of customer spend. Focus on the growing need for a strategic IT partner managing technology for schools. MARKET CHARACTERISTICS UK IT Services in Education Market Growth Share £500m 2-5% c.12% Current market size excludes proportion of market where schools run IT services in-house. WHAT MAKES US DIFFERENT Transforming how technology is used in schools today, supported by almost 50 years of sector experience, and a wide breadth of specialists and partners. Provide access to a unique network of knowledge and insight through our relationships with leading schools and trusts, governments, global technology partners and experts across education and technology. We have the size and scale to maximise opportunities across the UK, from meeting a simple software need to supporting a nation-wide solution, and partnering with others to meet a regional requirement or support a local school. OPPORTUNITY APPROACH OPPORTUNITY APPROACH • Global review of assessment delivery following the disruption of COVID-19 • Increase sales capacity to target existing and adjacent markets • COVID-19 has increased the need for effective • Reposition RM as the strategic technology partner and accessible technology of choice • Digital assessment solutions have a growing role in • Re-position as a leading provider of digital the learning process assessment solutions • 19% of UK schools buy at least one product, only 2% have a managed IT service from RM • RM support the leading global assessment • Leverage experience of working with the leading • Growth in larger school groups is changing the brands today global assessment brands market need • Improve share of customer spend • New technology platform to improve operational efficiency, customer acquisition and retention 14 15 STRATEGIC REPORT Value we create for our stakeholders Educators Learners We believe that technology can help make teaching more engaging, encourage greater collaboration between colleagues and have a positive impact on addressing teacher workloads. Developing digital and 21st century skills is critical in later life, and equipping learners with the opportunity early in their development prepares them for whatever comes next. Governments and awarding bodies We innovate approaches to digital assessment across practice, progress, evidence collection and exams, and we work with customers throughout the lifelong learning journey. Employees We are committed to building a workforce which reflects the diversity of the customers and communities we serve, and to creating an inclusive and flexible workplace where all our employees can be themselves and succeed on merit. Without diversity of thought, we cannot continue to innovate and grow. Shareholders We aim to provide long-term shareholder value creation. Society Education plays a crucial role in society and we are passionate about improving educational outcomes which improves the life chances for people. As a purpose-led organisation this is at the heart of our colleagues’ passion to deliver great value for all our stakeholders. A Portfolio Group RM plc is a portfolio Group that aspires to ensure that the whole is greater than the sum of its parts. It strives to ensure that the Divisions have the freedom to focus on their market and deliver for their customers. The Group supports by providing a scaleable and resilient foundation that can effectively and efficiently invest in expertise, provide capital, support strategic initiatives and partnerships and sponsor cross-divisional customer engagement. The combination should deliver synergies internally and externally and enable competitive differentiation and customer value. Aligned to this approach, several changes were made in the past year: • The structure was changed to establish separate leadership teams for each of the three Divisions as previously two Divisions were operating under a single leadership team. • A greater focus on collaboration to bring together divisional domain knowledge to support a drive towards a greater share of customer spend. To support this, we have established a new role on the Executive team. Our Group Strategy and Customer Director will also lead on Group strategic partnerships. • A review of the target operating model has identified the opportunity to establish a number of centres of excellence whereby investment and expertise can be focused in one place rather than separately in each Division. These include bid management, software architecture and digital product development. Common purpose and vision Strategic partnerships & Group customer leverage RESOURCES ASSESSMENT TECHNOLOGY Curriculum content Digital assessment Technology to improve education Management structure to enable three leadership teams to improve go-to-market focus and execution The Divisions are supported by central corporate function and centres of excellence that deliver synergies and support Groupwide strategic initiatives Supporting this model is our operation in India where one third of our colleagues are based. The Indian operation provides services solely to RM Group companies. Activities include software development, customer and operational support, back-office services (e.g. customer order entry, IT, Finance and HR) and administration to all the Divisions and the central Group functions. 16 17 STRATEGIC REPORTKEY PERFORMANCE INDICATORS The key performance indicators are being expanded in line with the strategy refresh and there will be a number of new non-financial measures which are being further developed. These are outlined below and demonstrate how they are aligned to the five strategic objectives. Financial measures Revenue Adjusted operating profit Adjusted diluted EPS 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Net debt Cash conversion Dividends per share 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Adjusted operating profit, adjusted diluted EPS, net debt and cash conversion (adjusted) are alternative performance measures (see Note 6). Business and non-financial measures To measure performance against our strategy execution we will begin to measure against the key strategic objectives by Division or Group as appropriate. Customer reach This will look at customer growth by Division. In order to better understand scope 3 impacts, we are also gathering data on around 36,000 products that we sell, including the material composition, manufacturing methods, supply chain impacts, logistics and end of life management so we can prioritise them for reduction and set appropriate targets. Share of customer spend Data on emissions by scope is captured on page 44. This will look at average customer value or product categories by customer by Division. Operational excellence Attract and retain talent This will look at employee engagement and diversity measures for the Group. This will look at operational efficiency metrics by Division. Female representation measures are captured on page 49. We will also report on progress towards our sustainability targets: • Becoming net zero by 20351 • Reducing scope 1 and 2 carbon impacts, against our 2015 baseline, in line with the Government reduction target of 78% by 2035 We are also striving to improve our racial and ethnic diversity. We have started a program to enhance the data collection in the UK to report on racial and ethnic diversity KPIs. Our initial focus will be to report on diversity among senior positions and then the wider workforce when we have sufficient data collected to be representative. • Becoming net zero across scope 3 ahead of 2050 Maintain financial discipline 1. This covers scope 1 and 2 emissions. These are captured in the financial measures above. 18 19 STRATEGIC REPORT£m£m£mpp18.380%50%100%70%160%15.013.45.81.3210.9189.0185.9223.8221.021.328.027.518.56.621.225.826.413.616.45.67.63.02.015.1PURPOSE, VALUES AND CULTURE RM is a purpose-led organisation with a strong culture that binds the three operating Divisions behind a common vision. As each Division has a different market and product focus, they each deliver this vision through a different mission statement. Our purpose, vision and mission statements support our long-term sustainable growth and value for our shareholders. This is powerful for our colleagues and a source of pride as it enables them to understand how the role they perform in the organisation contributes to the vision of the organisation and delivers significant value to wider society. As a business that operates only in the education sector it is critical that we understand the market and our customer needs. Our vision is aligned to the vision of our customers and therefore helps to ensure a clarity of understanding for our colleagues on the objectives and values of our customers. We are all focused on improving educational outcomes which will fundamentally enrich the lives of learners. During the year we undertook a culture audit acknowledging the importance of culture to the long-term success of the organisation. This involved a staff survey and covered 13 dimensions of culture which was followed up by one-to-one interviews with leaders and focus groups with employees. The results highlighted a very high level of cultural alignment across the Group irrespective of Division or geography with a strong sense of pride in our purpose and the important role the organisation plays in education. There was a clear desire to advance and improve the organisation, and achieve greater strategic direction and empowerment in a changing marketplace. This was important input into the strategy refresh process we undertook in 2021. Underpinning our culture are our set of behaviours which inspire our approach and performance: Consider it Done: We hold ourselves accountable, as individuals and as a Company, for delivering on our promises. We can be relied upon to get the job done for our customers and ourselves. We are tenacious in delivering positive results and respond energetically when faced with new challenges. Make it Simple: We make complex issues easy to understand and we strive for the simplest solutions that deliver the most significant results for our customers and ourselves. We say it as it is and don’t assume that how we have done it in the past will necessarily be how we do it in the future. Win Together: We are at our best when working with our customers and with our colleagues – motivated by the belief that diverse teams are much more successful than the sum of their parts. We strive to see things from the point of view of others, building trust, showing humility and working collaboratively to get great results. Be Brave: We are ambitious, and we push the boundaries to deliver great results for our customers and for our business. We do not settle for less than great, or shy away from the difficult, and we don’t let fear stifle our true potential. Be Curious: We have an intense desire to understand our customers and to imagine new possibilities for our business and theirs. We are hungry to learn, seek out new ideas and best practice, to expand our networks and to develop our understanding. We are inquisitive, creative and we question how things are and can be done. These are intended to drive positive and aligned behaviours throughout the organisation for the benefit of all stakeholders with whom we do business. Aligned to these behaviours, it was encouraging for the organisation to have been awarded the 2021 LinkedIn Talent Award for the Best Culture of Learning for organisations with employees between 1,000 and 5,000 and clear recognition of the desire of our staff to develop, learn and be curious. PURPOSE Enriching the lives of learners VISION Enabling the improvement of educational outcomes around the world... RESOURCES Mission ASSESSMENT Mission TECHNOLOGY Mission ...through our innovative curriculum resources, inspiring content and outstanding service. ...by enhancing the role digital assessment solutions play throughout the lifelong learning journey. ...by helping educators harness technology to improve the learning environment. This year we launched “High Five”, a new recognition scheme for employees that have demonstrated our Five to Drive behaviours. It supports a strong culture with a shared set of behaviours that helps foster a real sense of community, putting recognition at the heart of our Company culture. High Five is a peer-to-peer recognition scheme and employees who are recognised by colleagues in two categories for demonstrating our behaviours, receiving either a simple ‘thank you’ or a small, points-based financial reward. The Board receives regular reports and updates from the CEO, CFO and General Counsel as well as other members of the Executive team and the Group. These reports and updates cover a wide range of matters to ensure that policy, practices and behaviour in the Group are aligned with the Company’s purpose, values and strategy and that any issues that may give rise to concerns are brought to the attention of the Board. This has included the following: • A review of strategy, including external support, with a resulting focussed refresh of the strategic direction and approach • Specific reviews on particular Divisions within the business and key projects • Workforce data including details with regard to leavers, joiners, promotions, diversity and length of service • Any significant customer issues, disputes • Compliance updates including issues, training, system availability and information security and data incidents • Health and safety reports • Disputes and whistle-blower concerns. The Board requests further information on any matters that they consider relevant. The Board requires ongoing updates, seeks assurance as to the proposed actions to resolve such matters and receives information on the corrective actions taken. 20 21 STRATEGIC REPORTSECTION 172(1) STATEMENT The Company’s Directors, individually and collectively, have acted in a way that they consider, in good faith, is most likely to promote the success of the Company for the benefit of all its members as a whole. The Directors confirm that they have had appropriate regard to the matters detailed in Section 172 of the Companies Act 2006 in making their decisions. RM has a diverse and wide community of stakeholders, each with its own interests in and expectations of the Company. The Board and each Director acknowledges that the success of RM’s strategy is reliant on the support and commitment of all the Company’s stakeholders. During the year, the Board received reports from the business on engagement with stakeholders and took part in discussions which considered, where relevant, the impact of the Company’s activities on its key stakeholders. These activities, together with direct engagement by the Board and individual Directors with the Company’s stakeholders, helped to inform the Board in its decision-making processes. Details of the Company’s key stakeholders and how the Board has engaged with them during the year is set out on pages 65 to 67. This includes details of workforce engagement by the designated Non-Executive Director on page 65 to 66. As a Board, the role of the Directors is to act as effective and responsible stewards of the Company. RM’s culture promotes high standards of business ethics and is focused on a long-term sustainable strategy which recognises the Group’s impact on the environment. Examples of how the Board has had regard during the year to the various factors set out in Section 172(1), and the impact that regard has had, are set out below. Board decision COVID-19 response Over the course of the year, the Board considered the impact and effect of the pandemic on the business of RM and of its decisions on the stakeholders of the Group. The Board received regular reports from the Executive Directors throughout the year. When schools were closed early in the year, the Board held an additional meeting to discuss how this impacted RM, its customers and other stakeholders including whether it should furlough staff. The Board regularly reviewed, discussed and supported the steps taken by the business to continue to supply schools and support their IT systems during the pandemic. Factors considered by the Board in accordance with Section 172(1) and their consequent effect Customers and community – Keeping RM’s distribution centres open to continue to supply schools with the products they needed for classes whilst maintaining their IT systems during the various stages of the pandemic. This helped minimise the impact on students’ education. Helping schools stay open benefited the wider community, and reinforced RM’s long-term customer relationships. Employees – Protecting RM’s employees’ health, safety and wellbeing during the pandemic has been a priority and regularly discussed by the Board. The Board has supported the Company’s decisions to achieve this through reconfigured operating practices at distribution centres, additional health support in India, the provision of equipment to assist employees’ working at home, the provision of wellbeing support available online and the introduction of extra measures to aid safe working in the office as employees returned to the workplace. See discussion on the actions taken on page 66. Suppliers – The Board supported various measures taken by the Group to support suppliers through the pandemic, further details on page 67. Government – The Board supported RM’s involvement in discussions with the Government on how disadvantaged learners can be assisted with studying at home. Further details are on page 50. Shareholders – Minimising the impact of the pandemic on the Group’s trading performance was an important consideration in the Board’s deliberations on the Company’s response to the pandemic. Environment – Changing RM’s working practices in the last year, with significantly increased working from home, reduced the energy consumption of the Group and its carbon usage. These changes were discussed at the Board during the course of the pandemic. Long term and fairness between stakeholders – Maintaining the operations of the business so as to minimise the impact on its stakeholders during the disruption caused by the pandemic was a key consideration in all the Board’s discussions and decisions in connection with the pandemic. See also the details about risk elements caused by the pandemic detailed in the principal risks on page 30. Board decision Final and interim dividend payments The Board made the decision to cancel the 2019 final dividend as well as the 2020 interim dividend and to award the final dividend in 2020 and interim dividend in 2021 at reduced rates. The Board considered the advantages and disadvantages of the change to the dividend policy in making these decisions and determined it was the right action to ensure the Company’s long-term success. Factors considered by the Board in accordance with Section 172(1) and their consequent effect Shareholders – The views of shareholders, RM’s broker and other analysts on the expected market reaction, were taken into account. The Board carefully considered the short-term negative effect on shareholders and the need to manage the short-term consequences of the COVID-19 pandemic taking into the account the reduced profitability during this period. Long term and fairness between stakeholders – The need to maintain sufficient cash to maintain operations and pay suppliers and employees and avoid any damage to its operations that would impact its long-term sustainability. Board decision The approval of a new freight operator providing a national service The Board was informed of the tender process, the objectives for the new partner and the companies participating. Members of the Board had valuable experience in this area which was factored into the process. They were also updated on the impact on the timetable caused by the announcement from the incumbent suppliers that they were ceasing operations in the UK. The Board approved the appointment of the preferred new partner. Factors considered by the Board in accordance with Section 172(1) and their consequent effect Suppliers – Developing an important relationship with a new supplier and as one of its key customers. Customers – Ensuring that the Company continued to provide a good service to customers was a key consideration in this appointment. The Board supported the process, and the selection of a new supplier, on the basis of the service it will provide customers, whilst maintaining and enhancing RM’s reputation as a reliable partner. Environment – The consolidation of deliveries using one freight operator at a single site will enable a more efficient logistics operation. This will allow orders to be delivered as one parcel from one location rather than as separate deliveries from each of the five previous distribution centres. This consolidation will also provide the opportunity for faster deployment of innovations that reduce environmental impacts associated with freight. Long term – The importance of working with a reliable freight provider that would provide a good service across the UK in order to maintain RM’s reputation and its relationship with customers. 22 23 STRATEGIC REPORTFurther information on how the Board have fulfilled their Section 172(1) duties can be found throughout the Strategic and Governance Reports and the following sections are incorporated into this report. NON-FINANCIAL INFORMATION STATEMENT NON-FINANCIAL INFORMATION STATEMENT Section 172(1) duties Section Consequences of decision in the long term Business Model Going Concern and Viability Statement Principal Risks and Uncertainties Interest of employees Sustainability Report (Workforce) Stakeholder Engagement (Employees) Stakeholder Engagement (Suppliers and Partners) CEO Report Foster relationships with suppliers, customers and others Impact on community and environment Maintaining high standards of business conduct Purpose, Values and Culture Sustainability Report (Governance) Acting fairly between members Stakeholder Engagement (Shareholders) Sustainability Report (Environmental Policy and Responsibility) and TCFD Report 40-47 Sustainability Report (Community) Stakeholder Engagement (Environment/Community) Pages 12-16 36-39 27-31 48-50 65-66 67 17 50-51 67 20-21 51-54 66 The Strategic Report (including the Sustainability Report) together with the Directors’ Report, Corporate Governance Report and Audit Committee Report provide details of the non-financial matters required by sections 414CA and 414CB of the Companies Act 2006. Reporting area Policies and related due diligence and outcomes Principal risks Environmental Environmental Policy (pages 40-47) Employees Equal Opportunities Policy Health and Safety Policy (page 53) Social and community Safeguarding Policy (page 53) Respect for human rights Anti-corruption and anti-bribery Annual Modern Slavery Statement (page 53) Data Protection Policy (page 52) Supplier Code of Conduct (page 67) Anti-Bribery Policy (page 51), Anti-Money Laundering Policy (page 51) Share Dealing Code (page 54) RM considers the impact of climate-related risks across the whole business (see Environmental Risk on page 29). RM reflects diversity and health and safety risks in the People Risk section on page 29. RM reflects safeguarding risk in the Operational Execution Risk on page 27. RM considers these risks with its suppliers on page 67 and Data and Business Continuity on page 28. RM reflects anti-bribery and corruption risks in its Operational Execution Risk on page 27. See pages 12 to 16 for the description of the business model and page 18 for KPIs and non-financial targets. Environmental Policy and Reporting The Environmental Policy and Reporting section in the Sustainability Report on pages 40 to 47 is incorporated into this report. Workforce The section on Workforce in the Sustainability Report on pages 48 to 50 is incorporated into this report. MANAGING THE GROUP'S RISKS The management of the business and the execution of the Company’s strategy are subject to a number of risks. The Company has a structured approach to the assessment and management of risks. A detailed risk register is maintained, in which risks are: • organised under the following categories: political, strategic, operational, financial and emerging; and • assessed in terms of probability of the risk occurring and its potential impact on the Group and its key stakeholders. RM assesses both the inherent risk, before any mitigating actions, and the residual risk after such actions have been taken. The Company also identifies any other activities that could be undertaken to further mitigate risk where it is considered too high. Whilst RM’s risk management systems are designed to reduce risk as far as possible, the Company cannot eliminate all risks. During 2020 and into 2021, the Executive Response Group for Business Continuity was activated and met regularly, led by the CEO, to manage RM’s response to the COVID-19 pandemic. Whilst there was significant impact on the Group’s operations, during the pandemic, RM has overall continued to operate successfully and its risk management processes have continued to operate as normal. 24 STRATEGIC REPORT 25 Emerging risks are those that do not currently have a material impact on the business but have a reasonable likelihood of impacting future strategy or operations. Details of emerging risks, as a separate category of risk, are identified and analysed, and mitigating actions proposed and monitored as part of the risk management processes. These risks are reviewed following the same process as for principal risks. Whilst there are a number of risks that the Company identifies and manages, currently, none of these are expected to become future principal risks. Environmental risks were an emerging risk but are now captured as a principal risk based on an analysis of the probability and potential impact. Current emerging risks include risks relating to future pandemics, changes in government assessment policy, the impact of political problems in Asia and evolving climate change risks. The full register including emerging risks, is reviewed at least annually by each Division to ensure that the risks that could potentially affect each Division are properly captured. The register also includes a summary of the mitigation plans for those risks and the person responsible for these. These risks and their mitigation are monitored on a continual basis by each Division. This register is then consolidated and Group-wide risks added, to ensure that the register covers the entire Group’s operations. This is then reviewed by the Executive Committee. The Audit Committee and Group Internal Audit provide assurance that the risk management systems are effective. The Board reviews the principal and emerging risks faced by the Group and approves the Group Risk Register at least twice a year. The Group has a Risk Appetite and Tolerances Policy which sets out the overarching risk tolerances across the Group. There is zero tolerance for risks which: • harm its employees, customers, learners or the general public; • create significant, unmanaged, adverse, reputational damage; • lead to the loss of any application or IT service deemed critical for RM customers or internal users or the loss of any service beyond the ascertained maximum acceptable outage; or • would cause any failure to comply with legal and regulatory requirements. The Board confirms that it has carried out a robust assessment of the principal and emerging risks faced by the Group and appropriate processes have been put in place to monitor and mitigate them. Further details are also set out in the Corporate Governance Report. RM has identified the principal risks set out in the table below and it has continued to monitor these in 2021. These are the risks with the highest probability and impact on the business. While these risks are largely unchanged since last year, the key changes reflect the impact of COVID-19 and Brexit changes including supply chain issues, inflation and workforce retention. In addition, to these there are other risks that are reviewed managed and mitigated throughout the year. The arrow in the Trend column indicates the year-on-year change in the risk. Link to strategic objectives: Reach more customers Improve share of wallet Operational excellence Attract and retain talent Strong financial discipline Year-on-year trend: Increasing risk Decreasing risk Unchanged from previous year PRINCIPAL RISKS AND UNCERTAINTIES Risk and categorisation Description and likely impact Mitigation Public policy (Political Risk) The majority of RM’s business is funded from UK government sources. Changes in political administration, or changes in policy priorities, might result in major changes to the exam system or a reduction in education spending, leading to a decline in market size. UK government funding in the education sector is constrained by fiscal policy. Global economic conditions might result in a reduction in budgets available for public spending generally and education spending specifically in the area in which RM specialises. The Company reviews the education policy environment by the regular monitoring of policy positions through our involvement with industry trade bodies and responding to government consultations. The Group’s three Divisions have diverse revenue streams and product/service offerings which dilutes the impact of any change. The Company’s strategy is to focus on areas of education spend which are important to meet customers’ objectives. Where the revenue of an individual business is in decline, management seeks to ensure that the cost base is adjusted accordingly. Trend and likelihood The likelihood of this is currently considered low. Education practice (Political Risk) Education and assessment practices and priorities may change and, as a result, RM’s products and services may no longer meet customer requirements, leading to a risk of lower revenue. Operational execution (Operational Risk) # 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. Any significant operational or system failure would result in reputational damage and increased costs. RM is engaged in the delivery of large, multi-year projects, typically involving the development and integration of complex IT systems and may have liability for failure to deliver on time. RM’s increasing international business makes it subject to laws in other countries and higher risk jurisdictions. RM employees enter school premises to provide services and should be properly cleared to do so. The Company maintains knowledge of current education practice and priorities through close relationships with customers. The Company is evolving its product and service offering to help its customers with their developing requirements. The Company invests in maintaining a high level of technical expertise (see also the People risk below). Internal management control processes are in place to govern the delivery of all projects (including internal projects), including regular reviews by relevant management. The operational and financial performance of projects, including future obligations, the expected costs of these and potential risks are regularly monitored by management and, as appropriate, the Board and material projects are audited. The Company has internal policies and procedures across a wide range of areas including bribery and corruption, health and safety, privacy, employment, competition law and tax which are regularly monitored and reviewed to ensure the Company assesses and takes account of higher risks levels and complies with all relevant laws and regulations. Procedures are adopted to ensure that all employees are properly checked and receive training before entering any school premises. Further information is provided on this on page 53. The likelihood of this is currently considered low. This has increased in potential impact and likelihood due to the implementation of major projects (see Transformation Risk section below) and the increasingly competitive market for talent (see People risk on page 29). 26 27 STRATEGIC REPORT Risk and categorisation Description and likely impact Mitigation Trend and likelihood Risk and categorisation Description and likely impact Mitigation Supply Chain (Operational Risk) RM is reliant on the cross-border movement of goods which have been affected by new Brexit related requirements and the impact on supply chains of the COVID-19 pandemic. Data and business continuity (Operational and Emerging Risk) RM is engaged in storing and processing personal data, where accuracy, privacy and security are important. Any significant security breach could damage reputation, impact future profit streams, lead to potential regulatory action and raise concerns with affected schools, parents and students. The Group would be significantly impacted if, as a result of a major incident, one of its key buildings, systems, key supply chain partners or infrastructure components could not function for a long period of time or at a key time. This has increased in potential impact and likelihood due to the impact of COVID-19 and new rules of transport of goods between the UK and EU. The likelihood of this is considered to have increased due to a higher level of information security risks from greater homeworking by RM’s customers, a general increase in cyber-attacks in the UK and the risk from the implementation of major projects (see Transformation Risk section overleaf). Changes resulting from Brexit have been managed through the adoption of new processes to meet the new requirements; potential improvements in this process will continue to be assessed. The Company continues to review and broaden its sourcing and freight forwarding options, has amended its safety stock policies and has pre-committed with suppliers to increase supply volumes. The Company has made a commitment to maintain effective Information Security and Business Continuity management systems maintaining ISO27001 and ISO22301 certifications for key business areas to demonstrate the robustness and effectiveness of those systems. These are externally audited. The Company has a rolling investment programme managed by a dedicated security and compliance function and overseen by the Group Security and Business Continuity Committee, which reports into the Group Executive Committee. This programme covers data integrity and protection, defence against external threats (including cyber risks) and business continuity planning. The Company analyses all information security and data protection incidents (including their root cause), changes in the regulatory framework, and breaches that have occurred in other companies to identify opportunities for improvement. The Group seeks to protect itself against the consequences of a major incident by implementing a series of back-up and safety measures. It also manages risks with key suppliers by regularly reviewing their security and business continuity systems, conducting assessments and running joint tests. There are strict access controls and permissions across business applications and systems, these are regularly monitored and reviewed and improvements are made on an ongoing basis. The Group has cyber insurance and property and business interruption insurance cover. Environmental (Operational Risk) Changes required by legislation, customer requirements and the Group’s environmental targets impact its current operations. Legislation and standards are monitored and plans put in place to manage compliance, for example to reduce the compliance costs associated with new packaging regulations. People (Operational Risk RM’s business depends on highly skilled, diverse employees. Failing to recruit and retain such employees could impact operationally on RM’s ability to deliver contractual commitments. There may also be an impact on costs in such recruitment and retention. The Company seeks to be an attractive employer and regularly monitors the engagement of its employees. The Company has talent management and career planning programmes. The Company has a retention and recruitment strategy in place to incentivise and retain its skilled employees as well as recruiting new talent. Failing to make sure RM’s colleagues are safe at work would impact the Company’s attractiveness as an employer, impact RM operationally and lead to financial penalties and reputation damage. The Company provides training to employees, has an incident reporting system, and monitors employee health, safety and wellbeing through various groups and reports. Transformation (Operational Risk) Issues in implementing major programs could lead to business disruption and loss of intended benefits. Steering committees are established for all major programs which will include a member of the Executive Committee. A number of mechanisms are in place to monitor the ongoing impact of the various activities, including where appropriate staff consultations and satisfaction surveys, and ongoing customer feedback. Currently there are two major programmes to develop a new automated warehouse at Harrier Park, Hucknall for the RM Resources Division and migration to new CRM and ERP systems across the Company. The Company has prioritised the delivery of these projects and utilised the services of third parties where needed, ensuring the Company has a scalable platform to support current commitments and growth plans. The Board is kept appraised of the current status of such activities and projects on a regular basis. Trend and likelihood The potential impact of this has increased due to new legislation, customer requirements and the change required to meet RM’s own targets (see page 47). The potential impact and likelihood of this is considered to have increased in relation to recruitment as the market for key IT talent has become tighter. The potential impact and likelihood of this is considered to have increased as these projects are now fully underway. 28 29 STRATEGIC REPORT Risk and categorisation Description and likely impact Mitigation Trend and likelihood Risk and categorisation Description and likely impact Mitigation The Company actively monitors technology and market developments and invests to keep its existing products, services and sales methods up-to-date, as well as seeking new opportunities and initiatives. The Group works with teachers and educators to understand opportunities and requirements. The impact and potential likelihood of this is considered unchanged. Pensions (Financial Risk) The Group operates two defined benefit pension schemes in the UK (the “RM Education Scheme” and the “CARE Scheme” respectively) both of which are closed to future accrual. It also participates in a third defined benefit pension scheme (the “Platinum Scheme”). Scheme deficits can adversely impact the net assets position of the trading subsidiaries RM Education Limited and RM Educational Resources Limited. Pension costs can be significant in respect of staff that transfer across to us, where they are members of Local Authority pension schemes. The Company evaluates risk mitigation proposals with the trustees of these respective Schemes. The Platinum Scheme is a multi-employer scheme over which the Company has no direct control. However, due to the small number of the Company’s former employees who are in this Scheme, the risk to the Company from this Scheme is limited. The Company assesses the potential pension costs of staff from other employers, who would transfer across to the Company, and takes this into account in its bids for new contracts. The Company now has one consolidated Trustee and one common lead actuary. This improves the ability to leverage expertise. The Company invests in maintaining a high level of technical expertise and in building effective working relationships with its customers. The Company has in place a range of customer satisfaction programmes, which include management processes designed to address the causes of customers’ dissatisfaction. The impact and potential likelihood of this is considered unchanged. Treasury (Financial Risk) The Group is exposed to treasury risks including fluctuating exchange rates and liquidity. The Company regularly monitors treasury risks. It actively looks to create natural currency hedges where possible balancing foreign currency sales and purchase levels and hedges net balances 9–12 months into the future for material imbalances. The Company remains cautious with liquidity risk and carefully manages its debt leverage position. The impact and potential likelihood of this is considered unchanged. Trend and likelihood The likelihood and potential impact of this has reduced due to a higher level of inflation and interest risk hedging implemented and improved deficit position. The IT market and elements of the education resources market are subject to change. As a result of inappropriate technology, product and marketing choices or a failure to adopt and develop new technologies quickly enough, difficulties recruiting and retaining talent, the Group’s products and services might become unattractive to its customer base, or new market opportunities missed. The Group’s continued success depends on developing and/or sourcing a stream of innovative and effective products for the education market and marketing these effectively to customers. The performance of the RM Technology and RM Assessment Divisions is dependent on the winning and extension of long-term contracts with an increasing diversity of customer base of government, local authorities, examination boards and commercial customers Innovation (Strategic Risk) Dependence on key contracts (Strategic Risk) Impact of the COVID-19 pandemic (Operational Risk) The impact of the COVID-19 pandemic has: The Company manages its relationship with its customers, supplier and other stakeholders. • put pressure on those with whom the Company trades with resultant risks from customer closures, pricing pressures and service delivery pressures from delays to exams; • caused general failures in the education system to deliver exams on time which has knock-on effects on the RM Assessment Division; and • led to increases in the cost of products and services which could impact revenue and reduce profits. It works closely with customers to: • avoid potential bad debts and to manage the impact of costs increases from key suppliers; and • as it did after the exam cancellations in 2020, manage the consequence of the cancellation of summer 2021 exams. The Company keeps its costs under review, assesses potential alternative sources of supply and revises its pricing to reflect cost increases. The impact and potential likelihood of this is considered unchanged since last year except in relation to emerging costs increases in the supply chain. 30 31 STRATEGIC REPORT CHIEF FINANCIAL OFFICER'S STATEMENT Overview RM’s financial performance for the period was resilient despite being materially impacted by school closures, and the cancellation of all 2021 UK school exams. Group revenue increased by 11.6% to £210.9m (2020: £189.0m) driven by strong trading in RM Resources which recovered quickly following the re-opening of UK schools in March 2021. Revenue growth was driven primarily by demand for UK curriculum resources as schools focused on curriculum spending to support outdoor teaching, physical education and pupil well-being, alongside managing COVID-19 transmission risks. Revenues in RM Assessment were broadly in line with prior year with the partial recovery of global exam activity being offset by a significant customer in-sourcing a contract in 2020. Hardware and connectivity sales in RM Technology improved reflecting the ongoing digitisation of school infrastructure. Adjusted operating profit3 increased by 22.5% to £18.5m (2020: £15.1m) and was driven by revenue growth partially offset by increased operating costs. Statutory operating profit decreased by 33.9% to £7.0m (2020: £10.6m) primarily as a result of the accounting policy change described below. The Group continued to experience higher frictional costs in respect of freight and Brexit; increased costs associated with the resumption of key projects which were paused in 2020, and the non-repeat of prior year cost savings associated with our response to the COVID-19 pandemic. In addition, the Group continued to face significant wage inflation pressure through the year, most significantly in India. Net debt3 closed the year at £18.3m (2020: £1.3m). The £17.0m net cash outflow reflected good operating cash generation, offset by planned spending on two large capital programmes, Project Villa, which comprises the consolidation of five distribution centres into a single automated facility, and Project Evolution, which comprises the implementation of a new Group-wide IT platform. The completion of both programmes was extended by six months to ensure their successful implementation. This was due to a need to de-risk the transition due to its inherent complexity and the impact of ongoing COVID-19 restrictions through the year. Both programmes are expected to complete in 2022 and the Group continues to utilise its £70m revolving credit facility to fund the investments in them. Group Financial Performance Income statement Group revenue increased by 11.6% to £210.9m (2020: £189.0m). The pandemic continued to impact revenues in the UK and internationally. UK revenues increased by 9.8% with international revenues up 24.2%. Adjusted operating profit margins3 improved to 8.8% (2020: 8.0%). Adjusted operating profit improved by 22.5% to £18.5m (2020: £15.1m). Statutory operating profit decreased by 33.9% to £7.0m (2020: £10.6m). In order to provide an understanding of underlying business performance, certain costs are identified as ‘adjustments’ 2 to underlying business performance. In 2021 Adjusted items comprised the following: Amortisation charges associated with acquisition related intangible assets Stock obsolescence associated with revised warehouse strategy4 Gain on sale of legacy property4 Dual running property & licence costs4 Gain on sale of legacy investment Onerous lease commitments Pension GMP Restructuring costs Net adjustments before SaaS related expenses IT platform costs incurred and expensed under new accounting guidance2 Total adjustments² 2021 £m 2.0 - (1.4) 2.0 - 0.5 - - 3.1 8.3 11.5 2020 £m 2.0 0.4 (0.7) 0.6 (0.7) - 0.2 1.0 2.8 1.7 4.5 4. The majority of adjusted items relate to planned spending on our two large capital programmes. These items have been disclosed as adjustments because they are material to the relevant segment. 2021¹ 2020¹ (i) £3.1m of net adjustments relate to amortisation of acquisition intangibles, dual running and one-off property costs £m Revenue Operating profit Profit before tax Tax Profit after tax Adjusted3 Adjustment² Statutory Adjusted3 Adjustment² Statutory 210.9 18.5 17.1 (3.3) 13.8 - (11.5) (11.5) 1.9 (9.6) 210.9 189.0 7.0 5.6 (1.4) 4.2 15.1 14.0 (2.7) 11.4 - (4.5) (4.5) 0.8 (3.7) 189.0 10.6 9.5 (1.9) 7.6 1. Following the IFRS interpretations committee (“IFRIC”) agenda decision, we have changed our accounting treatment and policy for IAS38 Intangible Assets accordingly. Prior year comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £1.7 million. See Note 33. 2. Adjustments reflect the amortisation of acquisition related intangible assets; major investment strategy costs including dual run costs, profits on sale of non-core assets, and other property related items. Further details can be found in Note 6. 3. Non-GAAP measures. See Note 6 in relation to the warehouse consolidation programme; and (ii) Implementation of Software as a Service (“SaaS”) accounting guidance During the year the Group continued with its implementation of a new Group-wide IT platform. Following the IFRS interpretations committee (“IFRIC”) agenda decision, we have changed our accounting treatment and policy for IAS38 Intangible Assets accordingly. The Directors determined that £8.3m of SaaS related costs incurred during FY21 no longer meet the criteria for recognition as an asset under IAS38. Accordingly, this amount has instead been expensed to the income statement. A total of £6.9 million SaaS related costs incurred in the year have been capitalised and recognised on the balance sheet as an intangible asset. Prior year comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £1.7m. Taking into consideration the adjustments of £11.5m (2020: £4.5m), statutory operating profit decreased to £7.0m (2020: £10.6m). Statutory profit before tax fell to £5.6m (2020: £9.5m) after deducting net interest charges of £1.4m in relation to the Group’s credit facility and finance costs related to the defined benefit pension schemes. The total tax charge for the year was £1.4m (2020: £1.9m). The Group’s tax charge measured as a percentage of profit before tax, was 25.3% (2020: 19.9%) driven mainly by an increase in deferred tax rate which was partially offset by the effect of indexation on the sale of property. 32 33 STRATEGIC REPORT Statutory profit after tax decreased 45% to £4.2m (2020: £7.6m). UK Adjusted diluted earnings per share3 increased to 16.4 pence (2020: 13.6 pence). Statutory basic earnings per share were 5.0 pence (2020: 9.2 pence) and statutory diluted earnings per share were 5.0 pence (2020: 9.1 pence). Cash flow RM generated cash from operations for the year of £8.4m (2020: £25.9m). Cash from operations is after charging £6.5m of SaaS related costs incurred during FY21 which no longer meet the criteria for recognition as an asset under IAS38. Net working capital outflows for the year were £3.5m as the business returned to growth, and the settlement of £3.5m of VAT liabilities that were deferred from FY20 under the government’s deferral scheme. The use of cash generated comprised net capital expenditure of £11.8m (2020: £2.1m), contributions to the defined benefit pension schemes of £4.4m (2020: £4.1m), and tax payments of £0.1m (2020: £2.6m). Dividend payments were £3.9m having been reinstated following their suspension in 2020. Divisional performance RM RESOURCES RM Resources revenues increased by 24% to £114.4m (2020: £92.4m) driven by strong curriculum sales following the re-opening of schools in March. UK education revenue increased by 22% with international revenues up 39%. Divisional operating profit increased to £10.1m (2020: £3.1m) and operating margins increased to 8.8% (2020: 3.3%). The increase was predominantly driven by higher revenues partially offset by higher product and freight costs associated with COVID-19 and Brexit, reduced COVID-19 cost saving benefits, and the resumption of the digital and automation projects which were paused in 2020. Uncertainty remains regarding the impact of the pandemic on supply chains in both the UK and International markets. RM Resources continues to make good progress with its warehouse consolidation programme, with the fit out of the new warehouse and associated office space now complete. The automation and systems integration prior to the majority of inventory transfer is ongoing, and two of the five warehouses have now been exited with one exited in the period. Revenue in the UK increased by 22% to £98.4m (2020: £81.0m) despite schools closed to face-to-face teaching for a similar period in 2021 vs. 2020. Our TTS brand performed strongly, particularly in curriculum sales supporting outdoor teaching, physical education, pupil wellbeing and COVID-19 transmission management, benefitting from its differentiated position and innovative, own-developed product portfolio. International International sales comprise two key channels, international distributors, through which RM Resources sells own-developed products to over 80 countries, and international English curriculum schools to whom it sells a wider portfolio of education supplies. International revenues increased by 39% to £16.0m (2020: £11.5m) benefiting from reduced restrictions in a number of key territories vs. the prior year however volumes remain depressed vs. pre pandemic levels as COVID-19 continues to impact the international landscape with regard to pupil attendance. RM ASSESSMENT RM Assessment provides IT software and end-to-end digital assessment services to enable online exam marking, online testing and the management and analysis of educational data. Customers include government ministries, exam boards and professional awarding bodies in the UK and overseas. Revenue increased by 1% on the prior year to £31.9m (2020: £31.6m) with the partial recovery of global examination activity in 2021 being offset by a significant customer in-sourcing a contract in 2020. Revenues remain heavily impacted by lower examination volumes with UK general exams cancelled and reduced international exam activity being offset by an increase in professional and language qualification activity. 2021 RM Customers Exam activity UK School Exams UK Other International 3 6 9 vs 2020 +10% +90% +45% Exam activity vs 2019 -95% +85% -30% Adjusted operating profit fell by 14% on the prior year to £5.7m (2020: £6.6m), with operating margins decreasing to 17.9% (2020: 20.9%). Dividend The Board took the decision not to pay a 2019 final dividend or a 2020 interim dividend as a result of the pandemic. However, whilst COVID-19 has continued to impact the business, the Board reinstated the 2020 final dividend and paid an interim dividend in the year of 1.7p (2020: nil). In addition, the Board proposes a 2021 final dividend of 3.0 pence per share (2020: 3.0p) which is subject to shareholder approval. The estimated cost of the final dividend proposed is £2.5m. The Board is committed to a long-term sustainable dividend policy and the Company has £35.8m of distributable reserves, as at 30 November 2021, available to support the dividend policy. RM plc is a non-trading investment holding Company and derives its profits from dividends paid by subsidiary companies. The Directors consider the Group’s capital structure and dividend policy at least twice a year, ahead of announcing results and during the annual budgeting process, looking at longer-term sustainability. The Directors do so in the context of the Company’s ability to execute the strategy and to invest in opportunities to grow the business and enhance shareholder value. The dividend policy is influenced by a number of the principal risks identified in the table of ‘Principal and Emerging Risks and Uncertainties’ set out above which could have a negative impact on the performance of the Group or its ability to distribute profits. COVID-19 disruption relating to ongoing international travel restrictions and global lockdown measures continues to adversely impact the sales pipeline development. Wage inflation pressure through the year increased delivery costs, driven in part by a shortage of in-demand skilled developers in India. RM TECHNOLOGY Revenue decreased by 1% to £64.6m (2020: £65.0m) as the Division showed its resilience to UK school closures as schools continued to require technology support with the challenge of progressing new opportunities. Adjusted operating profit however decreased by 24% to £7.1m (2020: £9.3m), the key drivers being the combination of lower gross margins arising from a higher proportion of hardware sales, together with increased operating costs post lockdown, and the absence of prior-year, one-off benefits. Services The Services offering is primarily the provision of IT outsourcing and associated technology services (managed services) and managed broadband connectivity to UK schools and colleges. Total Services revenues declined by 1% to £53.6m (2020: £54.0m) with managed services revenues declining 4% to £40.5m (2020: £42.0m). This was driven primarily by a reduction in revenues from long term contracts and a slight reduction in site numbers through the year as converting the sales pipeline became challenging. Connectivity increased 9% to £13.1m (2020: £12.0m). Digital Software Platforms The Digital Software Platform offering covers a number of cloud-based products and services such as RM Integris (school management system), RM Unify (authentication and identity management system) and RM SafetyNet (internet filtering system) as well as other content, finance and network software offerings. Digital Platforms revenues increased marginally to £11.0m (2020: £10.9m). 34 35 STRATEGIC REPORTFor going concern purposes, the Group has assessed a base case scenario that assumes no significant downturn in UK or International markets occurs from that experienced in the year to 30 November 2021. The base case also incorporates a reduced level of investment expenditure in 2022 versus that incurred in 2021 relating to the anticipated completion of its two large capital programmes and assumes a return to shareholders through dividends. Under that base case RM continues to maintain significant headroom against the committed facility and are within the Group’s covenants. The Group has assessed a further severe downside scenario that adjusts the base assumptions to include: • Further school closures for March through to May 2022 at similar levels of trading experienced in 2021, comprising a c.30% reduction in divisional revenue in those months; • Reduced International trading and exams, including an c.25% reduction in International general school exams against budget; • Assumes the UK exams that have been cancelled in 2021 are also cancelled in 2022; • Slower pipeline conversion, a c .50% of budgeted annuity contracts in RM Assessment and RM Technology being achieved; • Benefits from our ERP programme are delayed by approximately 1 year; • Business disruption for 2 months in our RM Resources Division when the warehouse automation goes live in 2022 reducing order intake by c .50% in those 2 months; • Minimal cost mitigations and no significant cash flow deferrals. The Directors do not believe that all these assumptions occurring together are plausible, but under these scenarios, in aggregate, the Company continues to have good headroom against the facility and complies with bank covenants until the facility concludes. Having considered the severity of this scenario, the Board considers this to be an appropriate worst case scenario. The Board’s assessment of the likelihood of a further downside scenario is remote, particularly with the continued vaccine booster/roll out programmes and lifting of restrictions in key countries and the indications from most governments worldwide that they intend to lift remaining restrictions as soon as practicable. Therefore, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence and meet its liabilities as they fall due for a period of not less than 12 months from the date of approval of these Financial Statements. For this reason, the Group continues to adopt the going concern basis of accounting in preparing the annual Financial Statements. Financial viability statement The financial viability statement is set out on pages 38 to 39. Mark Berry Chief Financial Officer 14 February 2022 Defined benefit pension schemes Going concern The Company operates two defined benefit pension schemes (“RM Education Scheme” and “Care Scheme”) and participates in a third, multi-employer, defined benefit pension scheme (the “Platinum Scheme”). Following the closure of one warehouse during the prior year (which impacted the Platinum Scheme), all schemes are now closed to future accrual of benefits. The IAS19 net position (pre-tax) across the Group improved by £49.1m to a surplus of £30.4m (2020: £18.7m deficit) with both the RM Education Scheme and the Platinum Scheme being in surplus. The improvement was driven primarily by better than expected returns on scheme assets, together with an increase in the discount rate, which is based on corporate bond yields, both of which were partially offset by an increase in inflation. The Group deficit recovery plan payments across all schemes in 2021 were £4.4m (2020: £4.1m). The triennial valuation as at 31 May 2021 is nearing completion. Treasury management The Company’s financial position is supported by a committed revolving credit facility of £70million that is shared between two banks, HSBC and Barclays. It also has an additional uncommitted accordion arrangement for a further £30million, enabling the Group to extend the facility to £100m. The facility was extended during the year, and is now committed to July 2023 and retains the option of a further 1-year extension. The associated financial covenants are based on the definition of finance leases prior to the implementation of the accounting standard, IFRS16. The Group is reliant on the facility in the short term to manage its net current liability position. Treasury activities are managed centrally for the Group including banking relationships and foreign currency hedging. The Group has foreign currency denominated costs that outweigh foreign currency denominated revenues and therefore increased currency volatility creates an exposure. This is primarily attributed to US Dollar and Indian rupee exposure. This risk is managed through currency hedging against exchange rate movements, typically 9-12 months into the future. The Group is also working to rebalance its exposure by growing its foreign currency denominated sales ahead of its costs to reduce the currency imbalance and more naturally hedge this risk over time. The Financial Statements have been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons. The Directors have prepared cash flow forecasts for the period to the end of May 2023 which indicate that, taking into account reasonably plausible downsides as discussed below, the Company has sufficient funds to meet its liabilities as they fall due for at least 12 months from the date of this report. In assessing the going concern position the Directors have considered the balance sheet position as included on page 120 and the level of available finance not drawn down. The balance sheet shows net current liabilities of £1.0m. At 30 November 2021, the Group had net debt of £18.3m (November 2020: £1.3m) and drawn facilities of £20m (November 2020: £5m). RM Group has a £70m committed bank facility (“the facility”) at the date of this report. Further details are set out in Note 31. Liquidity headroom at 30 November 2021 was £47.9m. Average net debt over the year to 30 November 2021 was £15.8m (2020: £16.3m) with a maximum borrowings position of £29.7m (2020: £29.6m). The debt facilities are subject to financial covenants of a maximum of 2.5 times Net Debt/EBITDA and at least 4 times interest cover/EBITDA. These covenants are tested in May and November. At 30 November 2021 the results of the covenant tests were 0.84 and 22.6 respectively. The facility was extended by 1 year during 2021 and is committed until July 2023. During this extension process, the Board initiated conversations regarding a 3-year facility to replace the current facility when it expires and is confident in obtaining a new or renewed facility at an appropriate time. The Chief Financial Officer’s statement outlines the performance of the Group in the year to 30 November 2021 including the impact of COVID-19. In this period UK schools were closed for a number of weeks primarily during Q1, and UK and Irish school exams were cancelled by respective governments. Despite this backdrop, revenues increased by 12% compared to 2020 and adjusted profit before tax by 22%. RM Resources continued to provide products to its customers during school closures and has experienced strong curriculum sales in 2021. In RM Assessment, whilst the UK general exams saw a significant reduction compared to 2019, other UK assessment and international examination activity recovered partially. RM Technology continues to be resilient to UK school closures as it provides the technology support to UK schools and colleges that has allowed them to operate remotely. Performance by segment is set out in Note 4. Net cash inflow from operating activities was £3.8m. 36 STRATEGIC REPORT FINANCIAL VIABILITY STATEMENT The Directors’ assessment of the Group’s current financial position is set out in the Chief Financial Officer’s review on pages 32 to 37. In accordance with the UK Corporate Governance Code, in addition to an assessment of going concern, the Directors have also considered the prospects of the Group and the Company over a longer period. The principal operating subsidiaries of the Group are RM Educational Resources Limited (the primary subsidiary through which our Resources Division operates) and RM Education Limited (the primary subsidiary through which our Technology and Assessment Divisions operate). The current performance of these Divisions is set out in Note 4 of the Financial Statements. We have significant investment programmes, our new automated warehouse and a Group-wide ERP programme, both anticipated to deliver significant benefits to the Group but both largely funded by our debt facilities which are set out in Note 30. Our Group Treasury team actively manage the cash flow and funding requirements of the Group over the financial viability timeframe. Our current utilisation of our funding facility is summarised in our Going Concern review on pages 36 to 37 We have an established process to assess the Group’s prospects. The Board undertakes a detailed assessment of the Group’s strategy on a regular basis (usually annually) and the output from this assessment forms the framework for our medium-term plan which we update annually. Our medium-term plan comprises cash flows, income statements and balance sheets. Our medium-term plan reflects our prospects and considers the potential impacts of the Principal Risks and Uncertainties set out on pages 27 to 31. We perform stress tests to assess the potential impact of combinations of those risks and uncertainties. The plan also considers mitigating actions that we may take to reduce the impact of such risks and uncertainties, and the likely effectiveness of those mitigating actions. Period of assessment The Directors have considered that a period of three years is an appropriate timeframe to consider the financial viability of the Company and the Group for a number of reasons. The Group operates in the education sector, providing a range of technological solutions and services to our customers both in the UK and Internationally. Whilst in the longer term the changing nature of technology, government policies and digitalisation will impact the market in which RM plc Group operates, changes in the shorter 3-year timespan are likely to be less severe (subject to pandemic closures and associated exam cancellations). A three-year period is also consistent with the time period over which the Group’s medium-term financial budgets are prepared. A longer period of assessment introduces greater market uncertainty and hence uncertainty in the viability assessment because the variability of potential outcomes increases as the period considered extends. Viability assessment The Group has considered the following scenarios for financial viability: Principal Risk Impact of COVID-19 pandemic Public policy risk Scenario COVID-19 The underlying budget reflects the continued impact of increased frictional costs associated with COVID-19 and a degree of uncertainly in exams volumes. Additionally, a further lockdown between January 2022 to Easter 2022 was modelled for our Resources business at sales levels experienced through prior lockdowns. In our Assessment business we have modelled an impact consistent with that seen in FY21 i.e., majority of UK & Ire general exams cancelled and reduced levels of international general exams. UK public policy changes Short term public policy changes in education primarily impacts the transactional nature of UK schools purchases. We considered a further market decline of 5% (in addition to COVID-19 scenario above) in FY22 and a 10% reduction in FY23 and FY24 in our Resources Division. In addition, a margin denigration was modelled. Scenario Principal Risk Investment programmes Transformation risk The ERP solution is scheduled to complete in FY22 with some assumed benefits in the medium-term plan. Our new automated warehouse is also scheduled to be fully operational in mid-2022 with associated benefits. A reduction in sales due to transitional problems, heightened traditional costs and a reduction in expected benefits modelled. Adverse performance in key contracts Dependence on The Group has a number of significant key contracts contracts and the scenario assessed was the Operational loss of a significant contract that is due to be execution/ Data and business continuity Operational execution renewed in FY22. We also considered the impact of a major incident at a key contract, considering the impact of data breaches, key supplier failures or technological failure and the resultant impact on brand. Supply chain disruption RM is reliant on the cross-border movement of goods which have been affected by new Brexit related requirements and the impact on supply chains of the COVID-19 pandemic. We have considered the impact on profitability of this large-scale disruption continuing throughout the period of assessment. Growth targets - The medium-term plan has a number of assumptions in respect to renewal rates, new business wins and supplier inflation. We considered the impact of no new business wins in FY22 and a 50% reduction in FY23–FY24 in our annuity Divisions in Technology and Assessment. Business continuity Over the last few years there is increasing legislation and the compliance requirements continue to increase. A breach of GDPR compliance and associated costs was modelled. A major incident to our main Resources warehouse was considered net of insurance coverage. Data and business continuity risk The impact of the above scenarios was considered individually and in combination. Where the timing is unknown, the scenario was assumed to have occurred in FY22 when the Group sensitivity is greatest (due to the investment programmes’ impacts on cash flows). There are a number of mitigations that were considered in conjunction with the combined scenario risks which included: • Cost mitigations (such as reduced marketing) • Non-payment of discretionary bonuses • Non-payment or reduction in dividend payments The scenarios include a requirement for a reduced facility beyond summer 2023. The existing bank facility was extended by 1 year during 2021 and is committed until June 2023. During this extension process, the Board initiated conversations regarding 3-year facilities to replace the current facility when it expires and is confident in obtaining a new or renewed facility at an appropriate time. The Board is satisfied that there are several other financing options that could be put in place to maintain liquidity headroom over the financial viability period and that there would be adequate time to complete negotiation of such arrangements and the viability statement is dependent on a reduced facility being available. On this basis, the stress tests indicated that none of these scenarios, including the combined scenario, would result in an impact to the Group’s expected liquidity, solvency or debt covenants that could not be addressed by mitigating actions and are therefore not considered threats to the Group’s viability. Governance and Assurance The Board reviews and approves the medium-term plan on which this Viability Statement is based. The Board also considers the period of which it should make its assessment of prospects and the Viability Statement. The Audit Committee supports the Board in performing this review. Details of the Audit Committee’s activity in relation to the Viability Statement are set out in the Audit Committee Report on page 71. The Viability Statement is subject to review by Deloitte, our external auditor. Their Audit Report is set out on page 108. Assessment of Viability The Board has assessed the viability of the Company over a three-year period to November 2024, taking into account the Company’s current position and Principal Risks. Based on that assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 November 2024. 38 39 STRATEGIC REPORTSUSTAINABILITY REPORT As a responsible business RM wants to ensure long term sustainable success by tackling climate change and environmental challenges, supporting communities, promoting a diverse workforce, and protecting its reputation through good governance. This is helps us to achieve our purpose of enriching the lives of learners and deliver on our vision of enabling the improvement of educational outcomes around the world. This report sets out the steps taken to provide a solid foundation to further improve the sustainability of RM’s business and deliver long term value. Environmental Policy and Reporting RM’s Environmental Policy states that it is committed to conserving the Earth's resources through its objectives to deliver net zero (see target on page 47), sustainable consumption and production, and supply chain sustainability. It also contains commitments on achieving these objectives including encouraging innovative ideas and enhancing the natural environment. The key impact areas for the Group are transport, energy and carbon, climate resilience, waste and packaging, materials in its products and supply chain, and customer and employee impacts. In the past year, RM has continued to progress plans to reduce its impact. For example: • RM has continued to focus on digitisation as a strategic area of development through digital assessment, development of cloud based managed services and research into digital resources. These products enable significant reductions in customers’ carbon and other environmental impacts compared with traditional methods. In pursuing the Company’s strategy, new digital products and services and opportunities that support a sustainability agenda will continue to be considered. • RM Resources opened a new leased facility at Harrier Park as part of a plan to rationalise and relocate its operational base and activities to a central location and improve its energy efficiency. Once this is fully operational, which is planned by the end of 2022, it is expected to reduce RM Resources’ overall energy and utility demand. Unlike the current facilities used, Harrier Park has been built to reduce utility consumption with heat retention glass, rainwater harvesting and passive infra-red LED lighting. RM Resources has continued to focus on reducing packaging waste at its distribution centres. Since the peak in 2019 following the acquisition of Consortium, packaging waste volumes, as covered by the Packaging Waste Regulations 2007, have been reduced by 27% per £m turnover. Currently, 81% of this packaging waste is reused or recycled through a compliance scheme. An additional waste services supplier has been appointed to deploy a circular economy approach to managing waste at two RM Resources facilities: Harrier Park and Sherwood. • In tender responses, RM Technology has recently started to offer customers the opportunity to (i) offset the carbon impact associated with its engineers who may attend the site by making a donation to the Woodland Trust; and (ii) receive, through a third party, renewable energy options such as the purchase of renewable energy utility supplies, carbon assessment and on-site renewable generation. • Through RM Technology’s Education Learning Partnership Programme, 1016 Hewlett Packard computers were returned for repurposing of components back into the supply chain. Customers accrued £101,600 in rebates in this way. RM remains one of the top resellers in education for this scheme. • RM Education Solutions India has an established Green Team which seeks opportunities to improve environmental performance across all three facilities based at Carnival Techno Park - an ISO 9001 and 14001 certified business park. During the year, the improvements made included replacing plastic single-use cups with steel cups for employees and visitors and the introduction of a new waste segregation process to reduce the amount of waste sent to landfill. • Where designing new products, RM Resources has focused on introducing new, less environmentally impactful materials. For example, the Company’s reliance on virgin plastics has been reduced by launching products that contain plant-based materials and wastes including Eco Boulders, Eco Cones, Eco Sand & Water Kits and Build a World. Whilst good progress has been made in reducing impacts, it is also accepted that the increase in employees working at home during the COVID-19 pandemic has contributed to these reductions. Objectives RM’s environmental strategic approach has been developed during the course of this year. It is based on four key objectives. The diagram below gives examples of matters that were considered that helped determine the key themes which feed into each of these objectives. • Improving our energy efficiency • Implementing renewable generation options • Reducing our waste • Avoiding the landfill of waste • Eradicating non-recycled single use plastic • Reducing our impacts • Supporting our customers and supply chains in reducing their impacts • Supporting trade initiatives Net zero Reducing our impacts and supporting stakeholders Sustainable consumption The impact from RM operations • Leveraging our strategy for the digitisation of services to reduce whole- life impacts • Enabling work practices that reduce commuting and business travel and encourage lower impact transport • Setting a Supply Chain Charter that encourages our suppliers to implement net zero and circular economy opportunities Supply chain sustainability Sustainable production The manufacturing and logistics impacts of our supply chain The impact of our products and their use • Prioritising with our suppliers works that improves impacts • Assuring the sustainability of our supply chain during the pandemic RM’s objectives are: • To be net zero by 20351 – decarbonising through energy efficiency, replacing fossil fuels with renewable and low carbon energy, dematerialisation, digitisation, reducing material losses and avoidance of waste. To achieve net zero, RM will consider offsetting where there is strict validation of the offset. A trajectory showing how net zero will be delivered is being built. • To achieve sustainable consumption – by being efficient in operating RM’s facilities, buying what is needed and using it as sustainably as possible. For example, by using submetering throughout the Harrier Park site to better understand where energy is consumed so that the Company can seek ways to reduce it. • Designing low carbon and energy efficient products • Designing products made from ecologically sound materials • Using natural resources efficiently • To achieve sustainable production – through the materials used in RM’s branded products and by ensuring its suppliers are being energy and water efficient in manufacturing those products. RM is committed to eliminating non-recycled plastic in new RM Resources branded products. • To implement supply chain sustainability – by being clear about RM’s expectations in tenders and specifications and in working with the supply chain to reduce environmental impacts associated with non- branded goods and services provided to customers. For example, there are plans to reduce packaging and introduce re-usable packaging solutions to help eliminate waste from the supply chain. 1 See target on page 47 40 41 STRATEGIC REPORT Environmental Improvement Plan • Preventing packaging waste by designing the packaging Energy consumed in kWh by scope and region RM is working on achieving ISO14001 certification and has integrated sustainable procurement into its management system. It has developed an ambitious improvement plan for the forthcoming years: • Zero waste to landfill by 2030 • Eliminate non-recycled plastic content in new RM Resources branded products by 2024 • Eliminate non-recycled plastic content packaging used in all (i) RM Resources branded products and products repackaged by RM Resources by 2023 and (ii) other products sold by RM Resources by 2030 • Remove excess, unnecessary packaging on all products by 2024 • Replace hard-to-recycle packaging materials with easy-to- recycle materials by 2030 • Develop new labelling for RM Resources’ branded Eco products to enable the customer to understand the features, environmental impact reduction and end of life options by April 2023 • Run workshops in 2022 with key customers and suppliers to agree environmental priorities • Develop energy efficient design guidelines for RM’s various software products by 2025 RM’s net zero and carbon targets can be found in the TCFD Report on page 47. Actions In order to deliver on the improvement plan, the following projects are currently underway: • Reviewing renewable energy generation options at Harrier Park. • Trialling a carbon offset scheme with Ecologi that, if successful, will be offered to customers. • Embarking on a programme to better understand the packaging of products. This will enable work to be carried out with suppliers to reduce packaging volumes and remove packaging that is difficult to recycle. • Engaging with a consultancy to look at alternative low impact materials for new products including bamboo, bio-degradable plastic and natural additives to reduce the overall amount of plastic used in products. to be a long-term storage solution or utilised as part of the product where possible. • Designing products so that they are more durable and can be repaired, repurposed or reused. Plans are also being developed that go beyond RM’s direct impacts, and include supporting its employees, and working with its supply chain and customers to reduce their environmental impact: Employees - There are eV charging points available at RM’s head office in Milton Park, Abingdon and multiple eV charging points are provided at Harrier Park. These measures help encourage employees to switch to eVs and will support the anticipated change to fleet eVs for warehousing activities. Supply chain – The introduction of sustainable procurement (ISO 20400) into RM’s environmental management system will help identify key priorities. The customer workshops that are part of RM’s Environmental Improvement Plan aim to facilitate the implementation of a supply chain charter that prioritises the areas RM and its supply chain should focus on. Customers – There is a range of ‘Eco’ and low energy products that enable customers to reduce their impacts and replace older HP technology with newer products at a reduced cost through the Education Learning Partnership Programme. Labelling of products as ‘Eco’ will also help customers make better decisions on which products to purchase in order to reduce their own environmental impacts. Performance Metrics RM measures key aspects of environmental performance using industry standard metrics. Energy Use Reporting The annual quantity of energy consumed from activities for which the Company is responsible is set out below. The calculation applies to all Group companies. Data is collected in kWh that relates to the consumption of gas, electricity, and renewable energy from suppliers and or use metered data. Year ended 30 September 2021 Year ended 30 September 2020 Year ended 30 September 2015 (Baseline year) Scope Source Region Energy use in kWh Percentage of total kWh Energy use in kWh Percentage of total kWh Energy use in kWh Percentage of total kWh Scope 1 Gas Scope 2 Electricity UK UK 2,293,260 2,578,439 (Location based) Total Electricity ROW 490,340 5,362,039 42.8% 48.1% 9.1% 2,722,046 1,849,273 704,687 5,276,006 51.6% 3,816,915 35.0% 5,158,845 13.4% 884,714 38.8% 52.3% 8.9% 9,860,4742 1 Actual data reported 2 Baseline updated to take account of the below adjustments Scope 1 covers the annual quantity of energy consumption in kWh from activities for which the Group is responsible including (a) the combustion of fuel; and (b) the operation of any facility. Scope 2 covers the annual quantity of energy consumption in kWh from the purchase of electricity, heat, steam or cooling by the Group for its own use. In the year ending 30 September 2021, scope 1 and 2 as a % of total kWh consumption for UK is 90.9% and the rest of the world 9.1%. Emissions Reporting The Group is required to report scope 1 and 2 emissions for all Group companies within the Annual Report and has elected to report emissions for the year to 30 September 2021. The methodology in the GHG Protocol Corporate Accounting and Reporting Standard (revised edition)3 has been applied. The figures include emissions arising from all financially controlled assets. The calculation applies to all Group companies. It is based on the kWh data collected for all facilities, and the mileage of Company vehicles and business use of personal vehicles. This is converted to carbon dioxide equivalents using conversion factors appropriate to the location of the impact taken for utility use and for vehicles. Defra conversion factors are used for cars based on an average-sized car. All other emissions factors have been selected from the emissions conversion factors published annually by the Department for Business, Energy & Industrial Strategy4. 3 https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf 4 https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2021 42 43 STRATEGIC REPORTEmissions by scope Year ended 30 September 2021 Year ended 30 September 2020 Year ended 30 September 2015 (Baseline year) Scope Source Region Tonnes CO2℮ Percentage of total CO2℮ Absolute totals Tonnes CO2℮ Tonnes CO2℮ Absolute totals Tonnes CO2℮ Tonnes CO2℮ Absolute totals Tonnes CO2℮ UK 110 7.4% ROW 2 0.1% Van/car travel Van/car travel Gas Electricity UK UK Electricity ROW Scope 1 Scope 2 (location based) Total 465 547 358 31.4% 36.9% 24.2% 577 906 1,483 187 4 555 431 516 658 185 691 2,364 742 746 947 1,693 1,464 3,105 4,4721 Note: CO2℮ means CO2 equivalent 1 Baseline updated to take account of the below adjustments. Actual data reported 4,402 tonnes. Scope 1 and 2 tonnes CO2℮ Tonnes CO2℮ per £m revenue 2021 2020 2015 (Baseline) 2021 2020 2015 (Baseline) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 0 5 10 15 20 25 30 Tonnes CO2℮ Tonnes CO2℮ per £m revenue Scope 1 Scope 2 Emissions per £m of revenue The improvement of emissions per £m revenue between the baseline year and 2021 is 71%. Tonnes CO2℮/£m per revenue Year ended 30 September 2021 Year ended 30 September 2020 Year ended 30 September 2015 2.76 4.32 7.08 3.84 4.88 8.72 (Baseline year) 7.95 16.86 24.81¹ Scope 1 covers the annual quantity of energy consumption in kWh from activities for which the Group is responsible including (a) the combustion of fuel; and (b) the operation of any facility. Scope 2 covers the annual quantity of energy consumption in kWh from the purchase of electricity, heat, steam or cooling by the Group for its own use. Scope 1 Scope 2 Total In the year ending 30 September 2021, scope 1 as a % of total CO2℮ for UK is 75.7% and the rest of the world is 24.3%. 1 Baseline updated to take account of the below adjustments During the year ended 30 September 2020, the new facility at Harrier Park was assessed as ‘very good’ by BREEAM standards and implemented efficient utility usage, waste reduction/recycling and use of energy saving features in products. In 2015, India travel emissions were reported in the Annual Report as 18 tonnes, but it included scope 3 emissions and is restated without scope 3 emissions in the baseline data used. Adjustments In the period since the start of the base line year there have been a number of business changes that impact these figures: • There have been two acquisitions: the Consortium business, including its distribution facilities, in June 2017 which forms a substantial part of RM Resources today and the SoNET business in June 2019. Both businesses have added emissions to the Group and the baseline used has been adjusted to take this into account. • The PC manufacturing business was closed prior to the base year. Emissions from building consolidations following the closure of this business which occurred after the start of the base year have been removed from the baseline year figures. Based on the data in the table above, the Group’s emissions have reduced, between the baseline year and 2021, by some 66.8%. This reduction is due to office closures, relocations to properties which have LED lighting and more energy efficient heating/cooling systems and the decarbonisation of the National Grid in Great Britain. However, some of the reduction between 2019 and 2021 is attributable to offices being closed and hybrid working due to COVID-19 and we recognise that not all of this will be permanent. Emissions have also been analysed using intensity metrics, which enable the Company to monitor how well emissions are controlled on an annual basis, independent of fluctuations in the levels of activity. The metric used is ‘emissions per ‘£m of revenue’ in line with industry standards. This is shown in the table overleaf. The aggregate energy consumption of the Group during the year ended 30 September 2021 and 30 September 2020 was: Electricity Electricity Electricity Gas Total UK India Australia UK 2021 kWh 2,578,439 466,987 23,353 2,293,260 5,362,038 2020 kWh 1,849,273 670,168 33,842 2,722,046 5,275,330 This comprises (i) the combustion of fuel and the operation of any facility; and (ii) the annual quantity of energy consumed resulting from the purchase of electricity, heat, steam or cooling by the Group for its own use. 91% of consumption was in the United Kingdom and 9% was in the rest of the world based on the information provided by suppliers. The Group purchases renewable electricity in the UK to support large scale renewable generation. However, carbon conversion factors used do not take account of this. 44 45 STRATEGIC REPORT Task force on climate-related financial disclosures The alignment of reporting on managing climate risk in line with the TCFD framework will become mandatory for RM in next year’s Annual Report. Work on this has begun and this report is prepared on that basis. Reporting against the TCFD recommendations will continue to evolve as climate risk and opportunity scenario planning is carried out in 2022 and new metrics around scope 3 will be progressed. Governance The risks and opportunities of climate change for RM is overseen by the Board to ensure they are considered as part of business strategy and risk management. The Executive is responsible for overseeing the senior management’s implementation of sustainability activities including the handling of climate related risks and opportunities. The following groups have recently been established: • a Sustainable Development Governance Panel made up of managers from across the Group. It is responsible for managing the activities required to be carried out in order to become a sustainable business, reviewing key risks and opportunities, including those relating to climate change, and developing and implementing a strategy and plans to address those risks and opportunities. The agenda for the Panel includes procurement, logistics, design, finance and facilities management. The Panel is led by the RM Resources Managing Director; and • a Sustainable Development Working Group that is subordinate to the Sustainable Development Governance Panel. It establishes the technical requirements and standards that need to be met. It makes proposals to the Governance Panel and facilitates the wider understanding of how to implement strategies and plans. It appoints the Chair annually from its members. A dedicated Environment Manager who reports into the HR Director provides technical support to both groups. The Governance Panel updates the Executive Committee at least quarterly. This includes reviewing climate change risk assessments and overseeing any related decision-making and involves reporting against sustainability strategy targets. The Board is updated quarterly. The Environment Manager reviews RM’s own data and the impact of climate change on its operations and keeps abreast of publications and reports by leading climate risk research and organisations including the Intergovernmental Panel on Climate Change (IPCC) and the UK Committee on Climate Change. Principal and emerging risks including climate change risks are reviewed by the Board as part of the Company’s risk management process and any material financial implications of climate risk and potential impact on RM’s accounts are shared with the Audit Committee. Strategy and Risk Assessment RM’s objectives are to achieve net zero, sustainable consumption, production and procurement across its business and supply chain. Its plans include actions to address climate related risks and identify opportunities for impact reduction, adaptation for climate change and enhanced climate resilience. As RM’s approach evolves it is increasingly influencing the products it develops and purchases, its own operations and the operations of those in its supply chain. Further information on this is on page 42. To understand the effect of global warming and its impact on operations, the risks and opportunities arising from a global temperature change of no more than 1.5⁰C about pre-industrial levels by 2100 will be reviewed. The risks and impact on RM’s business in a world affected by climate change greater than 4⁰C scenario will also be reviewed. Risk assessments and scenario analyses are planned. These will be completed via workshops across business Divisions and corporate functions. These risks are considered using the same format as for principal and emerging risks as set out on pages 25 to 26 and mitigations are then developed based on these assessments. They will look at the impact on short, medium and long-term time horizons and the financial implications, including capital deployment. Additionally, RM will consider the speed of reaching temperature increases and the impact of this on its activities. Further information on this will be provided in next year’s report. A macro-analysis has been developed this year using high level scenario impact reports by the IPCC and has begun to identify where some of the key risks lie. It indicates that in the 1.5⁰C scenario, the risk to RM’s workforce and its own operations in the UK will largely remain as currently to 2050 and in the and 4⁰C scenario this risk is considered to be low to medium to 2050. RM is committed to playing its part in managing down the effect its carbon emissions have on climate change by decarbonising its activities, moving towards a circular economy and, should it become necessary, offsetting its impact using schemes that permanently remove carbon from the atmosphere. Next year, the plan is to start work looking at climate change resilience with partners dovetailing into the work that will arise from the UK government net zero Strategy. Metrics and Targets RM’s approach has targets underpinning it which will be further developed in conjunction with the results of the climate change risk assessments and scenario analyses to be carried out. This will be reviewed annually to ensure it takes account of new developments in science, technology and legislation. RM’s current environmental improvement plan includes the following climate change targets: • Becoming net zero by 20351 • Reducing scope 1 and 2 carbon emissions, against the 2015 baseline, in line with the Government reduction target of 78% by 20352 • Using 50% on site or locally generated renewable energy at Harrier Park by 2024 • Supporting large scale renewable generation in the UK by continuing to purchase renewable electricity for RM’s use 1. This covers scope 1 and 2 emissions, see following paragraph for scope 3. 2. During the year ending 30 November 2021, scope 1 and 2 carbon impacts reduced by 67.5% against the 2015 baseline. In order to better understand scope 3 emissions, data is being gathered on around 36,000 products that are sold, including the material composition, manufacturing methods, supply chain impacts, logistics and end of life management so they can be prioritised for reduction and appropriate targets set. Once this data is available, a net zero target including scope 3 emissions will be developed, progress will be reported in next year’s Annual Report. Nevertheless, RM is committed to delivering net zero across scope 3 ahead of 2050. 46 47 STRATEGIC REPORT Workforce The Group employs nearly 2000 people. Its aim is to create a culture and an environment that enables employees to work together collaboratively, creatively, efficiently and in a safe way. Average Headcount 2021 Average Headcount 2020 UK India Australia Other1 Total UK India Australia Other All employees 1,100 861 27 2 1,990 1,072 729 36 0 Permanent Temporary/ contract staff 1 Spain and Singapore Health and Wellbeing 1,773 216 The Equal Opportunities Policy commits RM to preventing any form of discrimination, harassment, intimidation or victimisation, promoting equal opportunities for everyone and promoting a good and harmonious working environment where everyone is treated with respect and dignity. This Policy is available on RM’s website www.rm.com. The Anti-Bullying Policy encourages employees to come forward with any concerns of bullying or harassment and sets out how such matters will be dealt with. These policies and the actions referred to in this section support the strategy by helping create a better skilled workforce by encouraging people from different backgrounds to apply and contribute to the business. Employees with Disabilities: The Group gives equal consideration to applications for employment received from candidates with disabilities, having regard to their aptitudes and abilities. Where existing employees develop a disability that materially affects their ability to perform their work role, retraining, use of appropriate technology and making available suitable alternative employment within the Group are explored and their further training, career development and promotion opportunities are supported. The following table shows the percentage of employees who are female. The data is based on the number of permanent employees and Board members on 30 November each year. Over recent years, the percentage of women across the Executive and senior management has improved. The reduction in women at this level this year has been due to a combination of reporting line changes, unfilled vacancies at the date of this report and recruitment for vacancies. Total 1,837 1,716 121 RM is committed to supporting its employees and promoting positive Health and Wellbeing. The priority over the past year was to ensure that the workforce remained safe and well, whilst continuing to provide the services its customers need. Further information on the measures taken is set out on in the Employees section on pages 65-66. As employees return to working in offices RM launched ‘My Work Blend@RM’ which is a hybrid working approach that enables employees to work flexibly where appropriate and help them balance their roles and lives. Board including Executive Directors Senior Managers (excluding Executive Directors)1 All employees 2021 14% 35% 38% 2020 17% 36.5% 38% 2019 17% 25% 39% 2018 17% 19% 38% Equality, Diversity and Inclusion RM believes equality, diversity and inclusion (‘EDI’) are important and its aim is that all employees receive fair and equal treatment. The workforce needs to reflect and represent the needs of the customers and communities RM serves. RM seeks to create an inclusive and flexible working environment for its employees. The first step in achieving these goals has been to complete an EDI audit to understand how diverse and inclusive the Company is today. This work was completed by a third party during the first half of FY21. The results indicated scope for further action as many of its people and managers wanted to better understand how to make RM a more diverse and inclusive organisation. Over the past year, RM has put in place new governance to oversee EDI projects and programmes, to ensure it is encouraging diversity and inclusivity. There is now a voluntary network of 20 EDI advocates and a steering group to plan, execute and evaluate EDI initiatives. These initiatives have included: • Providing essential education and awareness. To support this, learning sessions have been held and resources shared through a virtual EDI library on RM’s intranet. There is also an anonymous ‘Ask Us Anything’ service through the EDI advocates. • RM has launched a recruitment pilot programme to help attract more diverse candidates. This programme trains people managers to consider how they define and advertise job roles, and how they manage the evaluation process to support candidates from a diverse range of backgrounds. There is also a multi-channelled approach to help identify a diverse range of individuals. • Supporting diverse communities in RM is an important part of the plan and 4 new EDI networks been established. These provide a safe space for these networks to share their experiences and provide representation to change policy and practice in RM. They represent the People of the Global Majority, Women at Work, LBGTQIA and Neurodiversity. After the Women at Work network championed the subject of menopause, the UK healthcare benefit has been updated to include menopause support. • RM’s Executive is taking part in a Reverse Mentoring scheme, to improve its personal knowledge and awareness of EDI. • As part of Inclusion Week in September 2021, RM has launched a programme to encourage UK employees to share diversity data. ¹ Covers those employees who have responsibility for planning, directing or controlling the activities of the Group, or a strategically significant part of it or the Company. The following table sets out a more detailed summary of the permanent staff employed on 30 November 2021 (and as at 30 November 2020): As at 30 November 2021 As at 30 November 2021 Male Female Total Male Female All employees 1,179 (62%) 715 (38%) 1,894 1,055 (62%) 650 (38%) Senior Managers (excluding Executive Directors)1 Executive Committee and direct reports2 37 (65%) 20 (35%) 27 (60%) 18 (40%) Board 6 (86%) 1 (14%) 57 45 7 33 (63.5%) 19 (36.5%) 23 (53.5%) 20 (46.5%) 5 (83%) 1 (17%) Total 1,705 52 43 6 ¹ Covers those employees who have responsibility for planning, directing or controlling the activities of the Group, or a strategically significant part of it or the Company. ² Covers the ‘senior management’ as defined in the Code and excludes EAs and PAs. There are ongoing initiatives to help ensure a balanced participation in the workforce: • a pilot programme with The Academy of Women's Leadership to help create a stronger female talent pipeline for senior roles; • women are represented on the shortlist for all senior vacancies; and • flexible and agile working to support the need to balance careers. Gender pay data is available on the public websites for subsidiaries (RM Technology, TTS and Consortium). Nearly 30% have updated their data. This will help set objectives and targets to improve diversity across the Group. The Corporate Governance Report sets out the Company’s Board Diversity Policy. 48 49 STRATEGIC REPORT Development and Reward The Company recognises that talented people are central to the success of the business. Employees are encouraged to set learning goals framed around their career aspirations as well as what RM requires of them. Managers guide them through monthly developmental coaching conversations. Employees have access to online learning platforms, social and peer learning opportunities, coaching and mentoring as well as ‘on the job’ experiences. Employees are encouraged to attain professional qualifications or certifications where applicable to their role. Apprentices are supported in gaining their qualifications and essential work experience. RM has employed 14 apprentices over the past three years in the UK. The Company’s emphasis is on fair pay structures across the Group and bonus schemes that support and encourage a high-performance culture. The Group incentivises employees and senior management through the payment of bonuses linked to business objectives, together with the other components of remuneration detailed in the Remuneration Report. The Company does not operate an employees’ share scheme due to the size and geography of the Group’s workforce. Regular benchmarking is undertaken across the sector in terms of pay and reward. There are also policies setting out the working practices and benefits available to employees. These policies are published internally. Community RM’s purpose is to supply products and services which enrich the lives of learners worldwide. It’s important therefore that the Group has a positive impact across both the education sector and communities. RM is very conscious that one of the UN Sustainable Development Goals is “quality education” and RM takes very seriously its part in delivering and improving sustainability in this critical area. Beyond the classroom, this is achieved in the UK education sector in many different ways: • In the last year RM has provided evidence to Government consultations that have included the Department for Education’s (DfE’s) consultation on “Helping Schools Buy”; the Government’s (post-BREXIT) Taskforce on Innovation, Growth and Regulatory Reform consultation; the DfE's edTech 2.0 strategy and OFQUAL/DfE’s Summer Exams consultation. RM also responded to the All-Party Parliamentary Group for Education Technology which published its inaugural report on “Lessons from Lockdown: what was learnt about Education Technology in 2020” which included evidence that the Company supplied. • RM has been actively engaged with the DfE since the first school lockdown – initially in their programme to roll- out remote learning to schools via Microsoft Teams and Google Classroom, and then in their 'Get Help With Tech' programme, working with the Department (at their request based on the Company’s work on remote learning) to help review and shape the DfE’s thinking about what a 'post platform implementation' support package looks like for schools. • Executive board positions are held on the Group’s primary trade bodies: the British Educational Suppliers Association (BESA) and the e-Assessment Association (eAA). In communities: • RM UK-based employees become School Governors and MAT Trustees allowing employees to take up to 20 hours paid time off per year for Governor activities, and some senior employees take on broader industry roles. Over 30 colleagues have such roles. • UK employees raised money for United World Schools enabling 20 children to be educated for an entire year. • In India, the local business set up the RMESI Foundation in 2007 to provide support in and around Trivandrum, India to bright, underprivileged children in pursuing their education. During the last academic year, it has through the following: ◌ Graeme Dewart Scholarship: provided school fees for 26 under-privileged students worth £11,900; ◌ Connect the Disconnected Programme: distributed 83 mobile devices to students in 11 schools in Trivandrum to aid online learning worth £8,700; and ◌ School Adoption Programme: adopted 1 additional school this year in addition to the 3 existing primary schools. This programme contributes to the salaries for Computer and English teachers and for school supplies. Currently £1,000 has been provided for salaries. • In May 2021, RM Resources employees at the Harrier Park site in Hucknall delivered a significant volume of educational resource to a local charity. Hucknall was particularly hard hit by the pandemic with a high local need for food banks and other donations and support. The resources donated formed part of a new local scheme to open pop-up mother and toddler schemes. These schemes provided families in need of support with access to world class resources and gave parents a little respite from the stress of being locked down at home with small children. • In October 2020, RM Resources donated £18,000 worth of high-quality educational resources to 33 different multi- academy trusts, nursery chains and charities in the UK. RM continued to provide significant support for the UK educational system and this year: • In response to the announcement of school closures, RM Resources created and launched a series of ‘Learning at Home’ downloads for EYFS, KS1 and KS2. The home learning downloads were free and included activities and resources for across the curriculum. During the second closure of schools, RM Resources were responsive and collated a ‘Wellbeing Collection’ that provided free activities and resources that teachers and parents could use to support children’s emotional wellbeing. A series of blogs was also created from experienced educationalists to provide teachers and parents with ideas for home learning. • RM Technology promoted a range of free content for the entire sector on the RM website sharing best practice to support with remote education. This included videos, help sheets, case studies from schools and free webinars. RM promoted a four-month free trial of RM Easimaths. The RM Technology team was restructured in order to extend its customer service desk support hours to 7am- 10pm Monday to Friday to support teachers who were obliged to work outside normal school hours. Support was offered to schools if their Network Manager became sick or unavailable due to of COVID-19. Guidance on remote learning for Account Managers was promoted to better understand where help was required. Governance It is important at RM that governance ensures it can deliver its purpose and strategy in a way that is aligned with its values, so that it is a trusted partner to its customers and other stakeholders. RM is committed to conducting its business with integrity and its approach to risk and compliance helps encourage the right behaviours across the business. The Corporate Governance Report on page 58 sets out the framework for governance in RM and the role of the Board. Code of Conduct An employee Code of Conduct has been created and is being prepared for roll-out across the Group. The Code governs the ways of working across the business and sets out the standards that employees are expected to follow. The Code reflects RM’s culture and emphasises that employees are trusted to behave with integrity and honesty, and in accordance with applicable laws and regulations. There are a comprehensive set of policies that set out guidance and specific processes and procedures that employees are required to follow. Employees will be required to confirm annually that they have read, understood and comply with the Code. All policies are owned by a specified member of senior management and policy review dates set in order to ensure they are regularly assessed and kept up-to-date. Anti-bribery and corruption As part of the education sector, RM strongly supports the prohibition against giving, receiving or offering any bribes or any other forms of corruption. The Anti-Bribery Policy sets out the standards and processes all employees and relevant partners are required to follow. These are designed to minimise the circumstances under which such behaviours may occur. The policy also covers the giving and receiving of gifts and hospitality and expenses. The policy has been revised this year to give employees more practical examples and to make it clearer and easier for them to understand its application. Training on this has also been given to relevant teams. A formal assurance process is carried out twice a year that requires employees to confirm that they understand and comply with this policy. There is also an Anti-Money Laundering Policy which commits RM to promoting and maintaining the highest level of ethical standards in relation to all its business activities and a zero-tolerance approach to money laundering. It commits RM to acting fairly and with integrity in all its business dealings and relationships. It provides for procedures to be followed, situations that may be considered suspicious, action to be taken in such circumstances and record keeping requirements. Only a limited group of employees can release any payments and those employees are fully appraised of these risks. 50 51 STRATEGIC REPORTCompetition Law Data Security and Resilience Health and Safety Human Rights and Modern Slavery A new Competition Policy was approved this year. To help ensure it is understood across the business, training has been given to all relevant employees to help them understand the issues they need to be aware of. A register is maintained by the Legal Department for all employees attending trade association meetings and specific training is mandatory for them. Data Protection Given the nature of its operations, RM has always taken data protection matters seriously. The security and integrity of customer data is critical to the Group and is noted in the table of “Principal Risks and Uncertainties” in the Strategic Report. The Company has a formal Group Security and Business Continuity Committee (‘GSBCC’), which oversees data protection matters. That Committee is chaired by the Chief Information Officer and attendees include the Group’s Data Protection Officer (‘DPO’), Chief Financial Officer, senior HR employees and representatives from each of the Divisions. As part of its ongoing programme of GDPR compliance, the Group has formal Data Protection Policies and a Cookies Policy covering data of employees, customers, candidates, examiners and visitors to its websites. The policies commit RM to protecting and respecting the privacy of individuals and complying with all legal requirements. New starters are assigned mandatory training on GDPR and ongoing training is provided to all staff, as well as to contractors and temporary staff that have access to Company systems or data. Security vetting of relevant suppliers and other third parties is conducted when considered appropriate. The DPO works independently of management in fulfilment of the statutory duties required of that role and can, if necessary, escalate issues directly to the Board via the Company Secretary. As well as attending the GSBCC, the DPO provides regular updates to the Board on data protection matters. Both customers and employees can raise queries with, and send complaints to, the DPO. All potential personal data breaches are investigated and recorded. No data breaches have been reported to the ICO, the UK’s regulator, in the past year. Given RM’s role supporting and advising schools and other education bodies, data security and resilience are taken seriously. For details of the actions taken, see the Principal Risks and Uncertainties section at page 28. The GSBCC, referred to in the Data Protection section above, also oversees data security and resilience matters. Access to systems is role based and applied with a principle of least privilege. Access is reviewed regularly through established internal processes and is subject to external independent audits as part of maintaining ISO certifications. The latest audits reported no non-conformances. The GSBCC also maintains Cyber Essentials Certification. Business accounts are additionally protected with multi-factor authentication (MFA) and user behaviour analytics and are monitored by a Security Information and Event Management (SIEM) solution. The Company has a Cryptographic Policy that governs encryption controls, with disk encryption applied to all employee machines. The RM Acceptable Usage Policy provides guidance for all RM Group employees regarding how they may and may not use Company systems and data, and their responsibility for information security. The policy is reviewed annually prior to formal approval by the GSBCC, which oversees data protection matters. The Acceptable Usage Policy is further supported by other specific policies including Data Classification & Handling and Physical Controls. Data security policies are controlled, reviewed and subject to external audit as part of maintaining ISO certifications. RM also runs a formal Security Awareness programme for all new staff. As part of ‘secure by design and by default’ principles, business continuity management for the RM Assessment, RM Technology and RM ESI Divisions is aligned to ISO standards and subject to external audit, ISO 22301 certification is in place. Were a breach to occur, the Company has established relationships with third-party partners to support with cyber incident response and crisis PR. The Health and Safety Policy covers employees on its sites and at customer sites. It commits RM to a safe working environment, a culture of open discussion on health and safety issues, transparent reporting and compliance with all relevant laws and regulations. The Group has implemented a health and safety management system which is designed to continually improve health and safety and meet the requirements of ISO45001. The following objectives are incorporated into the health and safety management system: • Raising health and safety awareness; • Effective training; • Risk reduction and management; and • Accident reduction. The Group Health and Safety Committee includes representatives from each of the Divisions and Corporate Services. It meets quarterly and is chaired by the Group’s Head of Health and Safety. Each RM site has a Site Health and Safety Committee; this is chaired by the Health and Safety Director. Each Site Safety Committee reviews health and safety practices at that site. A range of health and safety training is provided on an ongoing basis to employees, contractors and temporary staff. Significant work has continued this year in improving staff induction and setting up processes at Harrier Park, and there remains a continued focus on safe operations during COVID-19 conditions. A Group level COVID-19 committee meets every 2 weeks to review changing conditions and to ensure regular and timely communications continue and are effective for flexible working patterns. Accidents and near misses are tracked and reviewed. There was one Lost Time Incident reported during the year which related to Trowbridge Distribution Centre (in the previous year there were 3 Lost Time Incidents). The Head of Health and Safety provides a quarterly report to the Board on health and safety across the Group and can escalate any issues to the Board via the Company Secretary. The reports contain information relating to accidents and near misses. Further information on this is detailed in the Employees section on page 66. RM is committed to minimising the opportunity for modern slavery to take place within RM and its supply chain. It has this year reviewed its internal processes and programme of review for suppliers. The Modern Slavery statement is available on the RM website. Further information on the Supplier Code of Conduct for the RM Resources Division, which manages a significant majority of the suppliers of the Group and the commitments required from them in relation to human rights is set out in the Suppliers and Partners section on 61. This Code is being reviewed with the intention that it will then be applicable to all Group suppliers. Political Donations Neither the Company nor any of its subsidiaries made any UK political donations or incurred any UK political expenditure, nor made any contribution to any non-UK political party, during the year. Safeguarding RM is committed to protecting students of its customers from harm. The Safeguarding Policy applies to anyone working on behalf of RM including employees, contractors and agency staff. The Policy states the principles that guide the approach to child protection and online safeguarding covering recruitment of staff, partnering with customers when any allegation is made, the incident and whistleblowing measures and the supply of products and services that help customers keep children and young people protected from online harm. There were no incidents reported in the last year. The Policy further states the Company has a responsibility to keep children and young people safe. This is regardless of age, gender, race, religion or belief, sex or sexual orientation. It recognises that some children are additionally vulnerable because of the impact of previous experiences, their level of dependency, communication needs or other issues. All staff working in environments where children are present must be familiar with policies at that place. Staff must report any incident that may give rise to a concern to the nominated child protection lead at that institution. 52 53 STRATEGIC REPORTShare Dealing Code Whistleblowing The Share Dealing Code is applicable to all employees and Directors. It is designed to ensure that they do not misuse any information about the Group which is not public. There are clear processes for informing individuals about their obligations under the Code and obtaining authorisation to deal. Tax As a UK company, the Group pay taxes in the UK, contributing some £12m in taxes to the UK Government over the past three years. The approach to tax is aligned with RM’s purpose and values and to ensure that RM pays the right amount of tax at the right time based on laws, rules and regulations in the territories in which it operates. The Tax Strategy is on RM’s website. Employees are encouraged to speak up if they feel that something is not right. RM’s Whistleblowing Policy has been updated this year and publicised to employees to make this clear. The Policy states that employees can speak to their manager, HR partner or other high-level person in the Company in the first instance if they have any concerns and there is also an independent third-party service they can use to report any concerns in confidence and anonymously if they wish. Information on this policy and the contact details of the third party are readily available on the internal employee portal. The Policy provides that all allegations raised are forwarded to the Chief People Officer (unless it relates to them) and members of the RM People team are trained to handle such matters. The individual will be informed of the process in dealing with the matter. The Policy sets out RM’s commitments in complying with the Public Interest Disclosure Act 1998 to protect any person who raises a relevant concern. The Policy states that any case that poses a significant risk to the business is reported to the Audit Committee with ultimate ownership by the Board. No concerns were raised in the past year. 54 55 STRATEGIC REPORTBOARD OF DIRECTORS JOHN POULTER Chairman (r) (n) John Poulter was appointed as Non-Executive Chairman of RM plc on 1 May 2013. He is also Chairman of the Nomination Committee of the Board. He is a former Executive Chairman of 4imprint Group plc and a former Chairman and Chief Executive of Spectris plc. He has also been a Non-Executive Director of a number of public and private companies including FTSE 250 constituents BTP plc, RAC plc and Kidde plc. John will retire on 16 February 2022. NEIL MARTIN Chief Executive Officer Neil Martin was appointed as the Chief Executive Officer of RM on 1 March 2021. He was the Chief Financial Officer of RM from 28 September 2015. Prior to joining RM, he was CFO for UK and Ireland for the Adecco Group, the leading provider of HR solutions listed on the Swiss Stock Exchange. He was CFO at the UK listed, IT staffing company, Spring plc until it was acquired by Adecco in 2009. He started his career by spending seven years at Exxon Mobil. Neil is a Chartered Accountant (CIMA). MARK BERRY Chief Financial Officer Mark Berry was appointed as Chief Financial Officer and Executive Director on 20 September 2021. He was the interim Chief Financial Officer from 8 March 2021. Prior to joining RM he was Chief Financial Officer and Executive Director at Foxtons Group plc, the estate agent, for 3 years. Before that he held a number of senior roles at Hays plc, the FTSE 250 listed specialist recruiter, including 5 years as Group Financial Controller and prior to that as European FD and Head of M&A. He started his career at Deloitte and is ACA qualified. CHARLES BLIGH Independent Non-Executive Director (r) (n) Charles Bligh joined the Board on 2 July 2021 as a Non-Executive Director. He is currently the Chief Executive Officer at Restore plc and was appointed to this position in April 2019. He was previously Chief Operating Officer and main Board Director at TalkTalk Telecom Group plc, which he joined in 2011. He previously spent 20 years at IBM Corporation in various countries, culminating in his role as Vice President, Commercial Sector in UK and Ireland. PAUL DEAN Independent Non-Executive Director (a) (r) (n) Paul Dean joined the Board on 4 February 2020 as a Non-Executive Director and Chairman of the Audit Committee. He was previously the Non-Executive Director and Chair of the Audit Committee of Wincanton plc and Focusrite plc, the Senior Independent Director and Chair of the Audit Committee at Porvair plc and Polypipe plc. He was the Group Finance Director of Ultra-Electronics plc from 2008 to 2013 and Group Finance Director of Foseco plc from 2005 to 2008. Paul is a Chartered Management Accountant. VICKY GRIFFITHS Independent Non-Executive Director (a) (r) (n) Vicky Griffiths joined the Board on 1 July 2020 as a Non-Executive Director. She spent five years as a teacher of Maths and Economics at both primary and secondary level and currently sits on the board of multi-academy trust, Bellevue Place Education Trust. She trained at Bain and Company and was responsible for operational and business risk at Brevan Howard Asset Management. She is now a Partner at executive search firm, Independent Search Partnership. She is a Non-Executive Director at GB Bank, as well as Senior Independent Director of the British Olympic Foundation, a Trustee of Vincent’s Club at Oxford University and she sits on the Main Committee of the MCC at Lords. PATRICK MARTELL Senior Independent Director (a) (r) (n) Patrick Martell joined the Board on 1 January 2014 as a Non-Executive Director and was appointed Chairman of the Remuneration Committee on 19 March 2014. He is the nominated Non-Executive Director for workforce engagement. He is currently Group Chief Operating Officer and Chief Executive of the Informa Intelligence Division of Informa plc. He was previously the Group CEO of St Ives plc, having joined in 1980. He was appointed to the Board of St Ives plc on 1 August 2003 and held the position of Managing Director, Media Products and Managing Director, UK Operations from 2006 to 2009, at which point he was appointed Group CEO. Committee membership as at the date of this report: (a) Audit Committee Member (r) Remuneration Committee Member (n) Nomination Committee Member 56 57 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INTRODUCTION FROM THE CHAIRMAN As Chairman, I am responsible for ensuring that the Company has high standards of corporate governance. In respect of the year ended 30 November 2021, RM plc was subject to the UK Corporate Governance Code 2018 (‘Code’), which was published by the Financial Reporting Council in July 2018 (available at www.frc.org.uk). The Board aims for the Group to meet and exceed the standards of the Code and to foster a culture of open and honest communication and constructive challenge throughout the organisation. There is a governance structure of checks and balances, a proper division of responsibilities and active consideration given to all relevant stakeholders. The Board sees this as a positive contributor to effective business operations. This Corporate Governance Report incorporates the relevant sections of the reports of the three Board Committees. It summarises how the provisions of the Code have been applied and how the Board and Board Committees have fulfilled their responsibilities during the year. It sets out how RM’s approach to corporate governance supports the Company’s strategy, the Board and its Committees’ key focus areas during the year. Governance On behalf of the Board, I confirm that the Company has applied the principles and complied with the provisions of the Code throughout the 12-month period ended 30 November 2021 except in the case of provisions: • 40 insofar as views were not sought from shareholders and the workforce on remuneration and • 41 insofar as we have not engaged with shareholders on remuneration nor engaged with the workforce to explain how executive remuneration aligns with wider Company pay policy. This is explained on page 79 (Stakeholder Engagement). The table below sets out the where the relevant content on the application of the Code’s principles can be found in this Annual Report. Composition During 2021, Neil Martin became CEO and David Brooks retired from the Board. Mark Berry was appointed Chief Financial Officer and Executive Director and Charles Bligh was welcomed as a new Non-Executive Director. My retirement was also announced and Helen Stevenson will take over as my successor with effect from 16 February 2022. These appointments were made after extensive search processes and the appointees bring skills and experiences that are valuable and complementary to the Board. For further information on how the Board managed succession during the past year, see the Nomination Committee Report. Effectiveness During a year dealing with significant change to the Board and the impact of the COVID-19 pandemic, the Board has performed well and this was reflected in the feedback during the Board evaluation this year. Further information is contained in this Corporate Governance Report. Stakeholders RM believes strongly that the long-term success of the Company is linked to ensuring accountability, transparency and fairness in dealings with stakeholders. The strength of the Company’s relationship with its suppliers has helped the business to continue to provide goods and services to RM’s customers during the pandemic. The relationships the business has with other stakeholders has also been important, particularly when the Company moved to protect its cash position by suspending shareholder returns. You can read more about RM’s engagement with shareholders on page 66. John Poulter Chairman 14 February 2022 1. Board Leadership and Company Purpose A: Leadership, long-term success, value generation and societal contribution Purpose, Values and Culture (20-21) Throughout the Sustainability Report (40-54), Corporate Governance Report (58-68) and Remuneration Committee Report (77-96) there are descriptions of how the long-term sustainable success of the Company and its contribution to wider society is promoted and shareholder value generated. B: Purpose, values, strategy and culture Purpose, Values and Culture (20-21) Purpose and Culture (64) Major Activities of the Nomination Committee (99-100) C: Resources and controls D: Stakeholder engagement Resources (12) KPIs (18) Managing our Risks (25) Internal Controls (67-68) Review of Risk Management (73-74) Stakeholder Engagement (65-67) Section 172(1) Statement (22-24) E: Workforce policies and practices Remuneration Policy and Stakeholder Engagement (79-80) 2. Division of Responsibilities F: The Chairman Whistleblowing (54) Employee Stakeholder Engagement (65-66) Board of Directors (60) Roles (61) Board Evaluation (62-63) G: Board composition and division of responsibilities Board of Directors, Board Committees (60-61) Roles (61) Directors’ Conflicts of Interest and Independence (63) H: Role and time commitment of non-executive directors Board of Directors (60) Board Attendance (62) Committee Attendance (70, 78 and 98) Roles (61) Directors’ Conflicts of Interest and Independence (63) I: Board function and the company secretary Board of Directors (60) 3. Composition, Succession and Evaluation J: Board appointments and succession planning K: Board and committee skills, experience and knowledge L: Board evaluation 4. Audit, Risk and Internal Control Nomination Committee Report (99-100) Board Diversity and Inclusion Policy (64) Board Tenure (62) Board Composition (101) Board Evaluation (62) M: Internal and external audit independence and effectiveness Internal Controls (67-68) Audit Committee Report (70-74) N: Fair, balanced and understandable assessment of position and prospects O: Risk management, internal control framework and principal risks Statement of Directors’ Responsibilities (107) Managing our Risks (25) Principal Risks and Uncertainties (27-31) Internal Controls (67-68) 58 59 CORPORATE GOVERNANCE5. Remuneration P: Remuneration policies and practices Remuneration Committee Report (77-96) Q: Executive remuneration Remuneration Committee Report (87-91) Remuneration Policy, Stakeholder Engagement (79-80) R: Independent judgement and discretion in remuneration outcomes Discretion (80) BOARD OF DIRECTORS The Board consists of the Chief Executive Officer, Chief Financial Officer and five Non-Executive Directors including the Chairman. The Chairman was considered independent on appointment. The Board considers all the Non-Executive Directors (including the Non-Executive Director starting in the last 12 months) 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 judgement (see further discussion in the Directors’ Conflict of Interests and Independence section below). The Directors bring to the Board a wide range of financial and business skills and extensive experience and knowledge suited to the nature of the Company. The Board of Directors meets regularly on a formal basis and holds additional ad hoc meetings as necessary to review strategic, operational and financial matters, including proposed acquisitions and divestments. It has a formal schedule of matters reserved to it for decision-making. Those matters include the approval of interim and annual Financial Statements, the annual budget, significant Stock Exchange announcements, significant contracts and capital investment. It also reviews the effectiveness of the internal control systems and principal risks of the Group. The Chairman holds meetings with the Non-Executive Directors without the Executive Directors present in circumstances where it is considered appropriate to do so. A forward agenda for the Board is maintained to ensure that all necessary and appropriate matters are covered during the year. The Board is provided with accurate, timely and clear information. As part of the Board pack prepared for each meeting, the Board receives monthly management accounts and operational reports from the CEO, CFO and General Counsel and reports from other members of the Executive and the Group. The Board is also provided with specific reports on key areas and projects and informed of any key developments or issues that require their consideration. These reports and updates cover a wide range of matters in order to ensure that policy, practices and behaviour in the Group are aligned with the Company’s purpose, values and strategy and any issues that may give rise to concerns are brought to the attention of the Board. During the year, reports were presented on various matters including regular updates on the development of the new national warehouse and the delivery of the new internal IT systems. Further information on other reports it received are in the Stakeholder Engagement report below. The Board requests further information on any matter that they consider relevant, which may include ongoing updates, assurance as to the proposed actions to resolve such matters and information on corrective actions taken. This year this has included IAS38 treatment of project costs, environmental matters and further information on various health and safety issues in connection with the pandemic. Any concerns about the operation of the Board or the management of the Company that cannot be resolved are recorded in the Board minutes. All Directors have access to the advice and services of the Company Secretary, and all the Directors are able to take independent professional advice, if necessary, at the Company’s expense. All Directors are appointed for a defined term subject to annual re-election by shareholders at each Annual General Meeting. BOARD COMMITTEES The Board has delegated authority to three committees: Audit, Remuneration, and Nomination, the Executive Directors are not members of these Committees. The Terms of Reference for each Committee setting out their responsibilities are available on www.rmplc.com. For each Committee, information on their composition and activities is provided in the respective reports. The Board The Board is collectively responsible for the sustainable long-term success of the Group. The key roles of the Board are: • Setting the strategic direction of the Group to promote the long-term sustainable success of the Company, generate value for shareholders and contribute to wider society. • Overseeing implementation of the strategy and ensuring that the Group is suitably resourced to achieve its objectives and effectively engages with stakeholders. • Overall responsibility for the management of risk and for reviewing the effectiveness of the framework for internal control and risk management. Chairman Senior Independent Director Non-Executive Directors • Responsible for overall leadership and • Deputises for the Chairman and acts • Share full responsibility for the governance of the Board, effective as intermediary for other Directors, execution of the Board’s duties. contribution from Non-Executive if needed. • Scrutinise and constructively Directors and ensures constructive • Meets with the Non-Executive Directors, challenge strategic proposals and relations between Executive and Non-Executive Directors. without the Chairman present, when considered appropriate, hold management to account • Offer specialist advice and • Sets the agenda, ensures adequate and leads the appraisal of the strategic guidance time is available for discussion of Chairman’s performance. • Monitor the performance of agenda items, promotes a culture • Available to respond to shareholder management on an ongoing basis of openness and debate at Board concerns if not resolved through the meetings and ensures directors receive normal channels accurate, timely and clear information. • Provides support and advice to the CEO. • Ensures effective communications with shareholders. Audit Committee Remuneration Committee Nomination Committee • Oversees and monitors the • Reviews and recommends the • Reviews the structure, size and Group’s Financial Statements, framework and policy for the composition of the Board and accounting processes and audits remuneration of the Executive Directors its Committees. (internal and external) and senior executives. • Identifies and nominates suitable • Ensures that risks are identified and • Reviews workforce remuneration and executive candidates to be appointed assessed, and that sound systems of related policies. to the Board. risk management and internal control • Considers how the remuneration • Considers wider aspects of are in place policy supports the business strategy succession planning. • Reviews matters relating to fraud and of the Group. whistleblowing reports Group Chief Executive Officer (CEO) • Responsible for the executive management of the Group as a whole and delivering the strategic and commercial objectives agreed by the Board. • Leads the Executive management team. • Maintenance and protection of the Group’s reputation. • Ensures the affairs of the Group are conducted with the highest standards of integrity. • Builds positive relationships with the Group’s stakeholders. 60 61 CORPORATE GOVERNANCEVicky Griffiths is a partner at Independent Search Partnership (‘ISP’), which was engaged during the period in the search for a new Non-Executive Director. The Board does not consider this has impaired, or impairs, the independence of Vicky Griffiths, owing to the fact this firm has only been engaged once by RM and the fees relating to this engagement were non-material and in any event Vicky agreed not to receive any element of the fees as a partner at ISP. Vicky Griffiths did not participate in the decision to use ISP. There were no other conflicts of interest identified. None of the independent Non-Executive Directors nor the Chairman have 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 judgement. ESG See the various sections covering Environmental, Social and Governance matters in the Company’s Sustainability Report on page 40 to 54. BOARD ATTENDANCE INDUCTION A number of practical suggestions were made with regard to: The Board has 11 scheduled meetings a year. A record of attendance for each Director is set out in the table below. Additionally, there were several ad hoc meetings held by the Board during 2021 to discuss the impact of the COVID-19 pandemic. Board meetings were mostly held virtually for the majority of the year due to COVID-19 social distancing requirements. The Board also approved a number of matters during the year by written resolution. Board meetings No. of meetings held in the period/Eligible to attend John Poulter 11/11 Mark Berry (from 20 September 2021) Charles Bligh (from 2 July 2021) David Brooks (until 1 April 2021) Paul Dean Vicky Griffiths Patrick Martell Neil Martin 3/3 4/4 2/2 11/11 11/11 11/11 11/11 All Directors received papers for all meetings in advance. When a Director was unable to attend a meeting, they were given the opportunity to provide comments. The Board ensures that, on appointment and thereafter, all Directors have sufficient time to carry out their duties. No Director should undertake additional appointments without the prior approval of the Board. No significant appointments have been undertaken by a Director in the year ended 30 November 2021. BOARD TENURE Details of the tenure of the members of the Board as at the date of this report are set out in the table below. Tenure 0-2 years 2-5 years 5+ years Percentage of Board 43% 14% 43% All Directors receive an induction on joining the Board. Charles Bligh and Mark Berry joined the Board this year and met with all Board Directors, members of the Executive and other relevant employees individually. They also received comprehensive resources on Board activities and Company documents such as Committee Terms of Reference, Delegation of Authority and Group structure. Visits to Company sites have not been feasible due to COVID-19 restrictions for much of the year but they participated in a visit to the new distribution centre at Harrier Park where they met with members of the RM Resources Division. BOARD EVALUATION The performance of the Board, each Board Committee and each Director is reviewed on an annual basis. A review was conducted at a meeting in November 2021. The principles and provisions of the Code and Guidance on Board Effectiveness were covered. The performance of the: • Chairman was assessed by the Non-Executive Directors, led by the Senior Independent Director; • Chief Executive Officer was assessed by the Chairman, in consultation with the other Non-Executive Directors; and • Chief Financial Officer was assessed by the Chief Executive Officer, in consultation with the Chairman and other Non-Executive Directors. As a result of these reviews, it is considered that the performance of each of the Directors continues to be effective and that each Director demonstrates sufficient commitment to their role, enhances the collective effectiveness of the Board, acts with integrity, leads by example and promote the desired culture. Communication during the COVID-19 pandemic was felt to have continued to be good but that it had impeded the Board’s effectiveness. A number of additional meetings have been held due to the pandemic. Relationships between Directors were considered to be positive with an open and collaborative Board culture and that members worked together to meet objectives. The Board reviewed its composition and diversity. The Committees were also reviewed and overall were felt to function well. The Chairman is highly regarded by other Directors and encourages constructive debate and his knowledge of the Group was valued. The Chairman also reviewed the performance of each member of the Board. • finding more time for the Board to spend together face to face particularly given the number of relatively new members and the enforced distance as a result of COVID-19; • greater discussion on climate and sustainability plans and strategies for the Company; and • further discussion on the broader competitive marketplace for each Division to ensure a common understanding of the complexity and landscape in which they compete. The improvements suggested in the Board evaluation last year on the running of meetings were felt to have been implemented. An external facilitated Board evaluation was considered but it was felt it would not be useful given the recent changes to the Board and retirement of the Chairman. EXECUTIVE COMMITTEE The Executive Committee is chaired by the Chief Executive Officer. The Executive Committee comprises the Chief Executive Officer, Chief Financial Officer and other senior managers within the Group. The Executive Committee normally meets on a monthly basis to discuss policy and operational issues. Those issues outside the Executive Committee’s delegated authority levels set by the Board are referred to the Board for its decision. All Non-Executive Directors are invited to attend the Executive Committee meetings. DIRECTORS’ CONFLICTS OF INTERESTS AND INDEPENDENCE There are procedures in place to identify, authorise and manage any conflict of interest of any Director with those of the Company. These procedures have operated effectively during the year. Charles Bligh is the CEO of Restore plc, which is a supplier to RM of scanning and associated services. Further to the considerations of the Board, as detailed on page 99, the Board considered Charles to be independent on his appointment in July 2021. The Board believes that, since his appointment, Charles has constructively challenged matters that come before the Board and the Committees on which he serves, and effectively holds management to account. Accordingly, the Board is satisfied that Charles demonstrates the qualities of independence in carrying out his duties. The Board will continue to monitor this on an ongoing basis. Additionally, Charles was not involved in any discussions relating to the use of Restore plc or that specifically affected Restore’s relationship with RM. 62 63 CORPORATE GOVERNANCEBOARD DIVERSITY AND INCLUSION POLICY The Board is committed to ensuring appointments to the Board promote diversity and an inclusive culture so that it has the range of perspectives, experiences and backgrounds necessary to support good decision making. Diversity and inclusion are embraced at all levels in RM and are reflected in the Company’s culture and values which will help deliver RM’s strategic objectives. The Board recognises the following objectives Objectives Aim to achieve: (i) (ii) female members representing 33% of the total Board membership; and increased ethnic diversity, within the context of current Board size. Action taken Currently there is one female Board member but the new Chair will increase this to two when her appointment commences on 16 February 2022 which will be equivalent to 29% of the Board. Currently, there is no Board member from an ethnic minority background on the Board. Diversity has been and will continue to be an area of focus in future Director searches. A focus on diversity in succession planning and when seeking to make Board level appointments. Diversity was a key consideration in each of the appointments made this year. To consider composition and diversity as part of its review of effectiveness in the Board evaluation. These matters were considered in the 2021 Board evaluation. To make key diversity and inclusion information about the Board, senior management and its wider employment population available in the Annual Report. Over recent years there has been a substantial increase in the number of female senior managers across the business, data on this is shown on page 49. Data on other aspects of diversity to help with transparency is being collected where individuals consent to us doing so. Further information including diversity statistics is in the Sustainability Report on page 49. PURPOSE AND CULTURE The Board is responsible for the Company’s purpose, values and strategy and for satisfying itself that these and its culture are aligned. The Board monitors this in various ways: • The reviews presented at each Board meeting highlight matters that show how the Company is pursuing its purpose and are indicators of the health of the Company’s culture. This includes metrics and updates on workforce matters including figures on workforce changes and feedback from workforce engagement, details of whistleblowing reports, health and safety statistics on incidents and performance updates, legal compliance activities, and reports on any regulatory matters and disputes that have arisen. • Whilst site visits have been limited in the last year, the Board has visited the new Harrier Park distribution centre. This provided the Board with an opportunity to engage with senior managers and other employees to hear their views directly. • The Board received reports on feedback from the Company’s audit of its culture. • The Audit Committee receives reports from internal audits of procedure and practices across the Company providing alerts to issues that could threaten the Company’s culture. • The Remuneration Committee reviews workforce remuneration policies and practices and assesses their alignment with the culture and strategy of the Company. Gender pay reports are reviewed annually to ensure these are consistent with the Company’s values. • The Nomination Committee considers the Group’s diversity and inclusion strategy, practices and progress to ensure it reflects the Company’s values. The Board have also reviewed the Company’s new Code of Conduct which sets out the standards of behaviour expected from employees. This Code of Conduct embodies the culture of the Company and highlights how employees are trusted to comply with this code when acting on behalf of the Company. The Board will receive reports on any activities reported that are not in compliance with this Code. STAKEHOLDER ENGAGEMENT Engagement with the Company’s key stakeholders is vital to building a business that provides valued products and services to its customers, that employees are proud to be part of and that rewards shareholders. The Board takes steps to understand the priorities and needs of stakeholders when setting the Company’s strategy and when making decisions that are most likely to promote the long-term sustainable success of the Company for the benefit of its members as a whole. In doing so, the Board has had regard to the matters set out in Section 172 of the Companies Act 2006. Examples of some of the principal decisions taken by the Board during the year are set out below: - Customers Customers are central in setting the strategy and direction for the Company and this is reflected in the strategic objectives to ‘Reach more customers’ and ‘Improve share of customer spend’. The Company is in regular contact with its customers and strives to better understand their expectations about the products and services that will help customers deliver their educational objectives. This includes the range of products and services RM provides to support teachers in the classroom and the development of examination and assessment software that improves the efficiency and effectiveness of learner assessment. The Board discusses at each meeting any issues arising in relation to the Company’s key customers, the services it provides to them and future changes to those relationships. This year, this has included the impact of increased complexity and delays in shipping due to Brexit, the impact on supply chains due to the COVID-19 pandemic, and a mid-year price increase by the RM Resources business to reflect higher supply costs. The Board has also been briefed on the plans to make the import and sale of goods into the European Union more efficient. The Board further receives regular updates on new customer wins, significant tender process updates and approves all major new contracts. The impact of the COVID-19 pandemic on RM’s customers in schools and examination authorities was considered by the Board regularly during the year. The business continued to supply schools and maintain the IT services of the schools it supports so they could continue to stay open and to help them when they were closed. RM worked with examination authorities when exams were delayed or cancelled to help manage the impact of these decisions. The Company has launched RM Vantage, a new cloud-based proposition for UK schools, to make it easier for pupils to work at school and at home. RM Resources launched new products including the Kitt learning companion robot and the Early Years Projector, which allows children to create, build and explore with light. To ensure that the business continues to understand the changing needs of its customers, the Company undertakes regular UK and global independent market research studies with its customers and others. This helps the business understand customer needs, informs RM’s product development teams of market demands and requirements (especially post COVID-19) and improves the Company’s ability to communicate the benefits of RM’s products and services to its customers. - Employees The Board considers workforce treatment and engagement as an issue of core importance and as key to achieve its strategic objective to ‘Attract and retain talent’. A number of processes have been put in place to assist the Board in monitoring such matters outlined below and in the Workforce section on pages 48 to 51. People at all levels of the organisation are invited to monthly business unit briefings and regular senior leader catch- up sessions with employees which also cover financial updates and other important matters. Employees are given the chance to ask questions and share their views on the business at these meetings and through staff surveys. These have been largely held digitally during 2021 given the difficulty with face-to-face communication. In addition, as a response to the COVID-19 pandemic, an Employee Forum of approximately 40 employees was set up to help review the impact of the pandemic on the business and staff. This Forum has continued this year and seven meetings were held. Key issues raised this year have included diversity and inclusivity, working at home and RM’s new policy on place of work (My Work Blend@RM - see Sustainability Report for further details), the return to work in RM’s offices and the vision for the Company. Feedback from such employee engagements and the Employee Forum were shared with the Board. The Board also visited the new distribution centre at Harrier Park to review progress and talk with members of the RM Resources business about the opportunities and impact of the new facility. 64 65 CORPORATE GOVERNANCE Patrick Martell is the designated Non-Executive Director for workplace engagement. He was appointed as the Board felt this was the best approach to engage with different parts of the workforce, in order to provide feedback to the Board from employees and this has been found to have been successful. He was appointed in this role as it was felt that the longevity of his tenure as a Non-Executive Director and his position as Chair of the Remuneration Committee and Senior Independent Director would be helpful. Patrick agreed a timetable of activities to engage with employees in different settings and with employees across the organisation during the year. In this role, Patrick has met with groups of employees in various formats including the Employee Forum and the Senior Leadership Team to hear about and discuss their experiences of working at RM. These meetings have had to be virtual given the impact of the COVID-19 pandemic. Patrick is supported by HR in the preparation for these meetings and in putting the agenda together. Patrick reports back to the Board on the outcome of these discussions to help provide an insight into employee challenges, views and priorities. This feedback has been helpful in Board discussions and decision-making in connection with the workforce as well as strategic business planning. The health and safety of employees is of paramount importance to the Board. The Board receives quarterly reports on health and safety which cover key measures taken and details of material incidents and trends. Updates on the health and safety processes at the new distribution centre at Harrier Park have been regularly provided to the Board. The Board has also been keen to understand how health and safety measures have been maintained at the distribution centres that are closing down. Employee concerns about working in the distribution centres and returning to offices were listened to which influenced the measures taken and communication of those measures to employees. In India, in response to employee concerns, vaccinations were organised and funded for staff and facilities, and oxygen concentrators were available to help staff suffering from COVID-19. In response to the pandemic, as part of prioritising the wellbeing of employees, RM set up a Mental Health Network. This is a group of Mental Health First Aiders and Champions who are available to all employees for a confidential conversation about how they are feeling and to direct them to further help and support as necessary. Weekly wellbeing and mental health virtual drop-in sessions were also set up. These are initiatives led by employees, with the Company’s support, to help other employees with mental health issues. There is an online portal with information and access to online courses to help build resilience. All employees have access to an Employee Assistance Programme provided by Aviva which offers access to a confidential helpline 365 days/24 hours with online support and guidance, face-to-face counselling and specialist bereavement counselling available if required. During the COVID-19 pandemic, employees have been provided with equipment to help them work from home and training was made available to help employees understand the health and safety aspects of homeworking. Distribution Centres have remained in operation throughout the pandemic and they have maintained the reconfigured processes that enable social distancing even after lock-down was lifted. The Board have received updates throughout the year on how COVID-19 was affecting employees and the steps taken to support them. No employees were on furlough during the year. - Shareholders The Annual General Meeting is attended by all Board members and provides an opportunity for shareholders to ask them questions directly. Due to the COVID-19 restrictions, attendance at the last AGM was difficult; shareholders were given the opportunity to raise questions in advance and invited to attend a listen-only conference call of the event. Each of the Directors were available to speak with institutional shareholders on request. During the year, virtual investor events and results conference presentations were held by the Executive Directors to speak to shareholders directly about RM’s strategy and performance. In order to maintain dialogue with institutional shareholders, the Executive Directors offer to speak with shareholders following interim and final announcements of results, and otherwise, as appropriate. Key shareholder publications include the full and half year results announcements and press releases as well as information on the RM website. The Board is kept appraised of the views of major shareholders and market perceptions by the Executive Directors and Chairman respectively, following meetings held with shareholders, its brokers and advisers and reports provided by them. Shareholder feedback this year has covered performance, strategy, dividends, succession and the impact of COVID-19, and this forms a part of the discussions at Board meetings. The Company also receives enquiries from shareholders during the year on a wide range of subjects including this year, the use of AI in RM’s products. The business individual responds to these. The appropriate level of the final dividend to shareholders was given significant consideration by the Board, taking into account the differing expectations expressed by shareholders, as was the decision to request that shareholders do not attend the Annual General Meeting. The Board also receives regular updates on shareholder register changes and analyst communications. - Suppliers and Partners Regular review meetings are held with strategic suppliers at least quarterly to review performance and potential opportunities for improvement in how both RM and its suppliers work together, in order to achieve RM’s strategic objective of ‘Operational excellence’. Potential new suppliers who may offer a sales opportunity for a new product, additional production options, a new version of a product or new service, or cost saving are reviewed for capacity to deliver expected volumes, quality, innovation, financial solvency, regulatory compliance and ethical position. Suppliers are also assessed to identify potential risks through the lifecycle of a contract and to highlight those suppliers in respect of whom further due diligence is required. The Resources Division, which handles the majority of suppliers, requires its suppliers to accept its Supplier Code of Conduct and to commit to labour practices such as: • no child labour; • no forced labour; • no discrimination in hiring and employment practices on the basis of race, religion, ethnicity, gender, age, marital status, sexual orientation, disability union membership or political affiliation; • fair wages and limits on working hours; • humane treatment; • freedom of association; and • safe working conditions. This Code is being reviewed and it is intended the new version will apply to all RM suppliers. The Board approves material supply contracts and were briefed on the tender process and the different bidders for the new freight provider (further details in the Section 172 Statement on page 22), the supply chain challenges caused by the COVID-19 pandemic and Brexit, and the impact on deliveries from suppliers and to customers in the EU. RM supported its suppliers in a number of ways during the pandemic including easier payment for those with cash flow difficulties during difficult supply chain periods, using the Company’s warehouse space for supplier stock when third-party warehousing space was tight and making commitments to give them business security and plan production more easily. In some jurisdictions, RM partners with local businesses to support local customers and provide a more locally orientated service. The Company works closely with such partners to understand the local market and discuss how RM’s products could benefit potential customers in that market and working collaboratively. Supplier reviews and audits are made to help ensure RM’s supply chain is not involved in or connected in any way to modern slavery. The Board received a report on this and has approved the Modern Slavery Statement, which is regularly reviewed and available on the Company’s website. The Board reviews and discusses the six monthly payment practices reports for all subsidiaries; the figures are available to view at Companies House. - Environment/Community The Company continues to be a trusted and reliable partner to schools, nurseries and other educational organisations across the UK and increasingly around the world. It was important therefore during the pandemic for the Company to ensure that its customers continued to receive the goods and services they required to stay open and that it did so in a safe way for the benefit of schools, students and the community. Customer expectations regarding environmental considerations in connection with the goods and services RM provides is taken into account and has led to or influenced some of the initiatives discussed on page 42 and is therefore important to the Company’s strategic objectives to ‘Reach more customers’ and ‘Increase share of customer spend’. Further information on the activities that RM and its employees have engaged in over the year to support communities and in furtherance of its environmental objectives is set out in the Sustainability Report. 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 Code, 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 main risks faced by the Group are set out in the “Principal Risks and Uncertainties” table in the Strategic Report. The Group is committed to mitigating risks arising wherever possible. Internal controls that are considered, applied and monitored appropriately, are an essential tool in achieving this objective. 66 67 CORPORATE GOVERNANCEThe key elements of the framework for the Group’s internal control, which have been effective during 2021 and up to the date of approval of the Financial Statements, are set out below: • 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 appropriate operating and financial policies. The Directors have overall responsibility for establishing financial and other reporting procedures to provide them with a reasonable basis on which to make proper judgements as to the financial position and prospects of the Group, and they 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 of delay. However, systems of internal financial control can provide only reasonable and not absolute assurance against material misstatement or loss. The main features of the Company and Group’s systems of internal financial control and risk management include: • A financial planning process with an annual budget approved by the Board. • Regular budget updates including updated forecasting for the year. • Monthly comparison of actual results against budget. • Written procedures detailing operational and financial internal control policies which are reviewed on a regular basis. • An internal audit function overseen by the Group Financial Controller. • Regular reporting to the Board on treasury and legal matters. • Defined investment control guidelines and procedures. • Regular reviews by the Executive Committee of the Group’s systems and procedures, the principal risks facing the Company and the steps taken to mitigate and address those risks. • Periodic reviews by the Board of the principal risks facing the Company and mitigating actions as noted above, as well as of the Group’s systems and procedures to identify and address those risks. • Strategic planning that anticipates both opportunities and any resource challenges. 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. In assessing effectiveness, the Audit Committee reviewed a report from management that enabled them to assess: • • • • the inherent internal control system weaknesses (such as formalised automated linkages between the many systems, reliance on off system calculations for certain revenue recognition) and how these are addressed by appropriate management review and detailed process and outcome checks, internal audits and external audit findings (on a substantive based audit approach); the consolidated risk register review carried out across the Group and management’s actions to address risks; the content of whistleblowing reports; and the impact of planned improvements to controls in particular the new Group IT system, enhanced plan of internal audits and the set-up of a new Group Risk Committee. In relation to the new finance ERP system, the range of control requirements that are defined in the new system are based on improvements to the current system and best practise. The system is tested by key business users. Progress on the new system is tested and reported to the Steering Committee (comprising selected members of the Executive and other key stakeholders) who report highlights to the Board. The key details of the improvements planned in this new system are increased automation and system generated reporting on key performance metrics and exceptions and which were detailed in the report referred to above. Both the Board and Audit Committee have reviewed the operation and effectiveness of this framework of risk management and internal control for the period and up to the date of approval of the Annual Report and are satisfied with its effectiveness. Further details are provided in the Strategic and Audit Committee Reports. 68 69 CORPORATE GOVERNANCEAUDIT COMMITTEE REPORT On behalf of the Board, I am pleased to present the Audit Committee Report for the year ended 30 November 2021. THE AUDIT COMMITTEE The Audit Committee (‘Committee’) operates under terms of reference approved by the Board. These can be found on the Group’s website at www.rmplc.com. COMMITTEE MEMBERSHIP AND ATTENDANCE The Audit Committee during the year ended 30 November 2021 comprised Paul Dean FCMA (Chairman), Vicky Griffiths and Patrick Martell, all of whom were independent Non-Executive Directors. The Group considers that Paul Dean (as a Chartered Management Accountant and former FTSE250 Finance Director) has significant recent and relevant financial experience, as further described in the Directors’ Biographies section of this Annual Report. To encourage effective communication, in addition to the above members, the Board Chairman (John Poulter), the CEO (David Brooks and after his resignation Neil Martin), the CFO (Neil Martin and after his appointment as CEO, Mark Berry), Charles Bligh (Non-Executive Director), Group Financial Controller (Jo Bridgman) and other management are invited to attend the Audit Committee meetings as appropriate. The Audit Committee met three times during the period, attendance is set out below. All of these meetings were part of the regular schedule of meetings set out in the Committee’s Terms of Reference. These meetings are planning around the Company’s financial calendar. No. of meetings held in the period/Eligible to attend Paul Dean Vicky Griffiths Patrick Martell 3/3 3/3 3/3 Audit Committee meetings have formal agendas, which cover all of the areas of responsibility set out in the Committee’s Terms of Reference and also include an evaluation of the Audit Committee. These agendas include meetings with the external auditor without Executive Directors or managers of the Company present. ROLES AND RESPONSIBILITIES FINANCIAL REPORTING Matter considered: Long-term revenue recognition The Audit Committee is responsible for carrying out the audit functions as required by DTR 7.1.3R and assists the Board in fulfilling its oversight responsibilities in respect of the Company and the Group. The Committee’s responsibilities include: Financial reporting To review the reporting of financial and other information to the shareholders of the Company and to monitor the integrity of the Financial Statements, including the application of key judgements and estimates and to ensure their application is presented in a fair, balanced and understandable manner. Risk management, internal control and compliance To review and assess the adequacy of the systems of internal control and risk management, and monitor the risk profile of the business. Internal audit To approve the internal audit plan. Review the effectiveness of the internal audit function and review all significant recommendations and ensure they are addressed appropriately and in a timely manner. External audit To review the effectiveness and objectivity of the external audit process, assess the independence of the external auditor and ensure appropriate policies and procedures are in place to protect such independence. Effectiveness To report to the Board on how it has discharged its responsibilities. Financial Statements The Audit Committee reviewed the form and content of the Annual Report and the interim results prior to their publication to provide assurance that the disclosure made in the Financial Statements was properly set in context. The Audit Committee reviewed and considered the following areas: • The methods used to account for significant or unusual transactions where different approaches are possible. • Whether the Group has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the Company’s auditor. • The consistency of, and any changes to, accounting policies both on a year-on-year basis and across the Group. • The clarity of disclosure in the Company’s financial reports. • The effect of the IFRIC interpretations of configuration costs on SaaS software development in relation to IAS38 Intangible assets on the accounts of the Group and the key judgements involved. • The supporting assumptions and considerations behind the adoption of the statements relating to going concern and financial viability. • Whether the Company’s financial report is fair, balanced and understandable. As part of this process the Audit Committee received reports from the Company’s management and the external auditor. The external auditor provided its audit opinion along with its audit findings that were of significance in relation to the audit of the annual Financial Statements and a high-level review of the interim Financial Statements. The Audit Committee reviewed these reports with the external auditor. The significant areas of judgements and estimates identified by the Committee, in conjunction with management and the external auditor, together with a number of areas that the Committee deemed significant are as follows: In long-term customer contracts the arrangements are often complex, particularly with respect to variable consideration and service performance measures. These contracts can involve significant judgements that may impact the recognition of revenue including: • The identification of performance obligations included within the contract • The allocation of revenue to performance obligations including the impact of variable consideration • The combination of goods and services into a single performance obligation • The measurement of progress for performance obligations satisfied over time • The consideration of onerous contract conditions and associated loss provisions Audit Committee action The Audit Committee received papers which included regular updates on the key judgements and estimates arising out of the more complex and significant contracts in respect of IFRS15, which in the period have related to Assessment contracts. The Committee is also provided with a regular update on any significant new contracts throughout the business and the types of performance obligations and judgements identified in these contracts. Outcome The revenue recognition policy includes the disclosure of the significant judgements and estimates in relation to its application and the Committee is satisfied that these have been properly disclosed. The Committee is satisfied that the disclosures given within the accounts are sufficient to gain a proper understanding of the methodology of accounting for revenue across the Group, including the recognition of deferred income at the balance sheet date. The revenue recognition policy has been updated to provide enhanced clarification of our policy following external audit review. 70 71 CORPORATE GOVERNANCEMatter considered: IAS38 capitalisation of capital projects Matter considered: Carrying value of goodwill and intangibles APPOINTMENT OF EXTERNAL AUDITOR The Group has invested in two significant capital projects, RM’s new automated warehouse (primarily comprising tangible fixed assets) and the new ERP solution (comprising intangible assets). These programmes represent significant cash investment projects and it is important that only items that meet the capitalisation criteria are treated as fixed assets, with appropriate useful economic lives. Audit Committee action The Audit Committee has reviewed management papers that set out the approach to capitalisation and the adjustments made in light of the IFRIC interpretation issued during the year. The Audit Committee has reviewed the disclosures in the Annual Report and the revised accounting policy. Outcome The Audit Committee is satisfied with the treatment of capitalised intangibles particularly with respect to RM’s ERP programme and believes the disclosures in the Annual Report allow the reader to obtain a good understanding of the nature of the adjustments made, and to understand the Group’s revised accounting policy with respect to capitalisation. Matter considered: Defined benefit pension scheme valuations The measurement of the defined benefit liability in respect of the defined benefit schemes within the Group is a complex area, relying on assumptions on inflation, mortality, corporate bond yields, expectations of returns on assets amongst other assumptions. There is a risk that any one assumption could lead to misstatement of the Group’s liability in respect of these pension obligations and the pension charge or movement recognised in the income statement or statement of comprehensive income. Audit Committee action The Audit Committee reviewed the disclosures presented in the Annual Accounts. They also challenged the key assumptions and reviewed the sensitivity to changes in some of the key assumptions and reviewed where those assumptions lie in the context of other companies. Outcome The Audit Committee is satisfied that the estimation of the Group’s pension liabilities and the narrative that accompanies them gives the required level of information for the reader of the accounts to determine the impact on the Group of its pension obligations. The Group carries significant asset balances in respect of goodwill and intangible assets related to acquisition activity. In addition, the parent Company carries a material balance of investment in subsidiaries on its Financial Statements. The impairment assessment requires the application of judgement concerning future prospects and forecasts. Audit Committee action The Audit Committee has reviewed the robustness of the impairment model and challenged the appropriateness of assumptions used to calculate and determine the existence of impairment. Outcome The Audit Committee is satisfied that no impairment of goodwill or intangibles was recognised in these statements which is in line with expectations given the assessment was based on board-approved future projections. The Audit Committee is also satisfied that the sensitised value in use outcomes have significant headroom before impairment would need to be considered and as such have not disclosed sensitivity analysis in the Annual Report. Management reported to the Committee that they were not aware of any material misstatements. The auditor reported to the Committee that they had not found any material misstatements in the course of their work. The Audit Committee was also satisfied that the significant assumptions used for determining the value of assets and liabilities had been appropriately scrutinised, challenged and were sufficiently robust. The Audit Committee, at the Board’s request also considered whether the half year results and the Annual Report were fair, balanced and understandable and whether the information provided was sufficient for the reader of the statements to understand the Group’s position and performance, business model and strategy. The Audit Committee reviewed both the narrative and financial sections of the reports to ensure they were consistent and gave a balanced view of the performance of the business in the year and that appropriate weight was given to both positives and negative considerations. The Audit Committee also considered whether the half Year and full year results announcements were presented clearly. The Audit Committee considered whether the Annual Report and Accounts enables readers to understand the Company’s financial position and prospects, as well as assess its going concern status and longer-term viability. The Audit Committee recommended, and shareholders approved at the Company’s Annual General Meeting on 8 April 2021, the appointment of Deloitte LLP as Group external auditor. This was the first year of appointment for Deloitte LLP. During the prior year the Group conducted a formal competitive and comprehensive audit tender process led by the Audit Committee. The Board approved the Audit Committee recommendation that Deloitte LLP be appointed as external auditor for the financial year ending 30 November 2021. KPMG LLP remained as the external auditor for the financial year ended 30 November 2020. There were no contractual obligations restricting the Group’s choice of external auditor, other than PricewaterhouseCoopers LLP (who were not independent as a result of working on RM’s ERP programme). The Audit Committee are comfortable that the current audit partner from Deloitte is independent from the Group This assessment is based on internal review of relations and confirmation by the audit firm itself. The Audit Committee recommended to the Board (which was subsequently approved) the reappointment of Deloitte be put to shareholders for approval at the 2022 AGM. 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. This includes discussions with the external auditor in relation to areas of key focus and ensuring that the external auditor challenges management appropriately, in particular in relation to matters that require judgement to be exercised. The Independent Auditor’s Report sets out the key external audit risks and how these have been addressed by the external auditor which were discussed with the Audit Committee. The external auditor also reports on other matters such as upcoming regulatory changes, control observations, peer practises. The Audit Committee did not request additional areas to be reviewed by the external auditor. Separately, the external auditor briefs the Committee on new developments that may affect the Company to help ensure that the Company is suitably prepared and up-to-date with all new and forthcoming accounting developments and disclosures. 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 and independence 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 to the Company in doing so. Any significant activity must be approved, in advance, by at least two Audit Committee members. The Audit Committee’s policy is to include a cap on fees for non-audit work of 15% of the annual audit fee (excluding the interim review). In exceptional circumstances it may be appropriate for the auditor to carry out non-audit work in excess of this cap. If this is the case the type of work and the fee is considered very carefully by the Audit Committee in advance of appointing the auditor to the work and with reference to the FRC’s 2019 Ethical Standard. Fees for non-audit work in the period were 11.4% (£49k) of the annual audit fee (or 1% excluding the interim review), which relates to the Banking Facility Covenant Compliance review (£4k) and the Interim Review (£45k). Whilst the Interim Review is not required to be performed by the Auditor, it is common practice to be performed by the Auditor. The Banking Facility Covenant requires an external audit on the covenant compliance and again it is common for this to be performed by the Auditor as there is a significant leverage from the audit work performed for the audit. REVIEW OF RISK MANAGEMENT AND INTERNAL CONTROL As with any business, RM is exposed to risks as an inherent part of creating value for shareholders. As described below, 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 Committee is responsible for monitoring the effectiveness of the Company’s internal system of control. The Committee reviewed and assessed the need to address certain control findings in respect of the process for approving journal entries in the current IT systems and also in relation to formality of controls operating over certain revenue contracts accounted for under IFRS 15. The Committee is satisfied that management has a plan in place to address these findings, in part through the new IT systems, and will review the implementation of this plan in 2022. With the exception of those items referenced above, the Audit Committee is satisfied that the Group’s risk management and internal control processes are effective and 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 Strategic Report. 72 73 CORPORATE GOVERNANCE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 Group-wide approval matrix is in place. 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 Executive Committee which meets monthly. Further details in relation to the processes for identifying and managing Group risks are set out in the Strategic Report and Corporate Governance Report. Public reporting – The Audit Committee reviews and comments upon both the Group’s annual and interim results prepared by management, together with any other trading statements that are issued. Management information – Executive managers are required to produce a budget for approval at the beginning of each financial year and detailed financial reporting is formally compiled monthly and reviewed by the Board. Consolidated management accounts are produced each month and results measured against budget and against the previous year to identify any significant variances. Forecasts are produced each month during the year, with variances to budget being measured. 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. Current system limitations are mitigated by good analytical review controls. The Board are anticipating the new IT systems will improve finance system controls. 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 plan is set with the Audit Committee and updates on progress are provided periodically. The internal audit work is performed on a peer-to-peer review basis or by engaging a third-party firm of accountants and is directed by a qualified accountant who is independent of the business Divisions. INTERNAL AUDIT The Audit Committee approved the continuation of RM’s Group Financial Controller as Head of Internal Audit (Jo Bridgman, Group Financial Controller). For the purposes of this role, the Group Financial Controller reported directly to the Chairman of the Audit Committee. The Audit Committee, with the advice and support of the Head of Internal Audit, sets an internal audit plan, focussed on financial controls and risk areas. The financial controls include controls to address fraud risks (and there have been no material fraud instances during the year). The Head of Internal Audit reports on progress against this plan at Audit Committee meetings. Internal audit activities are undertaken on a peer-to-peer basis, or by contracting a suitably qualified third-party firm of accountants. The external auditor does not rely on internal audit to substitute any audit work required to form their opinion on the Financial Statements. Whilst on-site internal audit activities have been reduced due to COVID-19 pandemic impacts, the Group has continued routine audits that review adherence to the agreed controls and processes in its India subsidiary and have completed audits of RM Technology’s credit note processes, GDPR compliance (performed by external audit firms) and an internal assessment on cyber and information security. We have also produced and approved a more formalised audit plan, whose implementation is in an early stage, that focusses the internal audit activities on the Group’s revised risk review undertaken during the year. ‘WHISTLEBLOWING’ POLICY The Group has adopted a formal Whistleblowing Policy and more details may be found in the Sustainability Report at page 54. 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 Group has implemented policies and procedures to ensure that it is transparent and ethical in all business dealings as referenced in the Sustainability Report at page 51. Paul Dean Chairman, Audit Committee 14 February 2022 74 75 CORPORATE GOVERNANCEREMUNERATION REPORT Part A - Remuneration Committee Chairman’s Statement On behalf of the Board, I am pleased to present the Remuneration Report for the year ended 30 November 2021. This report is divided into the following three sections: Part A – Remuneration Committee Chairman’s statement: which provides an overview of the Report, the functioning and membership of the Remuneration Committee, and the major activities and outcomes for the year ended 30 November 2021; Part B – Directors’ Remuneration Policy: which provides a summary of the Policy and which will continue to apply without amendment for the forthcoming year; and Part C – Implementation Report: which sets out the payments and awards made to Directors for the year ending 30 November 2021 and how the Directors’ Remuneration Policy will operate for the year ending 30 November 2022. THE REMUNERATION COMMITTEE The Remuneration Committee (‘Committee’) operates under Terms of Reference approved by the Board. These can be found on the Group’s website at www.rmplc.com. No Director is involved in deciding their own remuneration. ROLES AND RESPONSIBILITIES The Remuneration Committee is responsible for setting a formal and transparent procedure for developing the Policy on Director remuneration in accordance with the Code. The Committee’s responsibilities include: Reviewing the appropriateness of the Directors’ Remuneration Policy Determining with the Board the policy for remuneration of the Executive Directors, Chairman of the Company and Executive, ensuring the alignment of the Company’s purpose, values and strategy and promoting the long-term success of the Company. Reviewing this policy annually. Setting Remuneration Setting and authorising annually the remuneration of the Chairman, Executive Directors and Executive in accordance with the policy and with due account taken of all relevant factors, such as individual and Group performance and remuneration payable by companies of a comparable size and complexity. Workforce remuneration Reviewing workforce remuneration and related policies across the Group and taking account of this in setting Executive Director remuneration. Incentive Plans Approving all performance related pay schemes, targets set and total annual payments made under these schemes. Reviewing such schemes to ensure these plans are structured appropriately and are consistent. Discretion Determining whether discretion should be exercised to ensure payments are fair. Effectiveness To report to the Board on how it has discharged its responsibilities and making appropriate recommendations. 76 77 CORPORATE GOVERNANCECOMMITTEE MEMBERSHIP AND ATTENDANCE The Remuneration Committee during the year ended 30 November 2021 comprised Patrick Martell (Chairman), Charles Bligh, Paul Dean, Vicky Griffiths, and John Poulter, at such times as they were members of the Board. The members of the Committee comprise the independent Non-Executive Directors and the Chairman of the Board. The Remuneration Committee met six times during the period, attendance is set out below. Meetings were mostly held virtually for most of the year due to COVID-19 social distancing requirements. The Committee also approved a number of matters during the year by written resolution. No. of meetings held in the period/Eligible to attend John Poulter Charles Bligh (from 2 July 2021) Paul Dean Vicky Griffiths Patrick Martell 6/6 2/2 6/6 6/6 6/6 MAJOR ACTIVITIES OF THE REMUNERATION COMMITTEE Impact of COVID-19 on Remuneration The Committee has given careful consideration to remuneration in the context of the continuing COVID-19 environment. No employees have been furloughed or made redundant during the past year as a result of the pandemic and there are no plans to do so. The Committee also considered the difficulty the COVID-19 pandemic has created in setting targets for Executive Directors and Long-Term Incentive Plan (LTIP) performance measures. The Committee were concerned to ensure that targets were stretching and properly rewarded performance and that they were aligned to strategy given the impact on trading during the year ending 30 November 2020. As a result, it was not felt appropriate to include an earnings per share target for the bonus or LTIP. The bonus target was therefore based on adjusted operating profit before interest and tax and further details are on page 80. The bonus proposals for employees were also reviewed to ensure the Executive Directors’ targets were aligned. The LTIP target for all awards granted in 2021 was based solely on TSR, further details are on page 80. The targets for LTIPs for Executive Directors are the same as for other employees granted an LTIP award during the year ended 30 November 2021. No performance targets for any bonus or LTIP awards were altered during the year due to the impact on trading of the COVID-19 pandemic. Director Changes The Committee considered and agreed the remuneration to be given to Neil Martin on his appointment as Chief Executive Officer and Mark Berry on his appointment as the Chief Financial Officer. • The base salary for each role is closely aligned to the base salary paid to their respective predecessor. • Other benefits including retirements benefits are in line with the Remuneration Policy and the same as those given to the majority of other employees. • Bonus and LTIPs are expected to be equivalent to those envisaged for their predecessors although Neil Martin’s initial LTIP award was set at the maximum of 150% of his base salary, further details below. • Further details are in the report. David Brooks whose resignation as Chief Executive Officer was effective on 1 April 2021 was accordingly treated as a Voluntary Leaver for the purposes of the termination policy in the Remuneration Policy and no payments for loss of office were made. Charles Bligh was appointed as a Non-Executive Director on 2 July 2021, his remuneration is in line with other Non-Executive Directors. UK Corporate Governance Code 2018 considerations Throughout the year, the Committee has considered the factors set-out in provision 40 of the 2018 Corporate Governance Code. In the Committee’s view the Company’s Directors Remuneration Policy, approved at the AGM last year, and current practices are consistent with these provisions, except as described in the section called Stakeholder Engagement overleaf. Factors in provision 40 Clarity Simplicity Risk Management RM policy and practice The Remuneration Policy and arrangements for Directors are clearly described each year in the Annual Report. The disclosures related to remuneration, the bonus targets and the performance metrics for LTIPs are clear. This promotes effective engagement with shareholders and the workforce. The Committee is mindful of the need to avoid overly complex remuneration structures which can be misunderstood and deliver unintended outcomes. Remuneration for Directors and the workforce are therefore simple and easily understood. Only a small number of targets are used for bonuses and LTIPs and these are based on the Company’s performance. Bonus and LTIPs awards are linked to performance, have stretching targets with low percentage pay-outs at threshold. The Committee has broad discretion to reduce bonuses if it does not consider the formulaic outcome to be appropriate in the circumstances and malus and clawback provisions can also be operated where appropriate. Proportionality The Committee takes account of underlying business performance and the experience of shareholders and other stakeholders when determining outcomes to ensure poor performance is not rewarded. The Committee also considers the wider workforce pay and policies. The report includes scenario charts showing the potential pay-out at various levels and all awards are subject to maximum levels as set out in the Policy. Metrics for awards are closely aligned to strategy. The Shareholding Policy and holding periods provide a clear link to long-term performance and shareholder alignment. Predictability Alignment with Culture The remuneration is designed to support strategy and long-term sustainable success. The performance metrics chosen for variable pay were selected to take into account the impact of the COVID-19 pandemic on performance. They were designed to support the strategic objectives and long-term sustainable success by rewarding profitable performance in the short-term and to incentivise profitable sales during a time of disruption to schools and exams and share price performance in the longer term. Remuneration Policy The Remuneration Policy was approved at the AGM on 8 April 2021. It was approved by shareholders with 87% of shares voted in favour. The Policy will remain in force until a revised policy is approved by shareholders at the AGM in 2024 at the latest. The Policy is shaped by the principles in provision 40 of the Code. Stakeholder Engagement During the year, we did not fully effectively engage with shareholders or the workforce on Executive Director remuneration matters. This was because: • Employees did not raise any concerns as to the alignment of Executive Director remuneration through any of the employee engagement channels, including via engagement with the designated Non-Executive Director during the year. ◌ The Company’s approach to pay reviews and bonuses across the Group in 2021 were shared with employees. Employees were given the opportunity to provide feedback and feedback was received from employees and employees receive communications through a variety of channels including regular colleague briefings and the Group’s Employee Forum but feedback was not obtained on alignment with Executive Directors remuneration. • Following the approval of the Remuneration Policy at last year’s AGM, shareholders have not raised with the Company any concerns with regard to Executive Directors’ remuneration. ◌ Investor feedback received by relevant Directors during the year on Director remuneration has been broadly supportive. ◌ The Chairman of the Remuneration Committee was available to discuss remuneration with shareholders should it have been required. 78 79 CORPORATE GOVERNANCE• The Remuneration Policy was approved last year and no change is proposed, in addition: ◌ there were no pay rises for or bonus payments to Executive Directors during the year; ◌ Executive Director benefits and pension entitlements are still the same as for the majority of the workforce; and ◌ with the resignation of David Brooks as CEO, each of the new CEO and CFO appointed during the year were offered remuneration packages closely based on their predecessors. Engagement with shareholders and the workforce on Executive Director remuneration is planned during 2022 and will be part of shareholder meetings with the new Chairman. Consideration of Workforce Remuneration, Policies and other Measures The Committee considered workforce remuneration and policies and their alignment with rewards and incentives offered in Executive Director remuneration and was regularly updated on employee pay and benefits throughout the Group. During the year, the Committee reviewed various internal measures including pay ratios and pay gaps in reviewing salaries and variable pay. I have given feedback on the interactions I have had with employees as the designated Non-Executive Director for Employee Engagement. The impact of the new Labour Code in India has been reviewed and discussed by the Board. Advisers No remuneration consultants were engaged during the year. Benchmarking data on Executive Remuneration in the FTSE SmallCap market data provided by a specialist executive remuneration consultancy was reviewed and the Company is broadly aligned with the lower quartile for FTSE SmallCap companies; no fees were paid for such data and the consultants do not have any other connection with the Company or individual Directors. The Committee is satisfied the data is objective and independent. LTIP Awards On 16 March 2021, the LTIP award granted in March 2018 vested. The performance against the targets for that award were significantly impacted by the effect of the COVID-19 pandemic. The Earnings Per Share target was not met but the TSR performance resulted in a partial satisfaction of that target. The Committee approved the vesting of the 2018 LTIP awards in line with the satisfaction of performance targets. The award vested at 38.5% and the Board did not consider that they needed to exercise any discretion to alter that outcome. Further information relating to the vesting of that award is set out in paragraph 1 of Part C of this report. The Committee approved the grant of LTIP awards to senior members of the workforce on 22 March 2021. The award made to Neil Martin as the newly appointed CEO was equivalent to 150% of base salary, as permitted by the Policy. While the Committee recognises that 150% is a higher level, than granted in previous years, it considered this level to be necessary and appropriate to secure his appointment to the role at that time. The Committee also approved the grant of further awards on 10 August 2021 and 7 October 2021 to newly recruited senior employees including one award to the Chief Financial Officer. The award made to Mark Berry as the newly appointed CFO was equivalent to 93% of base salary, as permitted by the Policy. The Committee considered this level to be necessary and appropriate to secure his appointment to the role at that time. 2022 Pay Approach The Committee reviewed the base salary levels for the Executive Directors after considering workforce remuneration. Pay rises have not yet been awarded to Executive Directors for 2022. The average pay raise across the wider UK workforce was 2.5%. Bonus award for 2021 A bonus of 35.8% of base salary was paid to Executive Directors for the year ended 30 November 2021 after considering the bonuses to be paid to the wider workforce. Neil Martin’s bonus was based on his respective base salary during the year. Mark Berry’s bonus was pro-rated for his time in the role. Discretion The Board did not exercise discretion with regard to Directors’ remuneration outcomes during the year as it was felt the Remuneration Policy and targets set for bonuses and LTIPs worked as intended given performance during the year of the individuals and the business and experience of shareholders, employees and other stakeholders. The Committee approved the Directors’ Remuneration Report for the 2021 Annual Report and Accounts. During the period, neither the Chief Executive Officer nor the Chief Financial Officer held any Non-Executive Director positions with other companies. The Committee considers that the overall pay outcome for the year ended 30 November 2021 is justified given the overall performance of the business, the context of the impact of the COVID-19 pandemic, its alignment with workforce remuneration and the performance of the Executive Directors. Patrick Martell Chairman, Remuneration Committee 14 February 2022 P A R T B – R E M U N E R A T I O N P O L I C Y This new Remuneration Policy became effective immediately following its approval at the 2021 Annual General Meeting, on 8 April 2021. This section contains the main tables from the Policy. Certain details have been updated to reflect the implementation of the Policy during the year. The full Remuneration Policy, as approved by shareholders, can be found in the 2020 Annual Report and Accounts which are available at www.rmplc.com. The following table sets out a summary of the various components of remuneration for Executive Directors. Element Fixed Pay Base Salary Purpose and link to strategy Operation Maximum opportunity Performance metrics To attract and retain talent by ensuring that salaries are competitive in the market. Base salaries will be set on appointment at the appropriate level required to fill the role. If there is a probationary period following appointment, the base salary may increase as appropriate following successful completion of that probationary period. None. Base salaries will be determined as outlined in the "Operation" column opposite.1 Pension2 Benefits To attract and retain talent by ensuring that remuneration is competitive in the market. To attract and retain talent by ensuring that remuneration is competitive in the market. Thereafter, base salaries will generally only be increased in line with the increases in pay for the wider workforce (either across single or multiple years), except as justified by other circumstances. Entitlement is the same as for the majority of the UK workforce within the Group. Cash allowance alternative is offered where individuals are subject to HMRC pension limits (subject to there being the same overall cost to the Group). Up to 7% of base salary depending upon level of employee contribution. None. Pension benefits will not be augmented on exit. The benefits are the same as for the majority of employees within the Group and are reviewed periodically to ensure that offerings are in line with market practice. The cost of such benefits varies in accordance with market conditions. None. The main benefits are: private healthcare3, group income protection, life assurance, car allowance, mobile phone allowance, enhanced family leave and sick pay. Other benefits may be added or removed in line with benefits awarded to the majority of employees.2 80 81 CORPORATE GOVERNANCEElement Purpose and link to strategy Operation Maximum opportunity Performance metrics Variable Pay Annual Bonus Provides an element of at-risk pay, which incentivises good annual performance. Members of the Committee keep the performance of the business under continuous review, through regular financial and business reporting and these reviews feed directly into annual and 3-yearly financial and strategic planning. Formal reviews are then conducted to ensure that targets are set that support short-term and long-term business strategy with such targets being intended to: reflect expectations of the investor community; • be stretching but realistic; • • avoid unnecessary risk-taking; and • encourage long-term planning and decision-making. The Remuneration Committee has discretion, where it believes it to be appropriate, to override the formulaic outcome arising from the annual bonus plan.5 Annual bonuses are subject to malus and clawback provisions (see further overleaf).5 Annual bonuses are not pensionable. 55% of base salary for on-target performance, with a maximum figure for over-performance of 110% of base salary. At threshold performance, bonuses will be paid at no more than 20% of the maximum opportunity. Performance measures and weightings are set by the Committee at the beginning of each year as outlined in the “Operation” column opposite. Typically, they relate to profit but may be other financial and strategic measures.4 Any bonuses more than 100% of base salary will be paid in the form of shares that must be held for a minimum of 2 years (on the same basis as LTIP vested shares subject to a holding period). Details of the specific performance targets will be disclosed retrospectively in the following year’s Remuneration Report. If personal targets are set, those targets will be subject to an underpin based on Company performance. LTIPs Incentivises Directors to achieve returns for shareholders over a longer time frame. Awards (nil cost options or share awards) are granted to Executives and senior management typically no more than once per year, with the vesting of awards being based on criteria designed to align with shareholder interests and encourage long-term performance. 200% of base salary per annum. At threshold performance, no more than 25% of the award will vest. Where LTIP awards vest, a post-vesting holding period of 2 years will apply (save that Directors may sell sufficient shares on vesting/exercise to satisfy the Income Tax/National Insurance liability that arises). Once LTIPs have vested and been exercised, dividends or dividend equivalents can be paid on the relevant shares. LTIP awards are subject to the Remuneration Committee’s discretion, where it believes it to be appropriate, to override the formulaic outcome arising from the LTIP.5 LTIP awards are subject to malus and clawback provisions (see further below).5 LTIP awards are not pensionable. LTIP awards vest on a change in control of the Company, subject to assessment by the Committee at the time as to the level of vesting (if any) that is appropriate, considering (among other things) the extent to which the relevant performance targets have been met and how much of the relevant performance period(s) has passed. Awards subject to a holding period shall be released from this. Performance measures and weightings are set by the Committee at the date of grant to align with shareholders’ interests. These will normally be measured over a 3 year period and may include EPS, TSR and other financial, strategic or shareholder return measures.4 The vesting period for LTIPs will be a minimum of 3 years. Details of performance targets will be disclosed retrospectively in the Remuneration Report following the year in which LTIPs are granted.4 All targets will be subject to an underpin based on the underlying performance of the Company. Notes: 1. There is no maximum base salary or maximum for any of the benefits. 3. Neil Martin was also provided with a private healthcare package for his immediate family [this ceased on 1 March 2021]. 2. Group company RM Education Limited operates a defined benefit pension scheme. This closed to new members in 2003 and, in respect of current members, closed to future accrual of benefits on 31 October 2012. David Brooks, CEO, has past benefits accrued as at 31 October 2012. His entitlements under that scheme are calculated on the same basis as those of other members. Since 1 November 2012, Mr Brooks has been a member of a defined contribution pension scheme. 4. The LTIP performance measures for LTIP awards are set out in paragraphs 2 and 11 of Part C of this report. Details of the expected measures [for 2022] are set out in paragraph 8 of Part C. 5. These new provisions apply to bonuses paid and LTIPs granted after the date of this policy’s commencement. 82 83 CORPORATE GOVERNANCEThe following table sets out a summary of the various components of remuneration for Non-Executive Directors, their purpose and link to strategy, its operation, the maximum opportunity available, the nature of any applicable performance metrics. Element Fixed Pay Fee Purpose and link to strategy Operation Maximum Opportunity Performance Metrics None. The maximum total remuneration payable to a Non-Executive Director including the Chairman is £160,000 per annum. To reward individuals for fulfilling their roles and attract good candidates. The Committee makes recommendations to the Board on the Chairman’s remuneration. The Chairman and the Executive Directors determine the remuneration of Non-Executive Directors. Remuneration data is considered during the process, including fees paid for comparable roles in companies of a similar size and complexity as the Company. The Chairman is paid a single fee. Other Non-Executive Directors are paid an annual fee covering Board and Committee membership, with Committee chairs, the Senior Independent Director and the designated HR representative receiving an additional fee. 1. The annual and additional fees for additional responsibilities are paid monthly. 2. Fees were last reviewed during the year ended 30 November 2018 and increased to be more in line with current market rates. 3. Fees are not performance-related but reflect the time commitment and responsibilities of the role. 4. Out-of-pocket expenses (such as travel costs) incurred in performing those duties are reimbursed by the Company. 5. Remuneration for Non-Executive Directors does not include share options or other performance-related elements. ILLUSTRATION OF REMUNERATION POLICY [UPDATED FOR THE YEAR ENDING 30 NOVEMBER 2021] The graphs below and on page 85 provide estimates of the potential future reward for each of the Executive Directors based on their current roles, the Remuneration Policy outlined above and base salaries as at 1 February 2022. However, it is noted that the illustrations show maximum LTIP awards at 150% of base salary¹. The illustrations for LTIP awards assume (i) the position that there is no change in share price between the date of grant of an award and the date of vesting and (ii) the effect of a 50% increase in the share price over this period. Chief Executive Officer £000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 +50% LTIPs Variable Fixed £000 Base Benefits Pension Total Minimum 365 15 24 On-target On-target is assumed to be an annual 404 742 bonus equal to 55% (on target) of base salary and an LTIP vesting of 25% (threshold) of maximum Maximum Full pay-out of annual bonus equal to 1,353 110% of base salary Maximum vesting of LTIP awards of 150%1 Maximum As above for maximum plus 50% share 1,627 +50% share price growth over the performance period Minimum On-target Maximum price growth The respective proportions for the fixed, variable and LTIP components are: Minimum: 100% fixed pay. On-target: 54% fixed pay, 27% variable pay & 19% LTIPs. Maximum: 30% fixed pay, 30%, variable pay & 40% LTIPs. Maximum with 50% share price growth: 25% fixed pay, 25% variable pay & 50% LTIPs. Chief Financial Officer £000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 +50% LTIPs Variable Fixed £000 Base Benefits Pension Total Minimum 300 10 14 On-target On-target is assumed to be an annual 324 602 bonus equal to 55% (on target) of base salary and an LTIP vesting of 25% (threshold) of maximum Maximum Full pay-out of annual bonus equal to 1,104 110% of base salary Maximum vesting of LTIP awards of 150%1 Maximum As above for maximum plus 50% share 1,329 +50% share price growth over the performance period Minimum On-target Maximum price growth The respective proportions for the fixed, variable and LTIP components are: Minimum: 100% fixed pay. On-target: 54% fixed pay, 27% variable pay & 19% LTIPs. Maximum: 29% fixed pay, 30%, variable pay & 41% LTIPs. Maximum with 50% share price growth: 24% fixed pay, 25% variable pay & 51% LTIPs. Notes: 1. Although the maximum under the Policy is 200%, it is not proposed to award any LTIP at more than 150% so that figure is used in these illustrations. MALUS AND CLAWBACK Malus and clawback provisions are in place, and will continue to be maintained, in relation to the variable, performance-related remuneration of the Executive Directors (annual bonus and LTIPs). As the payment of annual bonuses are at the discretion of the Committee: • • the malus provisions in force are such that the Committee can reduce the payment of any bonus payment if they consider that there is any reason that makes it appropriate to do so. This includes (without limitation) the circumstances applicable to clawback as outlined below but could also include any other matters that the Committee considers appropriate; and the clawback applies where the bonus payment was based on erroneous or misleading data or any misstatement of accounts, misconduct by an Executive Director, or the Group suffers serious reputational damage or corporate failure (‘Serious Grounds’). The clawback operates for a period of up to 18 months after the end of the relevant financial year to which the bonus relates, or if longer any holding period. In respect of each award under the LTIP Schemes: • • the malus applies when there are any Serious Grounds or any other circumstances where, in the reasonable opinion of the Committee, the malus provisions should be operated in relation to that Participant; and the clawback applies where there are any Serious Grounds where in the reasonable opinion of the Committee, the clawback should be operated in relation to that Participant. The clawback under the LTIP Scheme operates to the later of (a) one year from the relevant LTIP award vesting and (b) the completion of the next audit of the Group’s accounts after the award vests. 84 85 CORPORATE GOVERNANCE DISCRETION The Remuneration Committee retains discretion with regards to the variable elements of pay (annual bonuses and LTIP awards), in relation to: • The timing, size and type of awards and holding periods (subject always to the limits set out in the applicable Remuneration Policy). • Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends). • Adjustment of targets and measures if events occur which cause it to determine that the conditions are no longer appropriate. • When it believes it is appropriate, overriding the formulaic outcome, either upwards or downwards, applicable to the LTIP or bonus scheme, discretion will only be applied in exceptional circumstances and will be explained to shareholders in the following Remuneration Report. • Amendments to plan rules in accordance with their terms or as required by law or regulation. However, the Committee acknowledges the concerns of interested stakeholders that the discretion afforded to remuneration committees in quoted companies should not be too broad or enable the payment of inappropriate or excessive amounts, especially where payments to Executive Directors are not aligned with the expectations of shareholders. DIRECTORS’ SERVICE CONTRACTS AND LETTERS OF APPOINTMENT The Policy in relation to Executive Directors’ service contracts is for them to contain a maximum notice period of 12 months. Each service contract is subject to earlier termination for cause. In exceptional circumstances, a longer notice period initially, reducing down to 12 months, to secure the appointment of an external recruitment may be agreed. All Non-Executive Directors have letters of appointment with the Company for an initial period of three years, subject to annual re- appointment at each Annual General Meeting. Notice periods are as set out below. No compensation is payable on termination, other than any accrued fees and expenses. Details of the Directors’ service contracts and/or letters of appointment who served for all or part of the year ended 30 November [2021] are shown in the table below: John Poulter Mark Berry Charles Bligh David Brooks Paul Dean Vicky Griffiths Neil Martin Patrick Martell Expiry date of current agreement Notice to be given by employer and individual Initial agreement date 1 May 2013 20 September 2021 2 July 2021 1 July 2012 30 April 2022 Indefinite 1 July 2024 1 April 2021 4 February 2020 3 February 2023 1 July 2020 28 September 2015 30 June 2023 Indefinite 1 January 2014 31 December 2022 6 months 12 months 3 months 12 months 3 months 3 months 12 months 3 months P A R T C – I M P L E M E N T A T I O N R E P O R T 1. DIRECTORS’ REMUNERATION – SINGLE FIGURE OF REMUNERATION The tables below set out a single figure of remuneration for each of the Directors in respect of the year ended 30 November 2021 and, in respect of those Directors, the equivalent figures for the year ended 30 November 2020. The table has been audited: Salary/fees £000 Taxable benefits £000 Annual bonus £000 LTIPs (vested) £000 Retirement benefits £000 Total £000 Total Fixed Total Variable Remuneration6 Remuneration6 £000 £000 Name 2021 2020⁵ 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Executive David Brooks2 Neil Martin⁴ Mark Berry² Non-Executive 122 348 60 319¹ 261¹ - John Poulter 135 118 17 46 40 51 - 32 14 42 Charles Bligh2 Paul Dean3 Vicky Griffiths3 Patrick Martell Total Notes: 4 15 2 - - - - - 11 15 - - - - - - - 125 21 - - - - - 0 0 - - - - - - - 116 438 400 - - - - - - - - - - - - 7 24 0 - - - - - 241 211 - - - - - - 133 628 83 792 697 133 387 354 297 - 241 438 400 - 62 - 21 135 118 135 118 17 46 40 51 - 32 14 42 17 46 40 51 - 32 14 42 - - - - - - - - - - - 819 827 21 26 146 0 116 838 31 45 1,133 1,736 871 898 262 838 1. The section below headed “Retirement Benefits” explains how those benefits have been calculated and presented in the above tables. 2. The fees show the portion of the year during which they were a Director during 2021. 3. The fees show the portion of the year during which they were a Director during 2020. 4. The figures shown cover the respective period as CFO and, from 1 March 2021, CEO. 5. In 2020, the Board members agreed to take a salary/fee reduction of 25% for 6 months from April 2020 to September 2020 and the salary/fees figures above show the reduced amount paid in 2020. 6. Total fixed remuneration is the aggregate of the base salary, pensions and benefits, and total variable remuneration is the aggregate of the bonus and LTIPs. The following provides details of how the ‘single figure’ has been calculated: Taxable benefits: These comprise the benefits noted in Part B above other than retirement related benefits. The figure included in the above table in respect of such benefits is calculated based on the taxable value of such benefits. Annual bonus: The Committee decided that on-target bonuses for the year ending 30 November 2021 for Executive Directors would be based upon the Company achieving an adjusted operating profit before interest and tax target, with any pay-out to be determined on a straight line basis between £16.5m (0% pay-out) to £22m (100% pay-out), subject to the Committee being satisfied as to the long-term underlying performance of the business and the quality of operating profit delivered. Threshold performance at 20% would therefore be £17.6m and on-target performance at 55% would therefore be £19.5m. 86 87 CORPORATE GOVERNANCEIn the event there is significant over-performance against target then a bonus payment in excess of 100% could be available, up to the maximum of 110% of base salary. This would be reviewed by the Board in the context of full year trading and outlook for the year ending 30 November 2021. The Committee considered the Company’s performance relative to that target. Group adjusted operating profit before interest and tax was £18.5m. In light of that performance, the Committee determined that a bonus of 35.8% of base salary should be paid, in line with the performance measure. As noted above, any annual bonuses are subject to the Committee being satisfied that the achievement of annual targets is not at the expense of the underlying long-term performance or position of the Company or the quality of the operating profit delivered. The Committee was satisfied that this was the case. LTIPs: LTIP awards that vested in 2021 On 16 March 2021, the award granted to Neil Martin under the LTIP Scheme in March 2018 vested in part, reflecting the extent to which the performance criteria were met. Each performance criteria was equal to 50% of the award. The performance criteria were based on: 1. 2. the Company’s relative Total Shareholder return (TSR) performance measured from the average of the FTSE SmallCap (ex IT) Index during January and February 2018 to the average of the Index during January and February 2021. The Company’s performance placed it at the 67th percentile as compared to the comparator group. Vesting was based on a straight-line scale between 25% vesting at the 50th percentile and 100% vesting at the 75th percentile (or above). The vesting level was therefore 77%; and the Company’s growth in adjusted earnings per share (EPS) between the year ended 30 November 2017 and the year ended 30 November 2020. Vesting was based on a sliding scale between a compound annual growth rate (CAGR) in EPS of 7.5% pa (25%) and a CAGR in EPS of 17.5% pa (100%), namely 26.1 pence and 34.1 pence respectively. The minimum vesting was not met for this target. Based on the above performance criteria, the award vested at 38.5% (based on fifty percent of the 77% vesting level of the TSR performance measure). The Board applied no discretion. As such, 51,975 Options vested for Neil Martin. Based on the share price at close on the date of vesting (222.5 pence), the value of the award at that date for Neil Martin was £115,644. While that figure is shown in the table above, Mr Martin exercised those Options and on 16 March 2021 sold 24,478 shares at 215 pence (valued at £52,627) for tax and National insurance purposes. The remaining 27,497 shares are the subject to a 2 year holding period and the shares are held on a nominee basis by the LTIP trustees during this period. Compared to the share price used to calculate the number of shares granted (212 pence), this represents a 5% share price increase since the grant date to the end of the performance period. The Committee is satisfied that the implied value vesting and the overall single figure of remuneration for the year are appropriate taking into account the performance of the Company. No discretion has therefore been exercised for the change in share price. The amount of the award attributable to share price appreciation for Neil Martin is £5,457. No dividend equivalent (either in cash or shares) was paid on the exercise of the award. LTIP awards that vest in 2022 The LTIP award granted to Neil Martin in March 2019 will vest in March 2022. The targets for this award are set out in paragraph 11 of this Part C. The EPS target will not be met and no options will vest for this part of the award. The TSR target cannot be determined yet but is currently not expected to be met and, if this is the case, options would also not be expected to vest for this part of the award. Details of the amount that vest will be contained in the Remuneration Report next year. Past Directors: There were no payments made to past Directors in the year. Retirement benefits: Neil Martin is a member of a defined contribution pension scheme operated by RM Education Limited. The Group would ordinarily make a contribution to that scheme of 7% of base salary (under the same arrangements, for that level of employee contribution, as for the majority of other employees). However, due to HMRC limits, the amount paid into the scheme for Neil Martin is lower, with the balance paid instead as a non-pensionable cash allowance. To make the figures in the above tables more meaningful, the ‘Retirement Benefits’ are stated prior to those adjustments. Mark Berry become a member of a defined contribution pension scheme operated by RM Education Limited in December 2021 (under the same arrangements for that level of employee contribution, as for the majority of other employees). He contributes 4.5% of his salary which is matched by the Company. Termination Payments: There were no termination payments in the year. 2. DIRECTORS’ LONG-TERM INCENTIVE PLANS During the year ended 30 November 2021, the following long-term incentive awards were made.1 Type of share award Grant date Name Face value of award at grant £0002 No. of Shares/ options % of base salary 22 March 2021 250,000 547 150% 7 October 2021 120,000 278 93% Neil Martin Nil cost Option Mark Berry Nil cost Option Notes: 1. Awards granted under the LTIP Scheme. The end of the period over which the performance conditions have to be fulfilled February 2024 September 2024 Percentage that would vest at threshold performance 25% for TSR element 25% for TSR element A summary of performance targets and measures 100% on relative TSR performance4 100% on relative TSR performance4 2. The face value of the award has been calculated by multiplying the maximum number of shares in the award by the average share price over the 5 preceding trading days on the date of grant of the award (219 pence for Neil Martin and 232 pence for Mark Berry). The exercise price per share of £0.00. 3. One hundred percent (100%) of the award is based on the Company’s relative TSR performance for the period from 1 February 2021 to 31 January 2024. The Company’s TSR performance shall be measured against the TSR performance of the companies within the FTSE SmallCap (ex IT) Index (‘Comparator Group’) over the above period and must be at least at the median of a ranking of the TSR of each of the members of the Comparator Group. Vesting will occur on a sliding scale between median (25%) and upper quartile (100%). 4. One hundred percent (100%) of the award is based on the Company’s relative TSR performance for the period from 01 October 2021 to 30 September 2024. The Company’s TSR performance shall be measured against the TSR performance of the companies within the FTSE SmallCap (ex IT) Index (‘Comparator Group’) over the above period and must be at least at the median of a ranking of the TSR of each of the members of the Comparator Group. Vesting will occur on a sliding scale between median (25%) and upper quartile (100%). 5. This table has been audited. 88 89 CORPORATE GOVERNANCE3. PERFORMANCE GRAPH Notes: The following graph shows the value, by 29 November 2021, of £100 invested in RM plc on 30 November 2011 compared with the value of £100 invested in the FTSE SmallCap Index (ex. Investment Trusts) on the same date. The reason for selecting that index is that this is the one that is most closely aligned to the market capitalisation and relative position of the Company. The other points plotted are the values at intervening financial year ends. Total Shareholder Return 1. Rob Sirs from 1 December 2011 to 31 January 2012. Martyn Ratcliffe from 1 February 2012 to 30 November 2012. 2. Martyn Ratcliffe from 1 December 2012 to 28 February 2013. David Brooks from 1 March 2013. 3. During the year none of the Group’s LTIPs were due to vest. 4. No bonus was paid and the 1% discretionary payment made to all employees was not paid to Executive Directors. 5. David Brooks from 1 December 2020 to 31 March 2021. Neil Martin from 1 March 2021 to 30 November 2021. £600 £500 £400 £300 £200 £100 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 RM plc FTSE SmallCap Index (ex. Investment Trusts) 4. HISTORY OF CHIEF EXECUTIVE OFFICER PAY The table below sets out details of: • The total pay for each of the persons who have performed the role of Chief Executive for the current year and the preceding nine financial years. The ‘single figure’ is calculated using the same methodology as that used for the “Single Figure of Remuneration” table in paragraph 1 above. • The pay-out of incentive awards as a proportion of the maximum opportunity for the period. Year 2012¹ 2013² 2014 2015 2016 2017 2018 2019 2020 2021⁵ 90 CEO Single Figure (£000) Annual variable element award rates against maximum opportunity Long-term incentive vesting rates against maximum opportunity Rob Sirs Martyn Ratcliffe Martyn Ratcliffe David Brooks David Brooks David Brooks David Brooks David Brooks David Brooks David Brooks David Brooks David Brooks Neil Martin 49 237 52 327 576 1,246 655 713 982 553 792 133 628 0% 0% 0% 58% 75% 50% 45% 73% 64% 41% 0%⁴ 0% 35.8% 0% 0% 0% 0% 0% 91% 100% 36% 100% 0%³ 100% 0% 38.5% 5. RELATIVE IMPORTANCE OF SPEND ON PAY The following table sets out, in respect of the year ended 30 November 2020 and the immediately preceding financial year, the total remuneration paid to all employees as compared to other significant distributions and payments. Total remuneration to employees1 Dividends paid2 Corporation tax paid3 Defined benefit pension cash contribution3 Notes: 2021 £m 59.7 3.9 0.1 4.4 2020 £m 55.8 Nil 2.6 4.1 1. Includes remuneration paid to Executive Directors. Note 7 to the Financial Statements shows how this has been calculated, figures for social security costs and share-based payments have been excluded. This includes the CEO salary paid to David Brooks and Neil Martin. 2. These figures have been extracted from Note 12 to the Financial Statements. 3. These payments have been added for context as other significant payments made by the Company. These figures have been extracted from the Cash Flow Statement. 6. PERCENTAGE CHANGE IN REMUNERATION OF DIRECTORS The following tables set out the percentage change for the following elements of remuneration paid to Directors and UK employees over the period from 1 December 2020 to 30 November 2021 and previous year ended 30 November 2020. 1 December 2020 to 30 November 2021 1 December 2019 to 30 November 2020 Salary/Fees Taxable Benefits Annual Bonus Salary/Fees Taxable Benefits Annual Bonus Executive Directors Neil Martin (CEO from 1 April 2021 and previously CFO)¹ David Brooks (ceased to be a Director and CEO on 1 April 2021) Mark Berry (appointed as CFO from 20 September 2021) 33% -2.4% -² -62% -63% 0% 0% N/A 0% 0% 0% N/A -0.47% -100% -0.81% -100% N/A N/A Total UK Employees 5.6% 12.93% -² 2.03% 2.01% -34.02% Notes: 1. This includes the increase in remuneration due to the change in role from CFO to CEO in March 2021. 2. No bonus was paid in the preceding year. 91 CORPORATE GOVERNANCE1 December 2020 to 30 November 2021 1 December 2019 to 30 November 2020 Salary/Fees Taxable Benefits Annual Bonus Salary/Fees Taxable Benefits Annual Bonus Non-Executive Directors John Poulter Chairman Charles Bligh (appointed as a Director on 2 July 2021) Paul Dean (appointed as a Director and Chairman of the Audit Committee on 4 February 2020) Vicky Griffiths (appointed as a Director on 1 July 2020) Patrick Martell (Senior Independent Director and Chairman of the Remuneration Committee) Notes: 0% 0% 0% 0% 0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0% 0% 0% 0% 0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A The table below provides further information on the total remuneration figure used for each quartile employee, and the salary component within this. Year 2021 2021 Notes: Salary Total Pay 25th Percentile £22,500 £25,150 Median £28,750 £35,211 75th Percentile £48,875 £53,392 1. Method A was chosen as the statistically most accurate calculation. The total remuneration on a full-time equivalent basis as at 30 November 2021 for all UK employees was calculated and employees ranked accordingly. 2. The bonus calculation for employees was based on the actual bonus figures (adjusted to create FTE figures where individual are employed on a part-time basis). The figures for the pay ratio in 2020 are based on the actual bonus calculation figures, which were zero. FY20 ratios have been restated to include the LTIP of the CEO that vested in 2020. 3. Full-time equivalent P11D values for benefits such as Private Medical Healthcare have been used for anyone in receipt of the particular benefit as at 30 November 2021. 4. Pension values are not calculated on the same basis as the CEO’s figure, but rather based on the Employer contribution as a percentage of salary as at 30 November 2021. This approach allows meaningful data for a large group of individuals to be obtained in a more efficient way. 5. CEO pay is as per the single figure of remuneration as at 30 November 2021, as disclosed on page 90. It covers the single figure of remuneration for Neil Martin and David Brooks, each pro-rated for the time they were acting as CEO with the exception of Bonus and LTIP which are Neil Martin’s complete figures. 1. RM plc does not have any employees. The comparator group therefore comprises all employees of the UK subsidiaries (excluding Directors) who 6. The median pay ratio is considered consistent with the pay, reward and progression policies for the Company’s UK employees taken as a whole. were employed throughout the full financial year on a full-time equivalent basis. 2. The elements of remuneration have been calculated in the same way as the single figure of remuneration. The mean average has been used. 3. Bonus includes annual bonus and commission only and not any other non-performance related payments made to employees (e.g. Christmas bonuses, long service awards). Bonuses in this paragraph 6 relate to those actually paid in respect of the years ended 30 November 2020 and 30 November 2021. 4. Individuals who were no longer Directors in the year ending 30 November 2021 have not been included in the above table. Details of their change in remuneration are detailed in previous Annual Reports to the extent this was required to be provided. These are available at www.rmplc.com in the Reports section. 7. CEO PAY RATIO The following table sets out the CEO pay ratios for the year ended 30 November 2021. This compares the Chief Executive Officer’s total remuneration (as shown above in paragraph 1 of this Part C) with the equivalent remuneration for the employees paid at the 25th, 50th and 75th percentile of RM's UK workforce. The total remuneration for each quartile employee, and the salary component within this, is also outlined in the table below. The median for all employee to CEO pay ratio is 18.3 : 1 which the Committee considers is within a reasonable range considering the structure and nature of the business. A large proportion of the CEO’s pay is in the form of variable pay through the annual bonus and Long-Term Incentive Plan which link to and are therefore impacted by business performance. The change in the ratio compared with 2020 is principally due to the reduced Long-Term Incentive Plan payment to the CEO this year offset by no bonus payments being paid in 2020. Year 2021 2020 Method 25th Percentile Pay Ratio Median Pay Ratio 75th Percentile Pay Ratio A A 25.6 : 1 33.3 : 1 18.3 : 1 23.9 : 1 12.1 : 1 15.8 : 1 8. STATEMENT OF IMPLEMENTATION This section sets out how the Remuneration Policy will be implemented in the year commencing on 1 December 2021. No significant changes in remuneration are expected during this year. Salary and fees: Since the start of the financial year, the Committee has not increased the base salary of the Executive Directors or the fees for Non-Executive Directors. This is expected to be reviewed shortly and alignment with the workforce’s pay rises will be considered. The base salary and fees of Directors at the date of this report is: Executive Neil Martin Mark Berry Non-Executive Chairman (Including the Chairman of Nomination Committee) Non-Executive Director base fee Senior Independent Director (additional fee) Chairman of Remuneration Committee/Designated Non-Executive Director for HR (additional fee) Chairman of Audit Committee £000 365 300 135 40 3 4 6 Benefits and pension benefits: These are expected to remain unchanged, as stated in paragraph 1 of Part C above. Bonus: Due to issues of commercial sensitivity, it is not considered that it is in shareholders’ interests to disclose any further details of these targets but we are committed to provide appropriate levels of disclosure of these performance measures and performance against them in next year’s Annual Report and Accounts. Bonus levels will be in line with the Remuneration Policy. 92 93 CORPORATE GOVERNANCELTIPs: It is anticipated that, during the year ending 30 November 2022, an award will be made to Neil Martin and Mark Berry, under the RM plc Performance Share Plan 2019. Those awards will be of options with an exercise price of £0.00 and the face value of the awards is expected to be c.100% of base salary. Under the Remuneration Policy that was approved by shareholders at last year's AGM, the maximum opportunity for LTIPs was increased from 150% to 200% of base salary per annum in order to give the flexibility to increase the award when appropriate; this was considered to be in line with the median maximum potential opportunity, identified from benchmarking studies, at peer companies. We sought to identify which of our shareholders voted against this change or abstained in order to understand their reasons for doing so but had difficulty doing so and none of those shareholders contacted the Company in order to explain their concerns. The appropriate performance conditions is still being discussed at the date of this report but is expected to include relative TSR. It is intended that the measures will encourage the generation of sustainable long-term returns to shareholders. The appropriate range has yet to be finalised but will be confirmed by the Committee in due course. Full details will be disclosed in next year’s Annual Report and Accounts. 9. STATEMENT OF SHAREHOLDER VOTING Voting at the Annual General Meeting held on 8 April 2021 in respect of the Remuneration Policy and Report for the year ended 30 November 2020 was as follows: Resolution to approve the Remuneration Policy in 2021 Resolution to approve the Remuneration Report in 2021 10. DIRECTORS’ SHAREHOLDINGS % of votes in favour 87.23% 99.63% % of votes against 12.77% 0.37% Number of votes withheld 8,833,873 497,051 The beneficial interests of the Directors including connected persons in the ordinary shares of RM plc as at 30 November 2021 were: Holding as at 30 November 2021 Vested but unexercised scheme interests Current holding as % of base salary1 Shareholding policy met2 Holding as at 30 November 2020 John Poulter Mark Berry Charles Bligh Paul Dean Vicky Griffiths Patrick Martell Neil Martin Notes: 87,500 - - 20,000 2,900 5,000 227,562 - - - - - - - - - - - - - 139% - No - - - - No 87,500 - - 20,000 2,900 5,000 115,416 11. DIRECTORS’ INTERESTS IN SHARE PLANS As at 30 November 2020, the Executive Directors had the following interests in the Company’s share plans1: LTIP Awards2 Neil Martin Date of Grant No. of Shares/Options Performance Conditions Share price at grant 14 March 2019 16 March 2020 22 March 2021 122,000 105,000 250,000 See notes 3, 4 and 5 (2019) 242 pence See notes 3, 6 and 7 (2020) 171 pence See notes 3 and 8 (2021) 220 pence Mark Berry Notes: Date of Grant No. of Shares/Options Performance Conditions Share price at grant 07 October 2021 120,000 See notes 3 and 8 (Oct 2021) 234 pence 1. To avoid duplication, and in accordance with Section 17(b)(iii) of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the figures in the above table do not include the shares or share-based awards referred to in paragraph 1 of this Part C. 2. Granted under “The RM plc Performance Share Plan 2010” and from 16 March 2021 under the “RM plc Performance Share Plan 2019”. All LTIP awards are subject to a minimum vesting period of 3 years. 3. The LTIP awards granted in 2019, 2020 and 2021 were awards of options, with an exercise price of £0.00 per option. If the options granted in March 2019 vest, they would be exercisable in the period 15 March 2022 to 26 October 2027. If the options granted in March 2020 vest, they would be exercisable in the period 17 March 2023 to 16 March 2033. If the options granted in March 2021 vest, they would be exercisable in the period 25 March 2024 to 24 March 2034. If the options granted in October 2021 vest, they would be exercisable in the period 08 October 2024 to 07 October 2031. 4. Fifty percent of the award is based on the Company’s growth in adjusted earnings per share (EPS) between the year ended 30 November 2018 and the year ended 30 November 2021. Vesting will occur on a sliding scale between a compound annual growth rate (CAGR) in EPS of 5% pa (25%) and a CAGR in EPS of 15% pa (100%), namely 30.1 pence and 39.5 pence respectively. 5. Fifty percent of the award is based on the Company’s relative TSR performance which shall be measured against the average of the TSR performance of the companies within the FTSE SmallCap (ex IT) Index (‘Comparator Group’) (Comparator Group) during January and February 2018 to the average during January and February 2021 and must be at least at the median of a ranking of the TSR of each of the members of the Comparator Group. Vesting will occur on a sliding scale between 25% vesting at the 50th percentile and 100% vesting at the 75th percentile (or above). 6. Fifty percent of the award is based on the Company’s growth in adjusted earnings per share (EPS) between the year ended 30 November 2019 and the year ended 30 November 2022. Vesting will occur on a sliding scale between a compound annual growth rate (CAGR) in EPS of 5% pa (25%) and a CAGR in EPS of 15% pa (100%), namely 30.8 pence and 40.5 pence respectively. 7. Fifty percent of the award is based on the Company’s relative TSR performance which shall be measured against the average of the TSR performance of the companies within the FTSE SmallCap (ex IT) Index (‘Comparator Group’) (Comparator Group) during January and February 2020 to the average during January and February 2023 and must be at least at the median of a ranking of the TSR of each of the members of the Comparator Group. Vesting will occur on a sliding scale between 25% vesting at the 50th percentile and 100% vesting at the 75th percentile (or above). 1. Calculated based on the average share price for the period 1 December 2020 to 30 November 2021 (£2.23) and base salaries as at 1 January 2022. 8. The performance conditions and other information relevant to these awards are set out in paragraph 2 (Directors’ long-term incentive plans) above. 2. The Directors’ Remuneration Policy requires Executive Directors to build and maintain a shareholding requirement of at least 200% of base annual salary within 5 years of the first opportunity for an LTIP to vest. For Neil Martin this is within 5 years of 4 October 2018; for Mark Berry this is expected 12. DETAILS OF DIRECTORS’ SERVICE CONTRACTS to be within 5 years of 8 October 2024. Relevant information relating to the Service Contracts of the Directors is set out in Part B. 3. There have been no changes in any of the above shareholdings since 30 November 2021 at the date of this report. 94 95 CORPORATE GOVERNANCE13. REMUNERATION COMMITTEE DETAILS Details of the Remuneration Committee and its membership are contained in the introduction of this report. No external advice or services have been received during the year. External benchmarking data has been provided by the HR Department and the Company Secretary provides advice to the Nomination and Remuneration Committees on Service Contracts and LTIP schemes. 14. 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 (as amended). 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 parts of the Group’s 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, the following paragraphs of this Part C of this report have been audited by Deloitte LLP: • The “Single Figure of Remuneration” table in paragraph 1. • Total pension entitlements, as described in the notes to paragraph 1. • Directors’ shareholdings, as set out in paragraph 10. • Directors’ interests in share plans, as set out in paragraphs 1, 2 and 11. By Order of the Board Patrick Martell Chairman, Remuneration Committee 14 February 2022 96 97 CORPORATE GOVERNANCENOMINATION COMMITTEE REPORT On behalf of the Board, I am pleased to present the Nomination Committee Report for the year ended 30 November 2021. THE NOMINATION COMMITTEE The Nomination Committee (‘Committee’) operates under terms of reference approved by the Board. These can be found on the Group’s website at www.rmplc.com. COMMITTEE MEMBERSHIP AND ATTENDANCE The Nomination Committee during the year ended 30 November 2021 comprised John Poulter, Patrick Martell, Paul Dean, Vicky Griffiths and, after his appointment as a Non-Executive Director, Charles Bligh. The members of the Committee comprise the independent Non-Executive Directors and the Chairman of the Board. ROLES AND RESPONSIBILITIES The Nomination Committee is responsible for leading the process for Board appointments, ensuring that plans are in place for orderly succession to both the Board and the Executive and overseeing the development of a diverse pipeline for succession. The Committee’s responsibilities include: Board composition Evaluating the size, structure and composition (including the balance of skills, experience, knowledge, independence and diversity) of the Board and making recommendations to the Board with regard to any changes. Succession planning The other Directors attend meetings as and when required and by invitation. Ongoing succession planning and appointment procedures for Board and Executive level appointments. The Nomination Committee held 3 scheduled meetings during the period and several ad hoc meetings. Attendance is set out below. Meetings were held virtually for most of the year due to COVID-19 social distancing requirements. The Committee also approved a number of matters during the year by written resolution. While the Chairman chairs the Nomination Committee, the Senior Independent Director did so when the Committee was dealing with the appointment of a new Chairman. No. of meetings held in the period/Eligible to attend John Poulter Charles Bligh (from 2 July 2021) Paul Dean Vicky Griffiths Patrick Martell 3/3 2/2 3/3 3/3 3/3 Appointment process Leading the process for Board appointments and making recommendations to the Board. Sufficient Time Assessing whether Directors can commit sufficient time to fulfil their responsibilities. Diverse pipeline Overseeing the development of a diverse pipeline for succession for the Board and Executive and monitoring the impact of diversity initiatives across the Company. Effectiveness To report to the Board on how it has discharged its responsibilities. MAJOR ACTIVITIES OF THE NOMINATION COMMITTEE During the year, the following key matters and decisions were considered by the Committee: • The recommendation for reappointment at the Annual General Meeting of all Directors based on the evaluation of the Board and its Committees. • The search for a new: ◌ CEO and an additional Non-Executive Director, which was led by the Chairman; ◌ CFO, which was led by the CEO; and ◌ Chairman, which was led by the Senior Independent Director. All members of the Committee were involved in each recruitment process, including the determination of the required skills, knowledge and experience for each role and offer made to the preferred candidate. All preferred candidates were interviewed initially by the Director leading the process, then by all members of the Committee and the other Board members. A thorough due diligence and referencing process was conducted for the preferred candidate for each role. Candidates were assessed against the required skills, knowledge and experience determined for each role. The benefits of diversity, independence and ability to devote sufficient time to carry out the role were also considered in each process. Executive recruitment search firms engaged for each role were briefed to provide a diverse range of candidates. The Committee made recommendations to the Board in respect of each appointment for the Board's approval. Notwithstanding the above, Neil Martin was not involved in the Committee meetings involving the appointment of a new CEO and the Board Chairman was not involved in the process for the appointment of a new Chairman. The following executive recruitment search firms were engaged as part of the recruitment process: ◌ Korn Ferry was engaged for the search for the new CEO; ◌ Odgers was engaged for the search for the new CFO; ◌ Independent Search Partnership was engaged for the search for an additional Non-Executive Director; and ◌ Ridgeway Advisers was engaged for the search for the new Chairman. Vicky Griffiths is a partner in Independent Search Partnership (see page 63, Directors, Conflicts of Interests and independence). Korn Ferry, Odgers, Independent Search Partnership and Ridgeway Advisers do not have any other connection with the Company or individual Directors (other than in relation to similar previous appointments). The appointment of Neil Martin as CEO was effective from 1 March 2021. Neil brings significant knowledge of the Company and its evolution over the past several years and the response to the COVID-19 pandemic, as well as the education sector. The appointment of Mark Berry as CFO was effective from 20 September 2021, although he started as interim CFO on 8 March 2021. Mark brings experience as the CFO of a listed company and a broad range of finance roles in a large, listed company. The appointment of Charles Bligh as an independent Non-Executive Director was effective from 2 July 2021. Charles is the CEO of Restore plc, a listed company, and brings substantial technology experience. Restore plc is a supplier to RM of scanning and associated services. Following careful consideration, the Committee and the Board determined that Charles would be able to provide constructive challenge at RM notwithstanding his role at Restore plc. In reaching this conclusion, the Board considered the non-material size of RM's business relationship with Restore plc, and the fact that handling of this business relationship at RM is delegated to management as part of normal delegation of authority by the Board. It was decided that, during his tenure, Charles would not participate in discussions relating to the use of Restore plc or which may otherwise specifically affect Restore plc’s relationship with RM, and that Charles would not be a member of the Audit Committee. It was considered that these steps would avoid any potential conflict of interest. The nomination of Helen Stevenson as Non-Executive Chairman will be effective from the day after the release of the preliminary results for the year ending 30 November 2021. Helen is independent on appointment. Amongst the requirements for the role, it was considered important that the candidate had the ability to support the development and delivery of the Group’s strategy, was enthusiastic about the Group’s purpose and vision, and could lead the Board and promote the right culture. Helen brings broad experience as a member of Boards, including of listed companies across a range of sectors, strong communication skills to further the Company’s stakeholder relationships and relevant professional experience. 98 99 CORPORATE GOVERNANCEFurther details on the skills, knowledge and experience of each of the new appointments is set out below and in their biographies on page 56 except in respect of Helen which is in the AGM Notice and on the RM website at www.rmplc.com. • The review of succession plans and appointment procedures, a number of times during the year, as the changes to the Board were planned for and decisions made. In doing so it assessed the skills, knowledge and experience that new Board members would be required to have as the composition of the Board changed and considered how to achieve the objectives of the Board Diversity Policy (set out in the Corporate Governance Report). The Board remains committed to promoting broader diversity and an inclusive culture and this was an area of focus in its succession plans and appointments. The Board has one Non-Executive Director, Patrick Martell, who is nearing the ninth anniversary of his appointment. The Committee intends to carry out a review of the composition of the Board as part of its consideration for the appointment of a new Non-Executive Director. • In addition to the changes referred to above, the Executive team has been strengthened through the external hire of a new Chief Information Officer. The Executive considered the adequacy of the Group’s succession plans, including gender balance and diversity below the Board. These plans cover short term absences and longer-term changes. The Group’s management has also been strengthened through a number of external appointments and internal promotions this year that have maintained diversity. When search firms are used for such appointments, they are also briefed to provide a diverse range of candidates. There is a good gender balance across these roles (see the Workforce section in the Sustainability Report on page 49 for more information). • Diversity and inclusion in the workforce potentially create a better environment for innovation and service excellence and achieve the strategic goals. See page 48-49, the Sustainability Report, for further information and details of RM’s policy on equal opportunities and how it supports strategy. • Details of the Board evaluation and the outcomes and actions taken is set out on page 62-63. • The approval of this Nomination Report for the year ended 30 November 2021. BOARD COMPOSITION The Board reviews the composition of the Board and the skills, knowledge and experience of its members, taking into account tenure and diversity. Information on the skills, experience and knowledge of each Director is set out below and on page 56 (Board of Directors). With the changes to the Executive Director positions, the Committee identified that an additional Non-Executive Director, with experience leading a listed technology business, would be beneficial and after following the process described above, it recommended this appointment to the Board. The Committee considers the current Board membership provides the right mix of skills, knowledge and experience. Board Skill, Knowledge and Experience Independence Functional Background: Operations Functional Background: Finance CEO & Leadership Experience Education sector Technology/ E-commerce sector Supply Chain sector M&A/Restructuring Governance, Risk & Regulatory International Stakeholder/IR/IP Strategy development People John Poulter Neil Martin Mark Berry Charles Bligh Paul Dean Vicky Griffiths Patrick Martell x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x John Poulter Chairman, Nomination Committee 14 February 2022 100 101 CORPORATE GOVERNANCEDIRECTORS’ REPORT The Directors submit their report together with the audited consolidated and Company Financial Statements for the year ended 30 November 2021. The Strategic Report on pages 4 to 21 includes an indication of likely future developments in the business of the Group and details of the Company’s business model and strategy. The Corporate Governance Report on pages 58 to 68 is incorporated into this report by reference. ANNUAL GENERAL MEETING The forthcoming Annual General Meeting will be held on 7 April 2022 at 142B Park Drive, Abingdon, Oxfordshire OX14 4SE, at the 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. ARTICLES The constitutional documents can only be amended, or replaced, by a special resolution passed in a General Meeting by at least 75% of the votes cast and are available at www.rmplc.com. AUDITOR: INDEPENDENCE AND DISCLOSURE OF INFORMATION TO AUDITOR As far as each of the Directors is aware, there is no relevant audit information (as defined by section 418(3) of the Companies Act 2006) of which the Company’s auditor, Deloitte LLP, is unaware and each of the Directors confirms that all steps have been taken that ought to have been taken, as a Director, to make himself or herself aware of any relevant audit information and to establish that the Company's auditor has been made aware of that information. A resolution to re-appoint Deloitte LLP as auditor of the Company will be proposed at the next Annual General Meeting. DIRECTORS Details of those Directors who have held office during the financial year and up to the date of signing this report and any changes since the start of the financial year are given below: John Poulter Mark Berry (from 20 September 2021) Charles Bligh (from 2 July 2021) David Brooks (until 1 April 2021) Paul Dean Vicky Griffiths Patrick Martell Neil Martin Biographical details of the current Directors are given in the Board of Directors section of the Annual Report on page 56. The appointment and removal of Directors is governed by the constitutional documents of the Company and the Companies Act 2006. Under the constitutional documents of the Company, either the shareholders of the Company by ordinary resolution, or the Board, can appoint a Director. The appointment can be either to fill a vacancy or as an addition to the existing Board, provided that the maximum number of Directors shall in no event exceed 12. At the forthcoming Annual General Meeting, all Directors will stand for re- election in accordance with best practice and guidance set out in the UK Corporate Governance Code. Directors can be removed pursuant to an ordinary resolution passed by the Company. All Directors have either a letter of appointment or a service contract, details of which can be found in the Remuneration Report on page 86. DIRECTOR INSURANCE AND INDEMNIFICATION The Group has provided indemnity insurance for the Directors and officers of Group companies during the financial year and at the date of signing this report. All the Directors also have the benefit of a Deed of Indemnity entered into with the Company 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. DIRECTORS’ POWERS The Board manages the business of the Company under the powers set out in its constitutional documents, which power is subject to the provisions of the Companies Act 2006 and to any directions given by special resolution of the Company. These powers include the Directors’ ability to allot or purchase shares in the Company, the exercise of which in each case is subject to the Companies Act 2006 which provides, amongst other things, that the Directors must seek shareholder authority for the allotment of shares in the Company and the market purchase of shares in the Company. Accordingly, the Directors seek shareholders’ authority to allot shares in the Company, and to purchase the Company’s own shares in the market, at each AGM. DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors’ responsibilities statement on page 107 is incorporated by reference into this report. 102 CORPORATE GOVERNANCE 103 DIVIDENDS SHARE CAPITAL SHARES: ALLOTMENT AND PURCHASE The total dividend paid and proposed for the year is 4.7 pence per share. This is compromised of the interim dividend of 1.7 pence per share as approved by the Directors and paid in August 2021 and, subject to shareholder approval at the Annual General Meeting on 7 April 2022, a final dividend (as recommended by the Directors) of 3.0 pence per share. MANAGEMENT REPORT For the purposes of compliance with DTR 4.1.5R(2) and DTR 4.1.8R, this Directors’ Report, together with the Strategic Report and the material incorporated by reference into each report, comprise the Management Report. As permitted, some of the matters to be included in the Directors’ Report have been included in the Strategic Report such as the business review, future prospects and principal risks and uncertainties. OVERSEAS BRANCHES The Group has an overseas branch in Singapore. RESEARCH AND DEVELOPMENT The Group continues to develop and maintain its existing software products whilst staff work to develop new and more effective systems and products. The Group incurred £1.3m of research and development in the year, which was expensed in the income statement (2020: £2.7m). This primarily relates to product research, maintenance and related expenditure which does not meet capitalisation criteria. 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. On a show of hands, each shareholder present in person or by proxy at a general meeting and, on a poll, every shareholder present in person or by proxy, has one vote for which they hold. All of the shares in the Company carry the same rights, include the right to participate in dividends and in any distribution of surplus assets on a winding-up. Under the Company's constitutional documents, the right to vote in respect of any share is subject, amongst other things, to there being no unpaid call on that share nor there being any outstanding notice given under section 793 of the Companies Act 2006 in respect of that share. The right to vote is also subject to the provisions of the Companies Act 2006. Electronic and paper proxy appointments and voting instructions must be received by RM’s registrar, Link Group, not less than 48 hours (excluding, in the calculation of such time period, any part of a day that is not a working day) before the time of the holding of the relevant meeting or adjourned meeting. As at 30 November 2021, the RM plc Employee Share Trust owned 618,796 ordinary shares in the Company (0.74% of the issued share capital) to satisfy awards under the Company’s employee share plan. 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. The Trustees have waived the right to receive dividends on shares held in the Company. Employees, with vested share plan awards whose shares are subject to a holding requirement and held on their behalf by the Trust on a nominee basis, are able to give directions to the Trust to vote on their behalf and to receive dividends in relation to those shares. At the Annual General Meeting held on 8 April 2021, members renewed the authority under: (1) section 551 of the Companies Act 2006 to allot ordinary shares up to an aggregate nominal authority of £639,047. This authority has not been used since the Annual General Meeting; and (2) section 701 of the Companies Act 2006 to make market purchases on the London Stock Exchange of up to 8,387,501 ordinary shares, being 10% of the issued share capital of the Company as at 8 March 2021. 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 higher of the last independent trade and the highest current independent bid on the London Stock Exchange at the time the purchase is carried out. This authority has not been used since the Annual General Meeting and the Company did not purchase or otherwise acquire any of its own shares during the financial year. The Directors will seek to renew these authorities at the next Annual General Meeting scheduled for 7 April 2022. SIGNIFICANT AGREEMENTS The Group enters into long-term contracts to supply IT 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 September 2021, the Company entered into a revised agreement extending the term of the revolving credit facility, with Barclays Bank plc and with HSBC Bank plc, to June 2023. The principal facility of £70m has not changed. In addition, the Company has a £30m accordion facility, enabling the Company to extend the total facility up to £100m. That facility is subject to termination in the event of a change of control of the Company or the de-listing of any part of the share capital of the Company from the Official List. IMPORTANT EVENTS SINCE THE END OF THE FINANCIAL YEAR There have been no events affecting the Company, and its subsidiary undertakings in the consolidation, since the end of the financial year. SUBSTANTIAL SHAREHOLDINGS On 30 November 2021, the Company had received notifications that the following parties were interested in accordance with DTR 5: Shareholder No. of voting rights Direct No. of voting rights Indirect % of voting rights as at 30 November 2021 Schroders Investment Management Ltd 0 14,263,444 Castlefield Fund Partners Ltd 13,000,000 Aberforth Partners LLP BlackRock Inc Canacord Genuity Group Inc 0 0 0 0 10,967,211 8,779,532 4,725,312 Since 1 December 2021, the Company has received notifications from: 17.01% 15.50% 13.08% Date of TR1 5 June 2020 31 March 2020 17 March 2021 10.46% 10 November 2020 5.63% 14 March 2019 • BlackRock Inc on 10 December 2021 notifying us of 9,261,532 indirect voting rights and 11.04% of voting rights and on 11 February 2022 notifying us of 9,205,760 indirect voting rights and 10.97% of voting rights; and • Sandford Deland Asset Management on 14 January 2022 notifying us of 14,340,000 direct voting rights and 17.10% of voting rights. The percentage interest is as stated by the shareholder at the time of the notification and current interests may vary. 104 CORPORATE GOVERNANCE 105 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 deposits for the Group and is also responsible for ensuring there is sufficient headroom against any banking covenants contained within its credit facilities, and that appropriate facilities are available in order that the Group can continue to meet its strategic plans. 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. For further information see the Notes to the Financial Statements and Note 31 (Financial Risk Assessment) of the Financial Reports. ADDITIONAL DISCLOSURES Disclosures required by Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), to the extent not already disclosed or referred to in this report, can be found on the pages specified in the table below, all of which are incorporated into this report by reference. Disclosures required by Listing Rule 9.8.4R can be found on the pages specified in the table below, all of which are incorporated into this report by reference. There is nothing further to disclose pursuant to Listing Rules 9.8.4R: Allotment for cash of equity securities Contracts of significance Directors’ waived emoluments Dividend waiver Employee engagement, interests and effect Employee share scheme Employees with disabilities Page N/A 105 N/A N/A 65-66 (Employees) 50 (Development and Reward) 49 Engagement with suppliers, customers and others and effect 67 (Suppliers and Partners) Greenhouse gas emissions, energy consumption and energy efficiency Interest capitalised and tax relief 42-47 N/A Long Term Incentive schemes 95 (section 11) Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the Group and parent Company Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent Company Financial Statements for each financial year. Under that law they are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent 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 Group and parent Company and of their profit or loss for that period. In preparing the parent Company Financial Statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are Political donations By Order of the Board Mark Lágler General Counsel and Company Secretary, RM 14 February 2022 Registered in England and Wales No 1749877 53 reasonable and prudent; • state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the Financial Statements; and • prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group Financial Statements, International Accounting Standard 1 requires that directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRS Standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and • make an assessment of the Company's ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. The Directors consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy, and provide appropriate guidance on its future prospects. Responsibility Statement of the Directors in respect of the Annual Financial Report Each of the Directors, whose names are listed in the Directors’ Report, confirm that to the best of our knowledge: • • the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Strategic Report and Directors’ Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. A copy of the Group Financial Statements is posted on the Group’s website www.rmplc.com. This Responsibility Statement was approved by the Board of Directors and is signed on its behalf by: By Order of the Board Neil Martin Chief Executive Officer 14 February 2022 Mark Berry Chief Financial Officer 14 February 2022 106 107 CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT 4. CONCLUSIONS RELATING TO GOING CONCERN 5. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. to the members of RM plc REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 1. OPINION In our opinion: • • • the Financial Statements of RM plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 November 2021 and of the Group’s profit for the year then ended; the Group Financial Statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as adopted by the European Union; the parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and • the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the Financial Statements which comprise: • • • • • • the consolidated income statement; the consolidated statement of comprehensive income; the consolidated and parent Company balance sheets; the consolidated and parent Company statements of changes in equity; the consolidated cash flow statement; and the related Notes 1 to 33. The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law, international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company Financial Statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). 2. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the Financial Statements section of our report. We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3. SUMMARY OF OUR AUDIT APPROACH Key audit matters The key audit matters that we identified in the current year were: • The appropriateness of management estimates in revenue recognition for certain long-term contracts in the RM Assessment business; and • The valuation of intangible assets on major IT development programmes. The materiality that we used for the Group Financial Statements was £725,000 which was determined as approximately 5% of profit before tax adjusted for non-recurring items. Materiality Scoping Our audit scope covered 98% of the Group’s revenue, 95% of the Group’s profit before tax and 92% of the Group’s total assets. In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the Financial Statements is appropriate. Our evaluation of the Directors’ assessment of the Group’s and parent Company’s ability to continue to adopt the going concern basis of accounting included: • Evaluation of the processes and controls underpinning management’s forecasting of financial performance and cash flow and determination of downside scenarios including those to support accuracy of the models and the underlying data; • Assessment of the Group’s borrowing facilities as set out in Note 31 of the Financial Statements, including the extension of the Group’s revolving credit facility in the year; • Performing procedures to assess liquidity headroom in the going concern period and actual and forecast covenant positions based on the base case assessment and severe downside scenario as set out in the Going concern section of Note 2; • Challenge of the adequacy of downside scenarios including reperformance of the reverse stress tests and performing sensitivity testing, considering the plausibility of a break-even scenario; • Assessment of whether there is a material inconsistency between the viability statement and the knowledge we obtained during the audit; • Evaluation of whether events or conditions give rise to a risk of management bias; and • Assessment of the adequacy of the going concern disclosures in the annual report. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and parent Company’s ability to continue as a going concern for a period of at least twelve months from when the Financial Statements are authorised for issue. In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. 108 109 FINANCIAL STATEMENTS 5.1 Appropriateness of management estimates in revenue recognition for certain long-term contracts in the RM Assessment business 5.2 Valuation of intangible assets on major IT development programmes Key audit matter description The RM Assessment business generated revenue in the year of £31.9m, (2020: £31.6m). As set out in the accounting policies, within Note 2 to the Financial Statements, there are a number of judgements taken in applying IFRS 15 Revenue from Contracts with customers for the contracts in this business. £11.7m of the revenue generated in the year, (2020: £11.4m), relates to five contracts with multiple performance obligations and a variable transaction price based on the number of exam scripts. In accounting for these contracts there is a key source of estimation uncertainty relating to the estimate of exam scripts, which earn variable consideration over the life of the contract. The impact of the COVID-19 pandemic on exam sittings and the format of assessment in the current and prior year create a greater level of uncertainty in this estimate. Given this estimate could be the subject of management bias and has a material impact on revenue recognised in the year we identified a risk of potential fraud in respect of revenue recognition for these contracts. The complexity of this estimate also impacted the audit team’s allocation of resources, particularly as regards the seniority of staff who worked on this area. For these reasons, we identified this element of revenue recognition as a key audit matter. Further details are included within the Audit Committee report on page 71, and Notes 2 and 3 to the Financial Statements on pages 129 and 138. How the scope of our audit responded to the key audit matter In response to the identified key audit matter we have performed the following procedures for contracts with material variable revenue: • obtained an understanding of relevant controls used by the Company when determining the assumptions applied in the models that drive revenue recognition; • assessed the appropriateness of the revenue recognition policies applied against the five step model in IFRS 15 Revenue from Contracts with customers through a review of the underlying contract terms; • assessed the accuracy of management’s revenue models against contractual terms and compliance with the principles within IFRS 15 Revenue from Contracts with customers; we did this through independently modelling the contracts to form our own expectation of the outputs and compared those to management’s calculations; • challenged key estimates made by management in determining the total transaction price in respect of exam volumes. This included assessing forecasting accuracy, understanding the level of constraint relative to operational forecasts, reviewing the latest correspondence with customers and assessing the available confirmatory and contradictory external market evidence; and • assessed the appropriateness of management’s sensitivity analysis for key estimates and the clarity of related disclosures as required under IAS 1 for significant judgements and key areas of estimation uncertainty. Key observations We are satisfied that revenue recognised for contracts with material variable consideration is appropriate and we did not identify any differences of judgement or calculation that are material. We tested the revenue recognition models using a fully substantive approach and placed no reliance on controls. There are significant complexities in management’s models that drive revenue recognition that create risk of error or manipulation. We observed that controls over these models, including the inputs in relation to volume of exam scripts, could be improved through a greater extent of automation and more formalised review. Further details are included within the Audit Committee report on page 73. Key audit matter description The Group is investing in a major programme to implement new IT systems, referred to as Evolution, which are predominately using cloud based Software-as-a-Service (‘SaaS’) arrangements and third-party implementation partners to improve systems and processes. In April 2021 the IFRS Interpretations Committee published an agenda decision in relation to the accounting treatment for configuration and customisation costs in SaaS arrangements. The committee concluded that typically these costs do not result in an intangible asset of the customer and should be recognised as an expense unless the criteria for recognising a separate asset are met. The Group performed a detailed analysis of the nature of expenditure incurred and determined that £12.2 million of total spend to date should be expensed. £3.9 million of this amount was incurred and previously capitalised in prior periods and therefore management have restated the prior year Financial Statements to reflect this change in accounting policy. Given the size of the amounts and the complexity and judgement in applying the interpretation we identified this to be a key audit matter. Further details are included within the Chief Financial Officer’s statement on page 33, the Audit Committee report on page 72, and Notes 2 and 33 to the Financial Statements on pages 132 and 178. In response to the identified key audit matter we have performed the following procedures: • obtained an understanding of relevant controls used by the Company when determining amounts to be capitalised or expensed and in assessing the impact of the change in accounting policy; • • reviewed and challenged management’s accounting policy to assess whether it aligns with the IFRIC interpretation on IAS 38 Intangible assets; tested, on a sample basis, the nature of the configuration and customisation costs and the related systems through review of the underlying contracts of relevant providers and system integrators and involvement of IT specialists to independently assess whether items should be capitalised or expensed; • challenged whether any elements of the prior period adjustments related to errors in the historical application of IAS 38 rather than adoption of a new accounting policy; and • assessed the disclosures relating to the change in accounting policy against the requirements of IAS 8 Accounting policies, changes in accounting estimates and errors. How the scope of our audit responded to the key audit matter Key observations We are satisfied that amounts capitalised and expensed are materially accurate and in line with the latest guidance from the IFRS Interpretations Committee on IAS 38 Intangible assets. We are satisfied that the impact of the change in accounting policy has been appropriately disclosed in the Financial Statements. 110 111 FINANCIAL STATEMENTS 6. OUR APPLICATION OF MATERIALITY 6.1 Materiality We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. 6.2 Performance materiality We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Group Financial Statements Parent Company Financial Statements Group Financial Statements Parent Company Financial Statements Materiality 65% of Group materiality 70% of parent Company materiality Materiality £725,000 £350,000 (2020 previous auditor: £880,000) (2020 previous auditor: £700,000) Basis for determining materiality Rationale for the benchmark applied 5% of profit before tax adjusted for material non-recurring items. In the year ended 30 November 2021 the adjustments made for non-recurring items are consistent with those presented in Note 6; however we did not exclude amortisation of acquisition related intangibles from our determination of materiality as it is a recurring item. In 2020 the previous auditor set materiality based on 5% of profit before tax adjusted for material non-recurring items averaged over the previous three years. Parent Company materiality equates to less than 0.2% of net assets, which is capped at approximately 50% of Group materiality. In 2020 the previous auditor set materiality based on 0.5% of the Company’s total assets. Adjusted profit before tax reflects the manner in which the underlying business performance is reported and assessed by external users of the Financial Statements. Net assets are considered to be an appropriate benchmark for the parent Company given that it is a holding company. Group materiality £725k Component materiality range £245k to £350k Audit Commitee reporting threshold £36k Profit before tax adjusted for material non-recurring items £15,091k 112 Basis and rationale for determining performance materiality In setting performance materiality, we considered: • The quality of the control environment in the Group, including the systems in place and informality of certain controls, and the extent to which it has been impacted by COVID-19; • The fact that it was our first year as auditors of the Group and parent Company; • The low number of corrected and uncorrected misstatements identified in the prior year; and • The level of consistency in key personnel within the finance team. Given the nature of the parent Company’s operations as a holding company, we considered that a reduction of performance materiality to 70% was sufficient. 6.3 Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £36,250 (2020 previous auditor: £44,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the Financial Statements. 7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT 7.1 Identification and scoping of components Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at a Group level. Based on that assessment we focussed our Group audit scope on the audit work at three components, which were subject to a full scope audit. This included the parent Company, and the three principal UK based trading businesses; RM Resources, RM Technology and RM Assessment. These account for 98% of the Group’s revenues, 95% of profit before tax and 92% of total assets. Our audit work at these components was executed at levels of materiality applicable to each individual component, which were lower than Group materiality ranging from £245,000 to £350,000. All work was carried out by the Group engagement team for both the Group and component audits. At the Group level, we also tested the consolidation process and carried out analytical procedures to re-confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to full scope audit. 2% 5% 8% Revenue Profit before tax Total assets 98% 95% 92% Full audit scope Review at Group level 113 FINANCIAL STATEMENTS7.2 Our consideration of the control environment 9. RESPONSIBILITIES OF DIRECTORS The Group operates a diverse IT infrastructure. With the involvement of our IT specialists we obtained an understanding of the relevant IT environment which included, in some instances, performance of general IT control (“GITC”) testing. Weaknesses in the IT control environment meant we did not place reliance on those controls for the purposes of our substantive audit procedures. For all components we obtained an understanding of the relevant controls associated with the financial reporting process, key audit matters, and in relation to significant accounting estimates. We have taken a non-controls reliance approach throughout our audit. As discussed in the Audit Committee Report on page 73 there is currently a lack of formality and documentation in the Group’s control environment, particularly in relation to journal approvals. However, management mitigate the systems deficiencies with management review controls and are implementing a significant IT transformation programme which will allow a greater degree of automation. A more formal control framework will be developed alongside the system implementation. 8. OTHER INFORMATION The other information comprises the information included in the annual report, other than the Financial Statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the annual report. Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the Financial Statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. 10. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 11. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 11.1 Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets; In addition, we considered provisions of other laws and regulations that do not have a direct effect on the Financial Statements but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. • • • the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error; results of our enquiries of management, internal audit and the audit committee about their own identification and assessment of the risks of irregularities; • any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to: ◌ identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; ◌ detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; ◌ the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and • the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations, pensions, and IT specialists regarding how and where fraud might occur in the Financial Statements and any potential indicators of fraud. As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas: • Management estimates of variable consideration in revenue recognition for certain long term contracts in the RM Assessment business; • Accounting for major capital programmes in accordance with IAS 38 Intangible assets and IAS 16 Property, plant and equipment; and • The potential for bias in the presentation of items as adjustments to profit. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the Financial Statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax legislation in relevant jurisdictions. 11.2 Audit response to risks identified As a result of performing the above, we identified management estimates of variable consideration in revenue recognition for certain long term contracts in the RM Assessment business and the valuation of intangible assets on major IT development programmes as key audit matters related to the potential risk of fraud or non- compliance with laws and regulations. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. In addition to the above, our procedures to respond to risks identified included the following: • reviewed the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the Financial Statements; • enquired of management, the audit committee and legal counsel concerning actual and potential litigation and claims; • performed analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • • • read minutes of meetings of those charged with governance, reviewing internal audit reports and reviewed correspondence with HMRC; in addressing the risk of bias in the presentation of items as adjustments to profit, we have reviewed the accounting policy to assess whether it is in line with regulatory guidance, and we have challenged whether items presented as adjustments are classified in line with this policy; and in addressing the risk of fraud through management override of controls, we tested the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. 114 115 FINANCIAL STATEMENTS Report on other legal and regulatory requirements 12. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • • the information given in the strategic report and the Directors’ report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the Directors’ report. 13. CORPORATE GOVERNANCE STATEMENT 14. MATTERS ON WHICH WE ARE The Listing Rules require us to review the Directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the Financial Statements and our knowledge obtained during the audit: • • • • • • the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 36; the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate set out on page 36; the Directors' statement on fair, balanced and understandable set out on page 107; the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 25 to 26; the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 73; and the section describing the work of the Audit Committee set out on pages 71-74. REQUIRED TO REPORT BY EXCEPTION 14.1 Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • 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 are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 14.2 Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of this matter. 15. OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS 15.1 Auditor tenure Following the recommendation of the audit committee, we were appointed by the board on 8th April 2021 to audit the Financial Statements for the year ending 30 November 2021 and subsequent financial periods. 15.2 Consistency of the audit report with the additional report to the audit committee Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK). 16. USE OF OUR REPORT 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. Kate Hadley (Senior statutory auditor) For and on behalf of Deloitte LLP Birmingham, United Kingdom 14 February 2022 116 117 CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Revenue Cost of sales Gross profit Operating expenses Impairment losses Profit from operations Other income Finance costs Profit before tax Tax Profit for the year Year ended 30 November 2021 Restated Year ended 30 November 2020 Adjusted Adjustments Note £000 £000 Total £000 Adjusted Adjustments £000 £000 Total £000 3 210,853 (140,220) 70,633 - - - 210,853 188,999 - 188,999 (140,220) (121,551) (365) (121,916) 70,633 67,448 (365) 67,083 (52,164) (11,483) (63,647) (52,119) (4,154) (56,273) - - - (248) - (248) 18,469 (11,483) 6,986 15,081 (4,519) 10,562 28 (1,396) - - 28 21 (1,396) (1,055) - - 17,101 (11,483) 5,618 14,047 (4,519) 10 (3,282) 1,858 (1,424) (2,668) 775 13,819 (9,625) 4,194 11,379 (3,744) 5 14 8 9 Earnings per ordinary share - basic - diluted Paid and proposed dividends per share 11 12 16.6p 16.4p - interim - final 13.8p 13.6p 5.0p 5.0p 1.70p 3.00p 21 (1,055) 9,528 (1,893) 7,635 9.2p 9.1p - 3.00p Year ended 30 November 2021 Restated Year ended 30 November 2020 Profit for the year Items that will not be reclassified subsequently to profit or loss Defined benefit pension scheme remeasurements Tax on items that will not be reclassified subsequently to profit or loss Items that are or may be reclassified subsequently to profit or loss Fair value gain on hedged instruments Note 26 10 Tax on items that are or may be reclassified subsequently to profit or loss 10 Exchange loss on translation of overseas operations Other comprehensive income/(expense) Total comprehensive income/(expense) £000 4,194 44,860 (10,364) 242 (45) (180) 34,513 38,707 £000 7,635 (16,302) 2,854 346 (3) (205) (13,310) (5,675) The notes on pages 126 to 180 form an integral part of these Financial Statements. The restatement is detailed in Note 33. Throughout this statement, adjusted profit and EPS measures are stated after adjusting items which are identified by virtue of their size, nature and/or incidence. The treatment of adjusted items is applied consistently period on period and is consistent with the way that underlying trading performance is measured by management (see Note 6 for details). All amounts were derived from continuing operations. The restatement is detailed in Note 33. The notes on pages 126 to 180 form an integral part of these Financial Statements. 118 119 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET At 30 November 2021 Restated At 30 November 2020 Restated At 1 December 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Note 13 14 15 16 26 20 19 10 18 20 19 21 22 24 22 24 10 26 23 25 27 Non-current assets Goodwill Intangible assets Property, plant and equipment Right-of-Use assets Defined benefit pension scheme surplus Other receivables Contract fulfilment assets Deferred tax assets Current assets Inventories Trade and other receivables Contract fulfilment assets Held-for-sale asset Tax assets Cash at bank Total assets Current liabilities Trade and other payables Tax liabilities Provisions Overdraft Net current (liabilities)/assets Non-current liabilities Other payables Provisions Deferred tax liability Defined benefit pension scheme obligation Borrowings Total liabilities Net assets Equity attributable to shareholders Share capital Share premium account Own shares Capital redemption reserve Hedging reserve Translation reserve Retained earnings Total equity £000 49,202 23,405 16,217 18,018 35,037 82 4,169 156 146,286 19,055 33,865 1,360 3,034 3,665 3,560 64,539 210,825 (61,369) - (2,066) (2,082) (65,517) (978) (21,072) (1,475) (10,830) (4,686) (19,744) (57,807) (123,324) 87,501 1,917 27,080 (444) 94 177 (882) 59,559 87,501 £000 49,322 19,016 8,423 19,391 665 63 3,420 5,333 105,633 18,594 31,475 728 4,793 2,633 5,941 64,164 169,797 (61,491) (163) (435) (2,480) (64,569) (405) (20,987) (3,998) (3,339) (19,318) (4,779) (52,421) (116,990) 52,807 1,917 27,080 (841) 94 (65) (702) 25,324 52,807 £000 49,107 21,054 9,183 - 976 939 2,193 3,457 86,909 22,151 31,238 844 1,428 804 5,534 61,999 148,908 (51,231) (117) (1,585) (4,006) (56,939) 5,060 (3,483) (3,868) (3,356) (6,951) (16,534) (34,192) (91,131) 57,777 1,917 27,080 (1,007) 94 (411) (497) 30,601 57,777 The notes on pages 126 to 180 form an integral part of these Financial Statements. The prior years have been restated (see Note 33 for further details). These Financial Statements of RM plc, registered number 01749877, were approved and authorised for issue by the Board of Directors on 14 February 2022. On behalf of the Board of Directors Neil Martin Director Mark Berry Director Share redemption Hedging Translation Retained Share capital premium Own shares reserve reserve reserve earnings Capital Note £000 £000 £000 £000 At 1 December 2019 - as reported 1,917 27,080 (1,007) Configurations costs expensed 33 - - - At 1 December 2019 - as restated 1,917 27,080 (1,007) Profit for the year - restated Other comprehensive income/(expense) Total comprehensive income/(expense) Transactions with owners of the Company: Share-based payment awards exercised Share-based payment fair value charges 28 - - - - - - - - - - At 1 December 2020 - as restated 1,917 27,080 Profit for the year Other comprehensive income/(expense) Total comprehensive income/(expense) - - - Transactions with owners of the Company: Share-based payment awards exercised Share-based payment fair value charges Ordinary dividends paid 28 12 - - - - - - - - - - - - 166 - (841) - - - 397 - - 94 - 94 - - - - - 94 - - - - - - £000 (411) £000 (497) £000 Total £000 32,399 59,575 - - (1,798) (1,798) (411) (497) 30,601 57,777 - - 7,635 7,635 346 346 - - (65) - 242 242 - - - (205) (13,451) (13,310) (205) (5,816) (5,675) - - (166) - 705 705 (702) 25,324 52,807 - 4,194 4,194 (180) 34,451 34,513 (180) 38,645 38,707 - - - (397) - (100) (100) (3,913) (3,913) At 30 November 2021 1,917 27,080 (444) 94 177 (882) 59,559 87,501 The notes on pages 126 to 180 form an integral part of these Financial Statements. 120 121 FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT COMPANY BALANCE SHEET Year ended 30 November 2021 Restated Year ended 30 November 2020 Note 8 9 6 14 15, 16 5 5 26 24 26 15 14 12 23 Profit before tax Investment income Finance costs Profit from operations Adjustments for: Pension GMP Amortisation and impairment of intangible assets Depreciation and impairment of property, plant and equipment Gain on disposal of other asset Gain on disposal of property, plant and equipment Loss/(gain) on foreign exchange derivatives Share-based payment (credit)/charge (Decrease)/increase in provisions Defined benefit pension scheme administration cost Operating cash flows before movements in working capital (Increase)/decrease in inventories (Increase)/decrease in receivables Increase in contract fulfilment assets Movement in payables: Increase in trade and other payables Utilisation of provisions Cash generated from operations Defined benefit pension scheme cash contributions Tax paid Net cash inflow from operating activities Investing activities Interest received Proceeds on disposal of investment asset Proceeds on disposal of property, plant and equipment Purchases of property, plant and equipment Purchases of other intangible assets Net cash used in investing activities Financing activities Dividends paid Drawdown/(repayment) of borrowings Borrowing facilities arrangement and commitment fees Interest paid Payment of leasing liabilities Net cash generated by/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year Bank overdraft Cash at bank Cash and cash equivalents at the end of the year £000 5,618 (28) 1,396 6,986 - 2,406 4,281 - (1,449) 64 (100) (353) 52 11,887 (460) (2,318) (1,381) 1,177 (528) 8,377 (4,450) (135) 3,792 28 - 3,214 (8,024) (6,977) (11,759) (3,913) 15,000 (497) (675) (3,889) 6,026 (1,941) 3,461 (42) 1,478 (2,082) 3,560 1,478 Cash and cash equivalents include bank overdrafts as these form an integral part of the Group's cash management. The notes on pages 126 to 180 form an integral part of these Financial Statements. The restatement is detailed in Note 33. £000 9,528 (21) 1,055 10,562 170 3,038 3,718 (713) (949) (625) 705 1,443 37 17,386 3,557 2,362 (1,111) 6,012 (2,284) 25,922 (4,094) (2,589) 19,239 21 1,560 2,900 (5,801) (801) (2,121) - (12,000) (226) (501) (2,523) (15,250) 1,868 1,528 65 3,461 (2,480) 5,941 3,461 Non-current assets Investments Other receivables Current assets Trade and other receivables Tax assets Total assets Current liabilities Accruals Trade and other payables Net current liabilities Non-current liabilities Borrowings Total liabilities Net assets Equity attributable to equity holders Share capital Share premium account Own shares Capital redemption reserve Retained earnings Total equity At 30 November 2021 At 30 November 2020 Note £000 £000 17 20 20 22 22 23 25 27 126,430 7,263 133,693 106 526 632 134,325 (118) (49,602) (49,720) (49,088) (19,744) (19,744) (69,464) 64,861 1,917 27,080 (444) 94 36,214 64,861 126,530 7,329 133,859 48 411 459 134,318 (151) (64,122) (64,273) (63,814) (4,779) (4,779) (69,052) 65,266 1,917 27,080 (841) 94 37,016 65,266 The notes on pages 126 to 180 form an integral part of these Financial Statements. The Company has taken the exemption under Section 408 of the Companies Act 2006, not to produce an Income Statement. The profit for the year was £3,608,000 (2020: £3,581,000). These Financial Statements of RM plc, registered number 01749877, were approved and authorised for issue by the Board of Directors on 14 February 2022. On behalf of the Board of Directors Neil Martin Director Mark Berry Director 122 123 FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY Share redemption Retained Capital Share capital premium Own shares reserve earnings Note £000 £000 £000 £000 £000 Total £000 1,917 27,080 (1,007) 94 32,896 60,980 At 1 December 2019 Profit for the year Total comprehensive income Transactions with owners of the Company: Share-based payment awards exercised Share-based payment fair value charges 28 At 30 November 2020 Profit for the year Total comprehensive income Transactions with owners of the Company: Share-based payment awards exercised Share-based payment fair value charges Ordinary dividends paid At 30 November 2021 28 12 - - - - - - - - 1,917 27,080 - - - - - - - - - - - - 166 - (841) - - 397 - - - - - - 3,581 3,581 (166) 705 3,581 3,581 - 705 94 37,016 65,266 - - - - - 3,608 3,608 3,608 3,608 (397) (100) - (100) (3,913) (3,913) 1,917 27,080 (444) 94 36,214 64,861 The notes on pages 126 to 180 form an integral part of these Financial Statements. 124 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION RM plc (‘Company’) is incorporated in England and Wales and listed on the London Stock Exchange. It is the parent company of a group of companies (‘Group’) whose business activities and financial position, together with the factors likely to affect its future development, performance and position, and risk management policies are presented in the Strategic Report and the Directors’ Report. Consolidated Income Statement presentation The Directors assess the performance of the Group using an adjusted operating profit and profit before tax. The policy for the use of Alternative Performance Measures is explained in Note 2 with further details provided in Note 6. 2. SIGNIFICANT ACCOUNTING POLICIES 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. These accounting policies have been consistently applied to the years presented with the exception of capitalisation of configuration costs of a SaaS based solution. During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing SaaS arrangements in response to the IFRS Interpretations Committee agenda decision clarifying how IFRS Standards apply to these types of arrangements. The new accounting policy is presented below. Historical financial information has been restated to reflect the impact of the change—refer Note 33. Software-as-a-Service (SaaS) arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. Costs incurred to configure, and the ongoing fees to obtain access to the cloud provider’s application software, are recognised as operating expenses when the services are received. Some of the costs incurred relate to the development of software code that enhances or modifies, or creates additional capability to, existing on-premise systems and meets the definition of, and the recognition criteria for, an intangible asset. These costs are recognised as intangible software assets and amortised over the useful life of the software on a straight-line basis. The useful lives of these assets are reviewed at least at the end of each financial year, and any change accounted for prospectively as a change in accounting estimate. The Financial Statements are prepared on a going concern basis. The Directors’ reasons for continuing to adopt this basis are set out in the Going Concern section of the Strategic Report and below. Basis of preparation The Financial Statements have been prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 (“Adopted IFRS”). They are prepared on a historical cost basis except for certain financial instruments, share-based payments and pension assets and liabilities which are measured at fair value. In addition, assets held for sale are stated at the lower of previous carrying amount and the 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. In the year, the Company decided to apply Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101) in place of IFRS. The Company has applied FRS 101 issued by the Financial Reporting Council (FRC) incorporating the Amendments to FRS 101 issued by the FRC in July 2015, and the amendments to Company law made by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. In these Financial Statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures: • A Cash Flow Statement and related notes; • Comparative period reconciliations for share capital and tangible fixed assets; • Disclosures in respect of transactions with wholly owned subsidiaries; • Disclosures in respect of capital management; • The effects of new but not yet effective IFRSs; and • Disclosures in respect of the compensation of Key Management Personnel. The Company produces consolidated Financial Statements which are prepared in accordance with International Financial Reporting Standards. As the consolidated Financial Statements of the Company include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures: • IFRS 2 Share-Based Payments in respect of group settled share based payments; and • The disclosures required by IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided. As permitted by s408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account or statement of comprehensive income for the year. The profit attributable to the Company is disclosed in the footnote to the Company’s balance sheet. Going concern The Financial Statements have been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons. The Directors have prepared cash flow forecasts for the period to the end of May 2023 which indicate that, taking into account reasonably plausible downsides as discussed below, the Company have sufficient funds to meet its liabilities as they fall due for at least 12 months from the date of this report. In assessing the going concern position the Directors have considered the balance sheet position as included on page 120 and the level of available finance not drawn down. The balance sheet shows net current liabilities of £1.0m. At 30 November 2021, the Group had net debt of £18.3m (November 2020: £1.3m) and drawn facilities of £20m (November 2020: £5m). RM Group has a £70m committed bank facility (“the facility”) at the date of this report. Further details are set out in Note 31. Liquidity headroom at 30 November 2021 was £47.9m. Average net debt over the year to 30 November 2021 was £15.8m (2020: £16.3m) with a maximum borrowings position of £29.7m (2020: £29.6m). The debt facilities are subject to financial covenants of a maximum of 2.5 times Net Debt/EBITDA and at least 4 times interest cover/EBITDA. These covenants are tested in May and November. At 30 November 2021 the results of the covenant tests were 0.84 and 22.6 respectively. The facility was extended by 1 year during 2021 and is committed until July 2023. During this extension process, the Board initiated conversations regarding 3 year facilities to replace the current facility when it expires and is confident in obtaining a new or renewed facility at an appropriate time. The Board is satisfied that there are several other financing options that could be put in place to maintain liquidity headroom and that there would be adequate time to complete negotiation of such arrangements. The CFO report outlines the performance of the Group in the year to 30 November 2021 including the impact of COVID-19. In this period UK schools were closed for a number of weeks primarily during Q1, and many UK and Irish exams were cancelled by respective governments. Despite this backdrop, revenues increased by 12% compared to 2020 and adjusted profit before tax by 22%. In RM Resources, we continued to provide products to our customers during school closures and have experienced strong curriculum sales in 2021. In RM Assessment (formerly RM Results), whilst the UK general exams saw a significant reduction compared to 2019, other UK assessment and international examination activity recovered partially. RM Technology (formerly RM Education) continues to be resilient to UK school closures as it provides the technology support to UK schools and colleges that has allowed them to operate remotely. Performance by segment is set out in Note 4. Net cash inflow from operating activities was £3.8m. For going concern purposes the Group has assessed a base case scenario that assumes no further significant downturn in UK or International markets occurs than that experienced in the year to 30 November 2021. The base case also incorporates a reduced but still significant level of investment expenditure in 2022 as we have spent in 2021 relating to our major transformation projects and assumes a return to shareholders through dividends. Under that base case we continue to maintain significant headroom against our committed facility and are comfortably within our covenants. The Group has assessed a further severe downside scenario that adjusts our base assumptions to include: • Further school closures for March through to May 2022 at similar levels of trading experienced in 2021, comprising a c.30% reduction in divisional revenue in those months; • Reduced International trading and exams, including an c.25% reduction in International general school exams against budget; • Assumes the UK exams that have been cancelled in 2021 are also cancelled in 2022; • Slower pipeline conversion, a c.50% of budgeted annuity contracts in RM Assessment and RM Technology being achieved; 126 127 FINANCIAL STATEMENTS• Benefits from our ERP programme are delayed by approximately 1 year; • Business disruption for 2 months in our RM Resources Division when the warehouse automation goes live in 2022 reducing order intake by c.50% in those 2 months; • Minimal cost mitigations and no significant cash flow deferrals. The Directors do not believe that all these assumptions occurring together is plausible, but even considering all these scenarios in aggregate we continue to have good headroom against the facility and comply with bank covenants until the facility concludes. The Directors also believe there is reasonable expectation of entering into a new agreement on similar terms as the existing renewed facility. Having considered the severity of this scenario, the Board considers this to be an appropriate worst case scenario. The Board’s assessment of the likelihood of a further downside scenario is remote, particularly with the continued vaccine booster/ roll out programmes and lifting of restrictions in key countries and the indications from most governments worldwide that they intend to lift remaining restrictions as soon as practical. Therefore, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence and meet their liabilities as they fall due for a period of not less than 12 months from the date of approval of these Financial Statements. For this reason, the Group continues to adopt the going concern basis of accounting in preparing the annual Financial Statements. Alternative Performance Measures (APMs) In response to the Guidelines on APMs issued by the European Securities and Markets Authority (ESMA) and the Financial Reporting Council (FRC), additional information on the APMs used by the Group is provided below. The following APMs are used by the Group: - Adjusted operating profit - Adjusted operating margin - Adjusted profit before tax - Adjusted tax - Adjusted profit after tax - Adjusted earnings per share - Adjusted diluted earnings per share - Adjusted cash conversion - Net debt - Average net debt Further explanation of what each APM comprises and reconciliations between Statutory reported measures and adjusted measures are shown in Note 6. The Board believes that presentation of the Group results in this way is relevant to an understanding of the Group’s financial performance (and that of each segment). Underlying performance excludes adjusted items which are identified by virtue of their size, nature and/or incidence. The treatment of adjusted items is applied consistently period on period. This presentation is consistent with the way that financial performance is measured by management, reported to the Board, the basis of financial measures for senior management’s compensation schemes and assists in providing supplementary information that assists the user to understand the underlying financial performance, position and trends of the Group. The APMs used by the Group are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures. All APMs relate to the current year results and comparative periods where provided. 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. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. Investment in subsidiaries In the Company accounts, investments in subsidiaries are stated at cost less any provision for impairment where appropriate. Business combinations RM Assessment revenue judgements: For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as: • • the fair value of the consideration transferred; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. For acquisitions before 1 January 2010, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of the acquisition period. Revenue The Group operates a number of diverse businesses and accordingly applies a variety of methods for revenue recognition, based on the principles set out in IFRS15. The revenue and profits recognised in any period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer. RM Resources provides educational supplies and curriculum products for schools and nurseries and revenues are recognised when products are delivered to our customers i.e. point in time basis for each product delivered. RM Technology provides software, services and technology to UK schools and colleges. Hardware, Right-to-Use licenses and related installation revenues are recognised on delivery to our customers at a point in time. Provision of services and Right-to-Access software are recognised over time. RM Assessment provides digital assessment solutions that support lifelong learning. Revenues are recognised over- time based on the delivery of performance obligations. In certain contracts there are judgements in determining the basis of revenue recognition particularly for long-term and complex contracts. In respect of certain contracts in the RM Assessment Division management is required to form several judgements and assumptions. These include determining the amount of revenue and profits to record, and related balance sheet items (such as contract fulfilment assets, trade receivables, accrued income and deferred income) to recognise in the period. Judgements and assumptions include: • The identification of performance obligations included within the contract • The allocation of revenue to performance obligations including the impact of variable consideration • The combination of goods and services into a single performance obligation • The measurement of progress for performance obligations satisfied over time • The consideration of onerous contract conditions and associated loss provisions The impact on revenue recognition of these judgements and assumptions is set out below. The most significant judgements relate to contracts with multiple performance obligations and where there is a variable transaction price based on the number of exam scripts. There is significant estimation uncertainty in some contracts relating to the estimate of scanning and script volumes over the contract. There is also judgement in the determination, that the provision of technology is a Right-to-Access arrangement and therefore should be recognised over time, and the basis on which the transaction price is allocated to separate performance obligations. These are explained in key sources of estimation uncertainty and key sources of critical accounting judgements below. Basis of revenue recognition Revenue is recognised either when the performance obligation in the contract has been performed (so “point in time” recognition or “over time” as control of the performance obligation is transferred to the customer). For all contracts, the Group determines if the arrangement with a customer creates enforceable rights and obligations. For contracts with multiple components to be delivered, management applies judgement to consider whether these promised goods or services are; (i) distinct – to be accounted for as separate performance obligations; (ii) not distinct – to be combined with other promised goods or services until a bundle is identified that is distinct; or (iii) part of a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. 128 129 FINANCIAL STATEMENTSAt contract inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has rights to under the present contract. This includes an assessment of any variable consideration where the performance obligation is satisfied over time. Such amounts are only included based on the expected value or the most likely outcome method, and only to the extent it is highly probable that no revenue reversal will occur. The transaction price does not include estimates of consideration resulting from change orders for additional goods and services until these are agreed. Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when those performance obligations are satisfied. In our RM Assessment Division the Group may sell customer bespoke solutions, and in these cases the Group typically uses the expected cost plus margin or a contractually stated price approach (if set out by performance obligation in the contract) to estimate the stand-alone selling price of each performance obligation. Any remaining performance obligations for which the stand-alone selling price is highly variable or uncertain, due to not having previously been sold on a stand-alone basis, is allocated applying the residual approach. For each performance obligation, the Group determines if revenue will be recognised over time or at a point in time. Where the Group recognises revenue over time for long term contracts, this is generally due to the Group performing and the customer simultaneously receiving and consuming the benefits provided over the life of the contract. For each performance obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group’s performance in transferring controls of the good or services to the customer. This decision requires assessment of the real nature of the goods or services that the Group has promised to transfer to the customer. The Group applies the relevant input or output method consistently to similar performance obligations in other contracts. When using the output method the Group recognises revenue on the basis of direct measurements of the value to the customer of the goods and services transferred to the date relative to the remaining goods and services under the contract. Where the output method is used, where the series guidance is applied (see below for further details), the Group often uses a method of time elapsed which requires minimal estimation. Certain long term contracts use output method based on estimation of number of scripts, or level of service activity. There is variable consideration relating to the number of scripts. There is judgement in determining whether a contract has onerous conditions. When identified the expected loss is provided for at the time identified. Revenue: Transactional (point in time) contracts The Group delivers goods and services in RM Technology and RM Resources that are transactional services for which revenue is recognised at the point in time when the control of the goods or services has transferred to the customer. This may be at the point of physical delivery of goods and acceptance by a customer or when the customer obtains control of an asset or service in a contract with customer- specified acceptance criteria. The nature of contracts or performance obligations categorised within this revenue type includes: (i) provision of curriculum and educational resources for schools and nurseries; (ii) provision of IT hardware goods and (iii) installation of IT hardware goods. Revenue: Over time contracts The Group delivers services in RM Technology and RM Assessment Divisions under customer contracts with variable duration. The nature of contracts and performance obligations categorised within this revenue type is diverse and includes: (i) outsourced service arrangements in the public and private sectors; and (ii) Right- to-Access licenses (see below). The Group considers that the services provided meet the definition of a series of distinct goods and services as they are: (i) substantially the same; (ii) have the same pattern of transfer (as the series constitutes services provided in distinct time increments (e.g. daily, monthly, quarterly, exam session, or annual service)) and therefore treats the series as one performance obligation. Even if the underlying activities performed by the Group to satisfy a promise vary significantly throughout the day and on a day by day basis, that fact, by itself, does not mean the distinct goods or services are not substantially the same. For the majority of the over time contracts with customers are in this category, the Group recognises revenues using the output method as it best reflects the nature in which the Group is transferring control of the goods or services to the customer. Right-to-Access licenses are those where the Group has a continuing involvement after the sale or transfer of control to the customer, which significantly affects the intellectual property to which the customer has rights. The Group is responsible for maintenance, continuing support, updates and upgrades and accordingly the sale of the initial software is not distinct. The Group’s accounting policy for licenses is discussed in more detail below. Revenue: Licenses Software licenses delivered by the Group can be either “Right-to-Access” or “Right-to-Use” licenses. Right-to-Access licenses require continuous upgrade and updates for the software to remain useful, all other licenses are treated as Right-to-Use licenses. The assessment of whether a license is a Right-to-Access license or a Right-to-Use license involves judgement. The key determinant of whether a license is a Right-to-Access license is whether the Group is required to undertake activities that significantly affect the license intellectual property (or the customer has a reasonable expectation that it will do so) and the customer is, therefore exposed to positive or negative impacts resulting from those changes. The Group considers for each contract that includes a separate license performance obligation all the facts and circumstances in determining whether the license revenue is recognised over time or at a point in time from the go live date of the license. Revenue: Contract modifications The Group’s over time contracts are often amended for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates new or changes the existing enforceable rights and obligations. Material modifications are predominantly extension to contract and in the current year also relate to cancellation of exam sessions. The Group considers whether each contract modification is part of the original contract or is a separate contract and allocates the transaction price accordingly. Revenue: Contract fulfilment costs Contract fulfilment costs are divided into: (i) costs that give rise to an asset; and (ii) costs that are expensed as incurred. When determining the appropriate accounting treatment for such costs, the Group firstly considers any other applicable standards. If those other standards preclude capitalisation of a particular cost, then the asset is not recognised under IFRS15. If other standards are not applicable to contract fulfilment costs, the Group applies the following criteria which, if met, result in capitalisation: (i) the costs directly relate to a contract or to a specifically identifiable anticipated contract; (ii) the costs generate or enhance resources of the entity that will be used in satisfying (or continuing to satisfy) performance obligations in the future; and (iii) the costs are expected to be recovered. The assessment of this criteria requires the application of judgement, in particular at which point the capitalisation ceases and the performance obligation begins. Revenue: Amortisation, derecognition and impairment of contract fulfilment assets The Group amortises contract fulfilment assets to cost of sales over the expected contract period using a systematic basis that mirrors the pattern in which the Group transfers control of the service to the customer. The amortisation charge is included within cost of sales. A contract fulfilment asset is derecognised either when it is disposed of or when no further economic benefits are expected to flow from its use or disposal. Management is required to determine the recoverability of contract related assets within property, plant and equipment, intangible assets as well as contract fulfilment assets, accrued income and trade receivables. At each reporting date, the Group determines whether or not the contract fulfilment assets are impaired by comparing the carrying amount of the asset to the remaining amount of consideration that the Group expects to receive less costs that relate to providing services under the relevant contract. In determining the estimated amount of consideration, the Group uses the same principles as it does to determine the contract transaction price, except that any constraints used to reduce the transaction price will be removed for the impairment test. Revenue: Deferred and accrued income The Group’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and services being provided. The Group often agrees payment schedules at the inception of long-term contracts under which it receives payments throughout the term of the contracts. These payment schedules may include progress payments as well as regular monthly or quarterly payments for ongoing service delivery. Payments for transactional goods or services may be at delivery date, in arrears or part payment in advance. There are no material financing arrangements. Where payments made are greater than the revenue recognised at the period end date, the Group recognises a deferred income contract liability for this difference. Where payments made are less than the revenue recognised at the period end date, the Group recognises an accrued income contract asset for this difference. Where accrued income and deferred income exist on the same contract these balances are shown net. 130 131 FINANCIAL STATEMENTS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. 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. 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. 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: a. the technical feasibility of completing the intangible asset so that it will be available for use or sale; and b. an intention to complete the intangible asset and use or sell it; and c. ability to use or sell the intangible asset; and d. 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; and e. the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and f. an ability to measure reliably the expenditure attributable to the intangible asset during its development. g. the Group has the ability to control the asset and it is separately identifiable. Configuration costs of development activity on a third-party SaaS solution are not deemed to be controlled by the Group unless we have the contractual rights to control that software. Any configuration activity provided by the SaaS supplier is expensed as incurred. Customisation costs of development activity on a third-party SaaS solution will only be capitalised where we have a contractual right to control the asset and it is separately identifiable. Any customisation activity provided by the SaaS supplier is expensed as incurred. In the majority of instances where configuration or customisation on a third-party SaaS solution is performed, the development work does not meet the criteria of ability to control the asset nor is it separately identifiable, so is expensed. This is a change in accounting policy and the impact is set out in Note 33. The technological feasibility for the Group’s software products is assessed on an individual basis and is generally reached shortly before the products or services are released, 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 Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Brand Website platform Other software assets Customer relationships 15 years 5 years 2–8 years 3–5 years Intellectual property and database assets 3–10 years Property, plant and equipment Held-for-sale asset Property, plant and equipment assets are stated at cost, less accumulated depreciation and any accumulated impairment losses 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 Up to 50 years Leasehold building improvements Up to 25 years Plant and equipment Specialised plant and equipment Computer equipment Vehicles 3–10 years 7–15 years 2–5 years 2–4 years 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. The 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. Held-for-sale assets are stated at the lower of cost less accumulated depreciation and any impairment losses where appropriate or fair value less costs to sell. Financial instruments Trade and other receivables Trade and other receivables are not interest bearing, except those specifically detailed in Note 20. Trade and other receivables are recognised initially at fair value and subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. The Group assesses on a forward-looking basis the expected credit losses associated with its receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk and this is assessed between government and commercial organisations. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses. Accrued income is recognised when services are performed and revenue recognised in advance of an invoice being raised. Cash and short-term deposits Cash comprises cash at bank and in hand and deposits with a maturity of three months or less from initial investment. Bank overdrafts are included in cash only to the extent that the Group has the right of set-off. Borrowings Borrowings relate to an unsecured revolving cash facility, detailed in Note 31. All loans and borrowings are initially recognised at their fair value less any directly attributable transaction costs. After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. Trade and other payables Trade payables on normal terms are not interest bearing. Trade and other payables are recognised initially at fair value and subsequent to initial recognition they are measured at amortised cost using the effective interest method. 132 133 FINANCIAL STATEMENTS Derivative financial instruments Other non-trading derivatives Leases Share-based payments The Group holds derivative financial instruments to hedge its foreign currency exposure. 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, as to 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. 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. 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. For all hedging of forecast financial transactions, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged expected future cash flows affect profit or loss. When the hedging instrument is sold, expires, is terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. 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 are valued at cost on a first in first out basis, including appropriate labour costs and other overheads. Stocks are recognised when the Group has the rights and obligations of ownership, which in the case of supply from the Far East may be from the point of production or the point of shipment. 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 a 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. At the inception of the lease, the Group recognises a Right-of-Use asset at cost, which comprises the present value of minimum lease payments determined at the inception of the lease. Right-of-Use assets are depreciated using the straight-line method over the shorter of estimated life or the lease term. Depreciation is included within administrative expenses in the consolidated income statement. Amendment to lease terms resulting in a change in payments or the length of the lease results in an adjustment to the Right-of-Use asset and liability. Right-of-Use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be fully recoverable. Right-of-Use assets (excluding property leases) exclude leases with a low value and term of 12 months or less. These leases are expensed to the income statement as incurred on a straight-line basis. Where a Right-of-Use property lease is not fully operational but is an asset under construction, the depreciation on the asset that relates to the non-operational period is recapitalised as a leasehold improvement within property, plant and equipment. On initial recognition, lease liabilities are recorded at the present value of lease payments, which include: • fixed lease payments; • variable payments that depend on an index or rate, initially measured using the commencement date index or rate; • any amounts expected to be payable under residual guarantees. The interest rate implicit in the lease is used to discount lease payments, or, if that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. Interest is recognised on the lease liability, resulting in higher finance cost in the earlier years of the lease term. 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. Where the vesting period is shortened after the date of grant, the remaining expense is recognised over the shortened vesting period. Over the vesting period and at vesting the cumulative expense is adjusted to take into account the number of awards expected to or actually vesting as a result of survivorship and where this reflects non- market-based performance conditions. Share-based payment charges which are incurred by a subsidiary undertaking are included as an increase in Investments in subsidiary undertakings within the parent Company, and a capital contribution in the subsidiary. Employee benefits The Group has both defined benefit and defined contribution pension schemes. There are three defined benefit pension schemes, the Research Machines plc 1988 Pension Scheme (the “RM Scheme”) and, following the acquisition of The Consortium in June 2017, The Consortium CARE Scheme (the “CARE Scheme”) and the Platinum Scheme. The RM Scheme and the CARE Scheme are both operated for employees and former employees of the Group only. The Platinum Scheme is a multi-employer scheme, with The Consortium being just one of a number of employers. The number of the Group’s former employees in that Scheme is small and so the impact/risk to the Group from that Scheme is limited. For all defined benefit pension schemes, based on the advice of a qualified independent actuary at each balance sheet date and using the projected unit method, the administrative expenses and current service costs are charged to operating profit, with the interest cost, net of interest on scheme assets, reported as a financing item. Defined benefit pension scheme remeasurements are recognised as a component of Other Comprehensive Income 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. Scheme assets are measured at bid-price, where available, at 30 November 2021. The present value of the defined benefit obligation was measured using the projected unit method. Under the guidance of IFRIC 14, the Group are able to recognise a pension surplus on the balance sheet for all three schemes. In the year the Platinum and RM schemes show a surplus and the CARE scheme is in deficit. 134 135 FINANCIAL STATEMENTSEmployee Share Trust The Employee Share Trust, which holds ordinary shares of the Company in connection with certain share schemes, is consolidated into the Financial Statements. Any consideration paid to the Trust for the purchase of the Company’s own shares is shown as a movement in shareholders’ equity. The Employee Share Trust is treated as a branch in the consolidated Financial Statements. Own Shares Held The “Own Shares Reserve” figure is calculated based on the number of shares held by the Employee Share Trust (“EST”) as at 30 November 2021 (being 618,796 shares) multiplied by the weighted average cost of those shares. Translation reserve The translation reserve comprises all foreign exchange differences from the translation of the Financial Statements of foreign operations. This is not distributable. Cash flow hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Only realised gains and total losses are distributable. 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. Current tax balances are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities. 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. 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 In applying the Group’s accounting policies the Directors are required to make estimates and assumptions. Actual results may differ from these estimates. The Group’s key risks are set out in the Strategic Report and give rise to the following estimations which are disclosed within the relevant note to the Report and Accounts: • Retirement benefit scheme valuation – The key estimation sensitivities are the discount rate applied to pension liabilities RPI/CPI and mortality. As disclosed in Note 26, a 0.1% movement in discount rate has a c.£7m impact on the net surplus, a 0.1% movement in RPI has a c.£6m impact and a 1 year average life extension has a c.£10m impact. A 0.1% sensitivity is disclosed as it is easily understood and can be scaled relatively linearly. • Revenue from RM Assessment contracts which contain • Revenue from RM Technology contracts – A number of judgements are made in the application of IFRS 15 Revenue from contracts with customers to certain RM Technology contracts. The most significant judgement relates to the determination that the provision of technology is a Right-to-Access arrangement and therefore should be recognised over time. The factors considered in making this judgement were the nature of services provided, i.e., licensed on a subscription basis, being centrally hosted and the customer is unable to take possession of the software. 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 Company’s accounting periods beginning on or after 1 December 2020 have been adopted. The following new interpretation has been adopted in the current period and have had limited impacted on the reported results or the financial position other than that set out in Note 33. • As set out in more details in Note 33, the IFRIC interpretation of IAS 38 for customisation or configuration costs in a SaaS arrangement has meant that we have expensed configuration costs (and some other associated development costs where we could not identify a separate asset) associated with the development of our ERP programme amounting to £8.3m in the year and a restatement of £3.9m in the amounts capitalised at 1 December 2020. variable revenues based on the number of exam scripts – There is estimation relating to estimate of total script volumes to determine the transaction price over the life of the contract. This estimation was reassessed at 30 November 2021 in light of the impact of COVID-19 on the UK and Internationally and experienced throughout 2021. The Group has assumed that script volumes in the UK will be higher in 2022 than in 2021 (with no government announcements to balance sheet date cancelling exams) but still reduced against 2019 pre-COVID-19 volumes. International exam scripts will remain slightly lower than 2019 pre-COVID-19 volumes but at similar levels to that experienced during 2021. ◌ The sensitivity analysis related to future script volumes show that if UK and International exams increased or reduced 15% against our assumed volumes from 2022 onwards, then revenue in 2021 would be increased or reduced by c.£0.7m Key sources of critical accounting judgements In applying the Group’s accounting policies the Directors are required to make judgements and assumptions, actual results may differ from these. The Group’s key risks are set out in the Strategic Report and give rise to the following judgements which are disclosed within the relevant note to the Report and Accounts: • Revenue from RM Assessment contracts – A number of judgements are made in the application of IFRS 15 Revenue from contracts with customers to certain RM Assessment contracts. The most significant judgements relate to contracts with multiple performance obligations and where there is a variable transaction price based on the number of exam scripts. In these contracts there is judgement in the determination that the provision of technology is a Right-to-Access arrangement and therefore should be recognised over time. The factors considered in making this judgement were the nature of services provided, including hosting, ongoing maintenance and system support. Judgement is also required to allocate the transaction price to each performance obligation, based on an estimation of the standalone selling price for scanning and the use of the residual method to determine a value for the provision of technology and support services. 136 137 FINANCIAL STATEMENTS3. REVENUE Year ended 30 November 2021 Supply of products Rendering services Licences Year ended 30 November 2020 Supply of products Rendering services Licences RM Resources RM Technology RM Technology RM Assessment Transactional Transactional Over time Over time £000 114,352 70 - £000 14,755 - 425 114,422 15,180 £000 - 34,828 14,553 49,381 £000 - 30,780 1,090 31,870 RM Resources RM Technology RM Technology RM Assessment Transactional Transactional Over time Over time £000 92,356 86 - 92,442 £000 13,809 - 533 14,342 £000 - 36,319 14,317 50,636 £000 - 30,542 1,037 31,579 Total Over time £000 129,107 65,678 16,068 210,853 Total Over time £000 106,165 66,947 15,887 188,999 Each contract is analysed separately to identify the performance obligations and judgements made as to whether, for example, goods and services should be combined. For some contracts judgement is also required to allocate the transaction price to each performance obligation based on the standalone selling price or, for licenses, the residual amount. Judgements include determination of performance obligations and allocation of revenue to performance obligations. Scanning revenues of £3,714,000 (2020: £2,305,000) are judged to be delivered over time. The associated transaction price will be dependent on over-time variables (such as volumes). The over-time period for scanning related revenues is over exam sessions, but this relatively short time span may fall into different external reporting periods. Revenue is then recognised based on these judgements which are set out in more detail in Note 2. There is estimation relating to the output methodology (of script volumes) to determine the transaction price as described in Note 2. This estimation was reassessed at 30 November 2021 in light of the impact of COVID-19 (on the UK and Internationally) and the Group have not had to materially change these estimates during the year. The Group assumes that script volumes will be lower in the UK in 2022 to those experienced in 2019 (pre- COVID-19) but higher than 2021. The table below shows the time bands of the expected timing of revenue to be recognised on over time contracts at 30 November 2021. Time bands of over-time contracts order book At 30 November 2021 < 1 year 1-2 years 2-5 years >5 years At 30 November 2020 < 1 year 1-2 years 2-5 years >5 years RM Technology RM Assessment Total Over time Over time Over time £000 6,125 5,044 7,934 - 19,103 £000 22,270 19,417 18,224 1,040 60,951 RM Technology RM Assessment Over time Over time £000 5,812 5,005 8,868 - 19,685 £000 17,324 15,505 22,848 1,429 57,106 £000 28,395 24,461 26,158 1,040 80,054 Total Over time £000 23,136 20,510 31,716 1,429 76,791 The order book represents the consideration the Group will be entitled to receive from customers when the Group satisfies the remaining performance obligations that are not yet met from contracts in place at the balance sheet date. However the total revenue that will be earned from the order book in future may change through non-contracted volumetric revenue, scope changes and contract extensions. These elements have been excluded from the figures in the table above as they are not contracted. 4. OPERATING SEGMENTS The Group's business is supplying products, services and solutions to the UK and international education markets. Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segmental performance is focused on the nature of each type of activity. The Group is structured into three operating Divisions: RM Resources, RM Assessment (formerly RM Results) and RM Technology (formerly RM Education). The Chief Operating Decision Maker reviews segments at an adjusted operating profit level and adjustments are not allocated to segments. A full description of each revenue generating Division, together with comments on its performance and outlook, is given in the Strategic Report. Corporate Services consists of central business costs associated with being a listed Company and non-Division-specific pension costs. This Segmental analysis shows the result and assets of these Divisions. Revenue is that earned by the Group from third parties. Net financing costs and tax are not allocated to segments as the funding, cash and tax management of the Group are activities carried out by the central treasury and tax functions. Segmental results Year ended 30 November 2021 £000 £000 £000 RM Resources* RM Assessment RM Technology 98,448 8,849 1,882 772 2,004 2,469 114,424 10,073 18,846 6,104 - 1,036 159 5,724 31,869 5,706 64,265 91 138 - - 66 64,560 7,098 Revenue UK Europe North America Asia Middle East Rest of the world Adjusted profit/(loss) from operations Investment income Finance costs Adjusted profit before tax Adjustments (see Note 6) Profit before tax Corporate Services £000 - - - - - - - Total £000 181,559 15,044 2,020 1,808 2,163 8,259 210,853 (4,408) 18,469 28 (1,396) 17,101 (11,483) 5,618 138 139 FINANCIAL STATEMENTS Year ended 30 November 2020 £000 £000 £000 RM Resources* RM Assessment RM Technology Revenue UK Europe North America Asia Middle East Rest of the world Adjusted profit/(loss) from operations - restated Investment income Finance costs Adjusted profit before tax - restated Adjustments (see Note 6) - restated Profit before tax - restated 80,956 6,362 777 848 2,196 1,303 92,442 3,081 20,473 5,042 - 1,250 225 4,589 31,579 6,607 63,977 533 412 - - 56 64,978 9,296 Corporate Services £000 - - - - - - - (3,903) * Included in UK are International Sales via UK Distributors of £1,186,000 (2020: £1,352,000). There are no customers that individually represent over 10% of the Group’s turnover. Segmental assets At 30 November 2021 Segmental Other Total assets At 30 November 2020 - restated Segmental Other Total assets RM Resources RM Assessment RM Technology Corporate Services £000 125,670 £000 24,153 £000 15,960 £000 2,517 RM Resources RM Assessment RM Technology Corporate Services £000 116,489 £000 21,419 £000 15,758 £000 1,510 Total £000 165,406 11,937 1,189 2,098 2,421 5,948 188,999 15,081 21 (1,055) 14,047 (4,519) 9,528 Total £000 168,300 42,525 210,825 Total £000 155,176 14,621 169,797 Included within the disclosed segmental assets are non-current assets (excluding deferred tax assets) of £138,439,000 (2020: £92,312,000) located in the United Kingdom, £7,124,000 (2020: £7,343,000) located in Australia and £554,000 (2020: £645,000) located in India. Other non-segmented assets includes defined benefit pension surplus, other receivables, tax assets and cash and short-term deposits. 5. PROFIT FROM OPERATIONS Profit from operations is stated after charging/(crediting): Amortisation and impairment of intangible assets Depreciation and impairment of property, plant and equipment: - charged in cost of sales - charged in operating expenses Selling and distribution costs Research and development costs Administrative expenses - adjusted Operating expenses - adjusted Adjustments to administrative expenses (see Consolidated Income Statement) Total operating expenses Gain on disposal of property, plant and equipment Gain on disposal of other asset Cost of inventories recognised as an expense Staff costs Operating lease expense Foreign exchange loss/(gain) Inventory write-offs Decrease in inventory obsolescence provision Note 14 15, 16 7 Fees payable to the Company's auditor Fees payable to the Company's auditor for the audit of these financial statements: - the audit of the Company's Financial Statements - the audit of the Company's subsidiaries pursuant to legislation Other fees payable to the Company's auditor: - other services Year ended 30 November 2021 Restated Year ended 30 November 2020 £000 2,406 2,406 631 4,493 5,124 24,642 1,322 26,200 52,164 11,483 63,647 (1,449) - 76,746 63,733 127 233 506 (419) 50 335 49 434 £000 3,004 3,004 686 3,032 3,718 22,919 2,678 26,522 52,119 4,154 56,273 (949) (713) 68,653 60,561 121 (229) 1,529 (57) 36 334 23 393 140 141 FINANCIAL STATEMENTS 6. ALTERNATIVE PERFORMANCE MEASURES As set out in Note 2, the Group uses alternative performance measures that the Board believes reflects the underlying performance of the Group, and it is these adjusted measures that the Board use as the primary measures of performance measurement during the year. Adjustments to cost of sales and administrative expenses Year ended 30 November 2021 Restated Year ended 30 November 2020 Adjustments to cost of sales Exceptional inventory adjustments Adjustments to administrative expenses Amortisation of acquisition-related intangible assets Dual running cost related to investment strategy Sale of property Configuration of SaaS licenses (ERP) Onerous lease Gain on sale of Essex LEP loan Pension GMP Restructuring costs Total adjustments to administrative expenses Total adjustments Tax impact (Note 10) Total adjustments after tax £000 - 2,010 2,064 (1,399) 8,337 471 - - - 11,483 11,483 (1,858) 9,625 £000 365 1,986 611 (670) 1,701 - (673) 170 1,029 4,154 4,519 (775) 3,744 During the year this programme included the following costs and income: During the year ended 30 November 2020 these items comprised: • Dual run related costs during the period (£1.0m), relate to costs associated with the new warehouse that is not yet fully operational but was acquired at the end of November 2020. These costs include items such as utilities, security and increased warehouse staff to test the new facility and to transfer inventory. Other dual run costs include IT costs (excluding configuration costs of SaaS licenses) being expensed that relate to running of IT systems not yet in use (£1.1m). • During the period the Group disposed of one of the assets held for sale at 30 November 2020, which was a warehouse that will no longer be required following the estates strategy review. This warehouse sale generated proceeds of £3.2m and a profit after direct selling costs and costs of moving from the warehouse of £1.4m. During the prior year this programme included the following costs and income: • The gain on sale of a held-for-sale asset, which was a warehouse that will no longer be required following the estates strategy review (£0.7m). • An adjustment to restructuring costs that related to the warehouse disposal (£0.1m) that were originally provided in 2018 as an adjusting item. • The sale of our investment in Essex LEP (£0.7m). • A material restructuring programme that spanned 3 months was announced and completed prior to the COVID-19 pandemic (£0.9m) relating to the RM Technology and RM Assessment businesses. • An adjustment to the estimated liability of equalising our GMPs in our defined benefit schemes and was treated as an adjustment for consistency, period to period. This followed a Court ruling in 2020 relating to the valuation of transfer values (£0.2m). In 2018 a charge of £1.2m was treated as an adjusting item. • Following the IFRIC interpretation in 2021 relating to the accounting treatment for configuration and customisation costs in a cloud computing arrangement the costs associated with our ERP programme have been restated (as set out in Note 33) and amount to £1.7m. Net debt is the total of borrowings (£19.7m (2020: £4.8m)), cash at bank (£3.6m (2020: £5.9m)) and overdraft (£2.1m (2020: £2.5m)) which was £18.3m as at 30 November 2021 (2020: £1.3m). Lease liabilities of £20.9m (2020: £22.2m) are excluded from this measure as they are not included in the measurement of net debt for the purpose of covenant calculations. • An inventory obsolescence charge for inventory that was not compliant with the new automated solution (£0.4m). Average net debt is calculated by taking the net debt on a daily basis and dividing by number of days. The amortisation of acquisition related intangible assets is an annual recurring adjustment to profit that is a non-cash charge arising from investing activity. This adjustment is to clearly communicate with the investment analyst community in common with peer companies across the technology sector. The income generated from the use of these intangible assets is, however, included in the adjusted profit measures. Other adjusted items: These are items which are identified by virtue of either their size or their nature to be important to understanding the performance of the business including the comparability of the results year on year. These items can include, but are not restricted to, impairment; gain on held-for-sale assets and related transaction costs; changes in the provision for exceptional property costs; the gain/loss on sale of operations and restructuring and acquisition costs. In 2018, following a large acquisition in the Resources Division, the Group announced a new warehouse strategy which involved the disposal of 5 warehouses (including 3 warehouses from the newly acquired group of companies) into one new automated warehouse. Interlinked with the automation software is a requirement to change the ERP solution which is being rolled out across the whole Group. The Group believes that whilst this programme spans a number of years, it’s size, complexity and number of unusual costs and income are material to the understanding of the trading performance of the business including the comparability of results year on year. As a result, all significant costs or income relating to this programme have been treated as an adjustment to profit, consistently period to period. This programme is expected to complete by the end of 2022. The cumulative net adjustments of these interlinked investment programmes has been £15.8m expense to 30 November 2021 of which £0.9m remains unpaid. • Dual run IT costs (excluding configuration costs of SaaS licenses) being expensed that relate to running of IT systems not yet in use (£0.6m). In addition to the warehouse programme, the Group believes the following items to be significantly large enough and unusual enough to impact the understanding of the performance of the Group if not adjusted. In the year ended 30 November 2021, these items comprised: • The impairment of a Right-of-Use asset and onerous service charges relating to a leased office, which no longer meets our requirements following a change in working practises after the COVID-19 pandemic (£0.5m). The costs relating to the new replacement leased office that meets working practises requirements is included in the segmental results. • The configuration and customisation costs relating to our ERP programme “Evolution”, which represents a significant investment. These costs total £8.3m. 142 143 FINANCIAL STATEMENTS The above adjustments that arise during the year have the following impact on the cash flow statement: Aggregate emoluments of persons employed by the Group comprised: Wages and salaries Termination costs Social security costs Other pension costs Share-based payments (Note 28) Year ended 30 November 2021 Year ended 30 November 2020 £000 56,828 367 4,217 2,421 (100) 63,733 £000 51,025 1,261 4,004 3,566 705 60,561 Information regarding the remuneration of the Directors is shown in the Remuneration Report. 8. INVESTMENT INCOME Bank interest Other finance income 9. FINANCE COSTS Borrowing facilities arrangement fees and commitment fees Net finance costs on defined benefit pension scheme Interest on lease of Right-of-Use assets Interest on bank loans and overdrafts Year ended 30 November 2021 Year ended 30 November 2020 £000 24 4 28 £000 21 - 21 Note 26 Year ended 30 November 2021 Year ended 30 November 2020 £000 462 254 361 319 1,396 £000 469 83 151 352 1,055 Year ended 30 November 2021 Restated Year ended 30 November 2020 Statutory Adjustment cash flows Statutory Adjustment cash flows Adjusted Adjusted Profit before tax Profit from operations Net cash inflow from operating activities £000 5,618 6,986 3,792 £000 11,483 11,483 8,917 £000 17,101 18,469 12,709 Net cash used in investing activities (11,759) (3,214) (14,973) Net cash used in financing activities Net increase in cash and cash equivalents 6,026 (1,941) - 5,703 6,026 3,762 £000 9,528 10,562 19,397 (2,279) (15,250) 1,868 £000 4,519 4,519 3,511 (4,460) - (949) £000 14,047 15,081 22,908 (6,739) (15,250) 919 Adjusted cash conversion percentage is defined as adjusted cash inflow from operating activities as a percentage of adjusted profit before tax. The adjustments have the following impact on key metrics: Year ended 30 November 2021 Restated Year ended 30 November 2020 Statutory measure Adjustment Adjusted measure Statutory measure Adjustment Adjusted measure Gross profit (£000) Profit from operations (£000) Operating margin Profit before tax (£000) Tax (£000) Profit after tax (£000) Earnings per share (see Note 11) Basic Diluted 70,633 6,986 3.0% 5,618 (1,424) 4,194 5.0p 5.0p - 11,483 5.0% 11,483 (1,858) 9,625 11.6p 11.4p 70,633 18,469 9.0% 17,101 (3,282) 13,819 16.6p 16.4p 73,965 10,562 6.0% 9,528 (1,893) 7,635 9.2p 9.1p 365 4,519 2.0% 4,519 (775) 3,744 4.6p 4.5p 74,330 15,081 8.0% 14,047 (2,668) 11,379 13.8p 13.6p Adjusted operating profit is defined as the profit before operations excluding the adjustments referred to above. Operating margin is defined as the operating profit as a percentage of revenue. The impact of tax is set out in Note 10. 7. STAFF NUMBERS AND COSTS The average number of persons (including Directors) employed by the Group during the year was as follows: Year ended 30 November 2021 Year ended 30 November 2020 Research and development, products and services Marketing and sales Corporate services Number 1,474 280 239 1,993 Number 1,346 258 199 1,803 The above figures have been calculated on a Full Time Equivalent basis. The actual average number for the year is 1,990. 144 145 FINANCIAL STATEMENTS 10. TAX c) Reconciliation of Consolidated Income Statement tax charge a) Analysis of tax charge in the Consolidated Income Statement The tax charge in the Consolidated Income Statement reconciles to the effective rate applied by the Group as follows: Year ended 30 November 2021 Restated Year ended 30 November 2020 Year ended 30 November 2021 Restated Year ended 30 November 2020 Current taxation UK corporation tax Adjustment in respect of prior years Overseas tax Total current tax charge Deferred taxation Temporary differences Adjustment in respect of prior years Overseas tax Total deferred tax charge Total Consolidated Income Statement tax charge £000 442 (58) (94) 290 1,398 (258) (6) 1,134 1,424 £000 1,450 (305) 391 1,536 345 21 (9) 357 1,893 The adjustment in respect of prior years’ primarily relates to the final tax assessment relating to the property sold in the year ended 30 November 2020. b) Analysis of tax charge/(credit) in the Consolidated Statement of Comprehensive Income Adjusted Adjustments £000 £000 Total £000 Adjusted Adjustments £000 £000 Profit/(loss) on ordinary activities before tax 17,101 (11,483) 5,618 14,047 (4,519) Tax at 19% (2020: 19%) thereon: 3,249 (2,182) 1,067 2,669 (859) Effects of: - change in tax rate on carried forward deferred tax assets - other expenses not deductible for tax purposes - non-taxable gains - other temporary timing differences - effect of profits in various overseas tax jurisdictions - prior period adjustments - UK - prior period adjustments - overseas (27) (52) - 212 18 (60) (58) 788 - 761 (52) (266) (266) - - (198) - 212 18 (258) (58) (137) 187 - 54 53 391 (111) - - - (158) (196) (354) - - - Total £000 9,528 1,810 254 76 - 54 53 Year ended 30 November 2021 Year ended 30 November 2020 Tax charge/(credit) in the Consolidated Income Statement 3,282 (1,858) 1,424 2,668 (775) 1,893 UK corporation tax Defined benefit pension scheme Shared based payments Pension escrow account Deferred tax Defined benefit pension scheme movements Defined benefit pension scheme escrow Share-based payments Fair value movements of hedging instruments Deferred tax relating to the change in rate Total Consolidated Statement of Comprehensive Income tax charge/(credit) £000 (800) (10) (328) 9,310 328 42 45 1,822 10,409 £000 (240) (18) (328) (2,408) 297 66 3 (223) (2,851) 146 The tax impact on the adjustments set out in Note 6 are as follows: 2021 Charge/(income) Change in deferred tax rate Prior year adjustments Exceptional inventory adjustments Amortisation of acquisition-related intangible assets Dual running costs Sale of property Configuration of SaaS licenses (ERP) Onerous lease Gain on sale of Essex LEP loan Pension GMP Restructuring costs Prior year adjustments £000 - - - 2,010 1,017 (1,399) 9,384 471 - - - - 11,483 2020 Charge/(income) £000 - - 365 1,986 - (670) 2,312 - (673) 170 1,029 - 4,519 Tax £000 788 - - (383) (193) - (1,783) (89) - - - (198) (1,858) The impact of the change in deferred tax rate of £788,000 relates only to those items that have been previously classified as adjusting items. The impact of the change in deferred tax on other items is not included in the £788,000 above. Tax £000 391 (196) (69) (377) - 65 (439) - 46 - (196) - (775) 147 FINANCIAL STATEMENTS Factors that may affect future tax charges 11. EARNINGS PER SHARE The standard rate of corporation tax in the UK for the period is 19%. An increase in the UK corporate tax rate from 19% to 25% from April 2023 was substantially enacted in May 2021. The deferred tax balances that are anticipated to unwind after April 2023 have been updated to reflect this change in legislation. d) Deferred tax The Group has recognised deferred tax assets as these are anticipated to be recognised against profits in future periods. The major deferred tax assets and liabilities recognised by the Group and the movements thereon are as follows: Group At 1 December 2019 (Credit)/charge to income Credit/(charge) to other comprehensive income At 30 November 2020 (Credit)/charge to income Charge to other comprehensive income At 30 November 2021 Defined Accelerated tax benefit pension Share-based Short-term timing Acquisition-related depreciation scheme obligation payments differences intangible assets £000 716 (387) - 329 (564) - (235) £000 1,016 - 2,527 3,543 - (11,131) (7,588) £000 423 162 (66) 519 (241) (42) 236 £000 1,274 (121) (211) 942 77 (362) 657 £000 (3,328) (11) - (3,339) (405) - (3,744) Total £000 101 (357) 2,250 1,994 (1,133) (11,535) (10,674) Certain deferred tax assets and liabilities have been offset above. The Group has recognised deferred tax assets in jurisdictions where these are expected to be recoverable against profits in future periods. No deferred tax liability is recognised on temporary differences of £486,000 (2020: £561,000) 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. Year ended 30 November 2021 Restated Year ended 30 November 2020 Profit for Weighted average Profit for Weighted average the year number of shares Pence per share the year number of shares Pence per share £000 ‘000 £000 ‘000 Basic earnings per ordinary share Basic earnings Adjustments (see Note 6) 4,194 9,625 83,150 - Adjusted basic earnings 13,819 83,150 Diluted earnings per ordinary share Basic earnings 4,194 83,150 Effect of dilutive potential ordinary shares: share-based payment awards Diluted earnings Adjustments (see Note 6) - 4,194 9,625 1,302 84,452 - Adjusted diluted earnings 13,819 84,452 The adjustments are detailed in Note 6. 12. DIVIDENDS Amounts recognised as distributions to equity holders were: Final dividend for the year ended 30 November 2020 – 3.0p per share (2019: nil p) Interim dividend for the year ended 30 November 2021 – 1.7p per share (2020: nil p) 5.0 11.6 16.6 5.0 - 5.0 11.4 16.4 7,635 3,744 82,576 - 11,379 82,576 7,635 82,576 - 7,635 3,744 888 83,464 - 11,379 83,464 9.2 4.6 13.8 9.2 (0.1) 9.1 4.5 13.6 Year ended 30 November 2021 £000 2,497 1,416 3,913 Year ended 30 November 2020 £000 - - - The proposed final dividend of 3.00p per share for the year ended 30 November 2021 was approved by the board on 14 February 2022. The dividend is subject to approval by Shareholders at the annual general meeting. The anticipated cost of this dividend is £2,481,000. 148 149 FINANCIAL STATEMENTS 13. GOODWILL Group Cost At 30 November 2019 Exchange differences At 30 November 2020 Exchange differences At 30 November 2021 Accumulated impairment losses At 1 December 2019, 30 November 2020 and 30 November 2021 Carrying amount At 30 November 2021 At 30 November 2020 The carrying amount of goodwill is allocated to two cash-generating units as follows: £000 58,801 215 59,016 (120) 58,896 (9,694) 49,202 49,322 Group RM Resources RM Assessment Year ended 30 November 2021 Year ended 30 November 2020 £000 42,208 6,994 49,202 £000 42,208 7,114 49,322 Further information pertaining to the performance and future strategy of the Divisions can be found within the Strategic Report. The recoverable amounts of the Cash Generating Units (‘CGU’) are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the cash flows, the discount rates and the growth rates. The Group prepares cash flow forecasts derived from the most recent annual financial budget approved by the Board, which also contains forecasts for the two years following, and extrapolates cash flows based on internal forecasts with terminal rates of 2.0% (2020: 2.0%) which aligns to market growth and inflation expectations. Pre-tax discount rates used are 13.4% for RM Resources and 12.4% for RM Assessment (2020: RM Resources 15.3% and RM Assessment 13.9%). 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 and risks 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. Reasonable changes in discount rate used do not change the outcome of the impairment review so no sensitivity data is disclosed. A review of the forecast future cash flows of RM Resources and of RM Assessment indicated no impairment was required. Sensitivity analysis The sensitivity of goodwill carrying values to reasonably possible changes in key assumptions has been performed and would not give rise to an impairment. 14. OTHER INTANGIBLE ASSETS Group Cost Customer Intellectual property & Website Other relationships Brands database assets platform software assets £000 £000 £000 £000 £000 At 1 December 2019 - as reported 2,187 18,066 IAS 38 restatement (Note 33) - - At 1 December 2019 - as restated 2,187 18,066 Additions Exchange differences Disposals - 98 - - - - 2,876 - 2,876 - 149 - 1,958 - 1,958 - - (4) At 30 November 2020 - as restated 2,285 18,066 3,025 1,954 Additions Transfers between categories Exchange differences Disposals - - (54) - - - - - - - (89) - At 30 November 2021 2,231 18,066 2,936 Accumulated amortisation and impairment losses At 1 December 2019 - as reported IAS 38 restatement (Note 33) At 1 December 2019 - as restated Charge for the year Impairment Exchange differences Disposals 626 - 626 454 - 28 - At 30 November 2020 - as restated 1,108 Charge for the year Transfers between categories Exchange differences Disposals 428 - (29) - 3,026 - 3,026 1,207 - - - 4,233 1,257 - - - At 30 November 2021 1,507 5,490 154 - 154 325 - 20 - 499 325 - (22) - 802 - - - (630) 1,324 1,268 - 1,268 473 - - (4) 1,737 216 - - (630) 1,323 Total £000 31,188 (2,226) 28,962 768 234 (4) 29,960 6,977 (110) (144) (630) 6,101 (2,226) 3,875 768 (13) - 4,630 6,977 (110) (1) - 11,496 36,053 2,840 (6) 2,834 297 248 (12) - 3,367 180 (20) (1) - 7,914 (6) 7,908 2,756 248 36 (4) 10,944 2,406 (20) (52) (630) 3,526 12,648 Carrying amount At 30 November 2021 At 30 November 2020 724 1,177 12,576 13,833 2,134 2,526 1 217 7,970 1,263 23,405 19,016 Other software assets additions include £6.9m (2020: £0.8m) relating to the new ERP solution under construction. 150 151 FINANCIAL STATEMENTS 15. PROPERTY, PLANT AND EQUIPMENT 16. RIGHT-OF-USE ASSETS Freehold land Short leasehold Computer & buildings improvements Plant & equipment equipment £000 £000 £000 £000 Vehicles £000 Group Cost At 30 November 2019 Additions Transfers between categories Exchange differences 6,233 - (433) - Reclass to assets held for sale (Note 20) (5,800) Disposals At 30 November 2020 Additions Transfers between categories Exchange differences Reclass to assets held for sale (Note 20) Disposals At 30 November 2021 - - - - - - - - Accumulated depreciation and impairment At 30 November 2019 Charge for the year Transfers between categories Reclass to assets held for sale (Note 20) Exchange differences Disposals At 30 November 2020 Charge for the year Transfers between categories Reclass to assets held for sale (Note 20) Exchange differences Disposals At 30 November 2021 Carrying value At 30 November 2021 At 30 November 2020 118 (430) (752) - (1) - - - - - - - - - 4,584 43 - (52) (326) - 4,249 842 - (5) - - 5,230 5,237 430 (48) (9) (40) 10,800 7,097 - (5) 427 (5) 5,086 18,314 97 - (143) (38) - 3,930 99 - - (3) - 3,339 588 30 (1) (46) (40) 3,870 566 - 375 (4) (2) 4,026 4,805 1,060 319 13,509 6,930 8,403 521 - (83) (119) (143) 8,579 926 110 (15) - (404) 9,196 6,960 356 400 (34) (72) (143) 7,467 443 20 - (5) (357) 7,568 1,628 1,112 248 - 3 (14) - (10) 227 1 - (2) - (20) 206 137 45 - - (7) (10) 165 39 - - (2) (16) 186 20 62 1,065 4,014 Group Cost At 30 November 2019 Adoption of IFRS 16 Additions Disposals At 30 November 2020 Additions Disposals At 30 November 2021 Accumulated depreciation and impairment At 30 November 2019 Charge for the year Disposals At 30 November 2020 Charge for the year Impairment Disposals Transfers At 30 November 2021 Carrying value At 30 November 2021 At 30 November 2020 Land & buildings Plant & equipment £000 £000 Vehicles £000 - 5,688 15,574 (1,411) 19,851 1,322 (1,215) 19,958 - 1,648 (150) 1,498 2,785 366 (793) (1) 3,855 - 920 472 - 1,392 1,682 (504) 2,570 - 678 - 678 653 - (489) 1 843 16,103 18,353 1,727 714 - 423 120 (51) 492 50 (25) 517 - 188 (20) 168 173 - (12) - 329 188 324 Total £000 - 7,031 16,166 (1,462) 21,735 3,054 (1,744) 23,045 - 2,514 (170) 2,344 3,611 366 (1,294) - 5,027 18,018 19,391 The most significant Right-of-Use asset is the new automated warehouse (see Note 6) of circa £13.4m cost and a net book value at 30 November 2021 of £12.5m. Total £000 24,698 5,801 - (197) (6,254) (193) 23,855 8,866 110 (27) 427 (429) 32,802 15,515 1,204 - (930) (163) (194) 15,432 1,147 20 375 (14) (375) 16,585 16,217 8,423 The leasehold improvements during the year relate to the depreciation charged on the Right-of-Use lease for our new warehouse recapitalised whilst work is ongoing to make it fully operational. 152 153 FINANCIAL STATEMENTS 17. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS The subsidiary undertakings of the Company at 30 November 2021 were: Name RM Education Limited TTS Group Limited Software, services & systems Dormant RM Education Solutions India Pvt Limited * Software and corporate services RM Pension Scheme Trustee Limited Corporate Trustee Hedgelane Limited SoNET Systems Pty Ltd * RM PLC Australia Pty Ltd Dormant Software Holding company RM Educational Resources Limited Resource supply * Held through subsidiary undertaking. Principal activity Country of incorporation Class of share % held England England India England England Australia Australia England Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% All UK subsidiary companies are registered at 142B Park Drive, Milton Park, Abingdon, Oxfordshire OX14 4SE. RM Education Solutions India Pvt Limited is registered at Unit No.8A, Carnival Techno Park Technopark, Kariyavattom, PO Trivandrum, Thiruvananthapuram, Kerala 695581, India. SoNET Systems Pty Ltd is registered at 179 Queen Street, Melbourne, Victoria, VIC 3000, Australia. RM PLC Australia Pty Ltd is registered at Level 17, 181 William Street, Melbourne, Victoria, VIC 3000, Australia. During the year RM Schools Limited and Hammond Bridge Limited were liquidated. The investment in subsidiary undertakings comprises: Company Cost At 1 December 2019 Share-based payments At 30 November 2020 Share-based payments At 30 November 2021 Carrying value At 30 November 2021 At 30 November 2020 Investment in Capital contribution share capital share-based payments £000 £000 112,470 - 112,470 - 112,470 112,470 112,470 13,355 705 14,060 (100) 13,960 13,960 14,060 Total £000 125,825 705 126,530 (100) 126,430 126,430 126,530 At 30 November 2021 an impairment review was undertaken which indicated that no impairment in the investments held by the Company was required (2020: nil). The impairment review was performed using a value in use model which uses the same cash flows used in the impairment review performed in relation to the Group’s assets which are disclosed in Note 13 of the consolidated Financial Statements. The impairment review is sensitive to a change in key assumptions used in the value in use calculations relating to the discount rate and future growth rates. A reasonably possible change in cash flows would not give rise to an impairment. 18. INVENTORIES Group Finished goods Any inventory that is not expected to be turned over within 24 months has been provided for. 19. CONTRACT FULFILMENT ASSETS Group At 1 December Additions Foreign exchange Amortised in the period At 30 November Analysed by: Current Non-current At 30 November 2021 £000 2020 £000 19,055 18,594 2021 £000 4,148 2,862 (35) (1,446) 5,529 2021 £000 1,360 4,169 5,529 2020 £000 3,037 1,906 66 (861) 4,148 2020 £000 728 3,420 4,148 Contract fulfilment assets represent investment in contracts which are recoverable and are expected to provide benefits over the life of the contract. These costs, which relate to contract set up costs, are capitalised only when they relate directly to a contract and are incremental to securing the contract. 154 155 FINANCIAL STATEMENTS 20. TRADE AND OTHER RECEIVABLES Analysis of trade receivables and customer contracts by type of customer Group Company Restated 2020 £000 2021 £000 2020 £000 Group Government Commercial 2021 £000 13,241 11,218 24,459 2020 £000 14,033 10,618 24,651 Current Financial assets Trade receivables Other receivables Derivative financial instruments Accrued income from customer contracts Amounts owed by Group undertakings Non-financial assets Prepayments Non-current Financial assets Amounts owed by Group undertakings Other receivables Currency profile of receivables Sterling US Dollar Australian Dollar Euro Indian Rupee Singapore Dollar Other 2021 £000 21,792 1,629 164 2,667 - 26,252 7,613 33,865 - 82 82 22,907 1,751 - 1,744 - 26,402 5,073 31,475 - 63 63 33,947 31,538 29,332 2,613 178 112 657 341 714 33,947 28,162 1,190 390 143 619 613 421 31,538 - - - - 1 1 105 106 7,263 - 7,263 7,369 106 - 7,263 - - - - 7,369 - - - - - - 48 48 7,329 - 7,329 7,377 48 - 7,329 - - - - 7,377 The amounts owed by Group undertakings to the Company are repayable on demand and bear interest at SONIA plus 2% although they are repayable on demand the Directors have no expectation that the amounts will be collected in the next 12 months and have therefore presented these as non-current. The Directors consider that the carrying amounts of trade and other receivables approximates their fair values. The Group’s accrued income from customer contracts balances solely relate to revenue from contracts with customers. Movements in the accrued income balances were driven by transactions entered into by the Group within the normal course of business in the year. Trade receivables included an allowance for estimated irrecoverable amounts at 30 November 2021 of £1,080,000 (2020: £1,030,000), based on management's knowledge of the customer, externally available information and expected payment likelihood. This allowance has been determined by reference to specific receivable balances and past default experience and considers lifetime expected credit losses. New customers are subject to credit checks where available, using third-party databases prior to being accepted. The Group uses the practical expedient of measuring impairment using a provision matrix which is consistent with applying a full credit loss model for the Group. Amounts are written off when there is no further cost benefit in pursuing further legal action. Allowance for estimated irrecoverable amounts Group At 1 December Increase in allowance Amounts written off in the year 2021 £000 1,030 157 (107) 1,080 2020 £000 259 1,032 (261) 1,030 No expected credit losses have been recognised on contract assets or intercompany receivables as these are not considered material. Ageing of customer contract balances Group Not past due Overdue by less than 60 days Overdue by between 60 and 90 days Overdue by more than 90 days Customer contracts 2021 Allowance £000 £000 17,522 5,357 1,049 1,611 - - (89) (991) Customer contracts £000 19,433 3,826 783 1,639 2020 Allowance £000 - - (122) (908) Net £000 17,522 5,357 960 620 Net £000 19,433 3,826 661 731 25,539 (1,080) 24,459 25,681 (1,030) 24,651 156 157 FINANCIAL STATEMENTS The following table shows the movements in customer contract balances and the performance obligations satisfied in the year: 21. ASSETS HELD FOR SALE Trade Receivables* £000 21,343 225,782 - - - - (224,969) 981 (261) 31 22,907 243,122 - - - - (244,283) 171 (107) (18) 21,792 Accrued income £000 2,384 - (52,136) 51,495 - - - - - - 1,743 - (47,681) 48,778 - - - - (173) - 2,667 At 1 December 2019 Invoices generated in period Performance obligations satisfied New performance obligations accrued New contract fulfilment costs incurred Contract fulfilment assets amortised in line with performance obligations satisfied Cash paid Movement in provision Written off Impact of foreign exchange At 30 November 2020 Invoices generated in period Performance obligations satisfied New performance obligations accrued New contract fulfilment costs incurred Contract fulfilment assets amortised in line with performance obligations satisfied Cash paid Movement in provision Written off Impact of foreign exchange At 30 November 2021 * Includes sales taxes Deferred Total customer Contract revenue contract balances fulfilment asset £000 (16,823) - 63,088 (65,670) - - - - - (73) (19,478) £000 6,904 225,782 10,952 (14,175) - - (224,969) 981 (261) (42) 5,172 - 243,122 54,819 (52,680) - - - - - 43 (17,296) 7,138 (3,902) - - (244,283) 171 (280) 25 7,163 £000 3,037 - - - 1,907 (862) - - - 66 4,148 - - - 2,862 (1,446) - - - (35) 5,529 Customer contract invoices are raised on the following basis: • For point in time revenue streams – invoicing raised on delivery of performance obligations. • For over time revenue streams in RM Technology – the majority of contract invoicing is either in advance (monthly, quarterly, or annually) or quarterly in arrears. For over time revenue streams in RM Assessment – invoicing varies contract to contract and between performance obligations and can be materially different to the satisfaction of the related performance obligations in timing. Following the acquisition of The Consortium in 2017, the Group had five distribution centres across three locations. RM is moving to a single, automated distribution site. As part of this process, the Group sold the freehold property in Shrewsbury during the year ended 30 November 2020, and the property in Kirby-in Ashfield in 2021 (the amortised cost of the property and other fixed assets integral to the property was £1,712,000). One remaining property in Trowbridge remains as held for sale on which we have exchanged contracts and anticipate completion in 2022. The amortised cost of the property and other fixed assets integral to the remaining property is £3,034,000 and was reclassified (from property, plant and equipment and selected computer hardware) to a current asset held for sale in the year ended 30 November 2020. The assets are included within the Resources Division. 22. TRADE AND OTHER PAYABLES Current liabilities Financial liabilities Trade payables Lease liabilities Other taxation and social security Other payables Derivative financial instruments Accruals Amounts owed to Group undertakings Non-financial liabilities Deferred income from customer contracts Non-current liabilities Financial liabilities Lease liabilities - due after one year but within two years - due after two years but within five years - after five years Non-financial liabilities Deferred income from customer contracts - due after one year but within two years - due after two years but within five years - after five years Group 2021 £000 2020 £000 Company 2021 £000 2020 £000 21,277 3,126 4,603 2,893 - 15,443 - 47,342 14,027 61,369 1,993 4,975 10,835 1,496 1,138 635 21,072 82,441 20,620 4,067 6,847 2,503 76 10,740 - 44,853 16,638 61,491 2,301 4,500 11,346 1,356 1,309 175 20,987 82,478 - - - - - 118 49,602 49,720 - 49,720 - - - - - - - - - - - - 151 64,122 64,273 - 64,273 - - - - - - - 49,720 64,273 The amounts owed to Group undertakings by the Company are payable on demand and bear interest at SONIA plus 2%. 158 159 FINANCIAL STATEMENTS Group Company 24. PROVISIONS Currency profile of trade and other payables Sterling US Dollar Australian Dollar Indian Rupee Other 2021 £000 73,882 699 3,586 1,704 2,570 82,441 2020 £000 77,072 972 1,600 755 2,079 82,478 2021 £000 49,720 - - - - 2020 £000 64,273 - - - - 49,720 64,273 The Group’s deferred revenue balances solely relate to revenue from contracts with customers. Movements in the deferred revenue balances were driven by transactions entered into by the Group within the normal course of business in the year. 23. BORROWINGS Group and Company Bank loan Add capitalised fees Borrowings 2021 £000 (20,000) 256 (19,744) 2020 £000 (5,000) 221 (4,779) The borrowings in the year and details of the facility are detailed in Note 31. Bank and professional service fees relating to securing the loan have been capitalised and are amortised over the length of the loan. Changes in liabilities arising from financing activities At 1 December 2020 Financing cash flows New leases Lease break exercised Other At 30 November 2021 £000 £000 22,214 4,779 (4,250) 14,189 £000 3,054 - £000 (450) - £000 361 776 26,993 9,939 3,054 (450) 1,137 £000 20,929 19,744 40,673 Lease liabilities Bank loan Total liabilities from financing activities Group At 1 December 2019 Utilisation of provisions Release of provisions Increase in provisions Impact of foreign exchange At 30 November 2020 Utilisation of provisions Release of provisions Increase in provisions Impact of foreign exchange At 30 November 2021 Dilapidations and Employee-related onerous lease restructuring Contract risk provisions £000 853 - - 381 2 1,236 (90) - 316 (12) 1,450 £000 2,220 (2,284) - 1,092 - 1,028 (80) (33) - 1 916 £000 2,380 - (525) 314 - 2,169 (358) (806) 170 - 1,175 Total £000 5,453 (2,284) (525) 1,787 2 4,433 (528) (839) 486 (11) 3,541 Employee-related restructuring provisions refer to costs arising from restructuring to meet the future needs of the Group. As described in Note 6, the Group is undergoing an estates review and in 2020 £0.1m of the utilisation related to this programme. A separate restructuring programme was announced in December 2019 and completed during the prior year with £0.1m paid in 2021. The remaining restructuring provision is expected to be utilised during 2022 as we complete the estates strategy. Contract risk provisions includes items not covered by any other category of which the most significant items are the risk provisions from ended long term contracts. During 2021, the release of £806,000 (2020: £525,000) primarily relates to onerous contract risks that have either been re-negotiated or terminated during the year and the increase in provisions relate to new contract risks identified in the year. During 2021 the Group utilised part of an onerous contract provision and was able to release the remaining provision on contract re-negotiation. During the year the Group decided to leave one property that was no longer suitable in a post COVID-19 environment requiring collaborative working and have expensed an onerous lease provision of £104,000. Dilapidations increased by £212,000 during the year and arise from an updated surveyors report on one lease. During the year the overall movement on long-term provisions was a decrease of £2,523,000 (2020: increase of £130,000). This is primarily a reclassification to current provisions as certain dilapidation provisions and redundancy provisions are anticipated to be paid in 2022 aligned to the warehouse strategy. At 1 December 2019 £000 7,031 16,534 Financing cash flows £000 (2,674) (12,576) New leases Lease break exercised £000 19,168 - £000 (1,462) - 23,565 (15,250) 19,168 (1,462) Other At 30 November 2020 £000 151 821 972 £000 22,214 4,779 26,993 Lease liabilities Bank loan Total liabilities from financing activities Disclosure of provisions Group Current liabilities Non-current liabilities 2021 £000 2,066 1,475 3,541 2020 £000 435 3,998 4,433 The total cash outflow from leases was £4.4m (2020: £2.8m). The non-current liabilities include onerous property provisions and dilapidations provisions of £370,000 which are anticipated to be paid over 2–5 years, with the remaining non-current provisions relating to certain contract risk provisions. 160 161 FINANCIAL STATEMENTSPrudential Platinum Pension (Platinum Scheme) The Consortium acquired West Mercia Supplies in April 2012 (prior to the Company acquiring The Consortium). Upon acquisition by The Consortium of West Mercia Supplies, a pension scheme (the Platinum scheme) was set up providing benefits on both a defined benefit (final salary linked) and a defined contribution basis for West Mercia employees. The most recent full actuarial valuation was carried out by the independent actuaries XPS Pensions Group on 31 December 2018. The results of the full valuation were adjusted and rolled forward to form the basis for the current year valuation. The scheme is administered within a legally separate trust from The Consortium and the Trustees are responsible for ensuring that the correct benefits are paid, that the scheme is appropriately funded and that the scheme assets are appropriately invested. The valuation of the scheme at 31 December 2018 was a surplus of £213,000 (31 December 2015: deficit £70,000). 25. SHARE CAPITAL AND RESERVES Company and Group share capital Allotted, called-up and fully paid: As at 30 November 2019, 2020 and 2021 Ordinary shares issued carry no right to fixed income. Ordinary shares of 22/7p ‘000 83,875 £000 1,917 The capital redemption reserve in the Company and Group, arose from the repurchase of issued share capital. It is distributable. The Group hedging reserve arises from cash flow hedges entered into by the Group. The reserve is distributable in the entities in which it arises unless it relates to unrealised gains £164,000 (2020: £nil). The Group translation reserve arises on consolidation from the unrealised movement of foreign exchange on the net assets of overseas entities. This reserve is not distributable. 26. PENSION SCHEMES a. Defined contribution scheme The Group operates or contributes to a number of defined contribution schemes for the benefit of qualifying employees. The assets of these schemes are held separately from those of the Company. The total cost charged to income of £2,255,000 (2020: £2,861,000) represents contributions payable to these schemes by the Group at rates specified in employment contracts. At 30 November 2021 £257,000 (2020: £223,000) due in respect of the current financial year had not been paid over to the schemes. b. Local government pension schemes 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. The total costs charged to income for these schemes was £165,000 (2020: £157,000). The amount due in respect of these schemes at 30 November 2021 was £77,000 (2020: £75,000). The balance sheet liability is included within provisions and incorporates information from over 17 local government pension schemes. The provision is calculated by reference to the latest published triennial valuations and the Group discloses the net position of the Group's share of assets and liabilities. There is judgement in determining the appropriate accounting treatment for the participation in these schemes as either a defined benefit or defined contribution scheme, in particular as to whether actuarial and investment risk fall in substance on the Company. c. Defined benefit pension schemes As described in Note 2, the Group has both defined benefit and defined contribution pension schemes. There are three defined benefit pension schemes. The Research Machines plc 1988 Pension Scheme (RM Scheme) The Scheme provides benefits to qualifying employees and former employees of RM Education Limited, but was closed to new members with effect from 1 January 2003 and closed to future accrual of benefits from 31 October 2012. The assets of the Scheme are held separately from RM Education Limited's assets in a trustee-administered fund. The Trustee is a limited company. Directors of the Trustee company are appointed by RM Education Limited and by members. The Scheme is a funded scheme. Under the Scheme, employees were entitled to retirement benefits of 1/60th of final 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 were provided by the Scheme. The most recent actuarial valuation of Scheme assets and the present value of the defined benefit obligation was carried out for statutory funding purposes at 31 May 2018 by a qualified independent actuary. IAS 19 Employee Benefits (revised) liabilities at 30 November 2021 have been rolled forward based on this valuation’s base data. As at 31 May 2018, the triennial valuation for statutory funding purposes showed a deficit of £40,600,000 (31 May 2015: £41,800,000). The Group agreed with the Scheme Trustees that it will repay this amount via deficit catch-up payments of £3,700,000 per annum until 31 May 2026. The triennial valuation as at 31 May 2021 is in progress but not yet finalised. At 30 November 2020 there were amounts outstanding of £308,300 (2020: £308,000) for one month's deficit payment and £nil (2020: £nil) for Scheme expenses. The parent Company RM plc has entered into a pension protection fund compliant guarantee in respect of scheme liabilities. No liability has been recognised for this within the Company as the Directors consider that the likelihood of it being called upon is remote. The Consortium CARE Scheme (CARE Scheme) Until 31 December 2005, The Consortium for Purchasing and Distribution Ltd (“The Consortium”, acquired by the Company on 30 June 2017 and now RM Educational Resources Limited) operated a pension scheme (the “Consortium CARE” scheme) providing benefits on both a defined benefit (final salary linked) and a defined contribution basis. From 1 January 2006, the defined benefit (final salary linked) and defined contribution sections were closed and all employees, subject to the eligibility conditions set out in the Trust Deed and Rules, joined a new defined benefit (Career Average Revalued Earnings) section. From 28 February 2011 the scheme was closed to future accruals. The most recent actuarial valuation of Scheme assets and the present value of the defined benefit obligation was carried out for statutory funding purposes at 31 December 2019 by a qualified independent actuary. IAS 19 Employee Benefits (revised) liabilities at 30 November 2021 have been rolled forward based on this valuation’s base data. As at 31 December 2019, the triennial valuation for statutory funding purposes showed a deficit of £5.9m. The Group agreed with the Scheme Trustees that it will repay this amount via deficit catch-up payments of £703,000 per annum until 31 December 2028. The triennial valuation as at 31 May 2021 is in progress but not yet finalised. 162 163 FINANCIAL STATEMENTSAmounts recognised in the Income Statement and in the Statement of Comprehensive Income Reconciliation of the Scheme assets and obligations through the year Administrative expenses and taxes Current service costs Operating expense Interest cost Interest on Scheme assets Net interest expense Past service costs Expense recognised in the Income Statement Effect of changes in demographic assumptions Effect of changes in financial assumptions Effect of experience adjustments Total actuarial losses Return on Scheme assets excluding interest on Scheme assets Income/(expense) recognised in the Statement of Comprehensive Income Income/(expense) recognised in total comprehensive income Note 9 Year ended 30 November 2021 Year ended 30 November 2020 £000 (52) - (52) (4,827) 4,573 (254) - (306) 620 (3,203) 847 (1,736) 46,596 44,860 44,554 £000 (7) (30) (37) (5,611) 5,528 (83) (350) (470) (406) (44,944) 2,197 (43,153) 26,851 (16,302) (16,772) The effect of changes in financial assumptions is principally due to the reduction in the discount rate, see sensitivity information further below in this Note 26. The strong returns on assets over the period are largely as a result of the ongoing market recovery following the COVID-19 pandemic. In particular the RM Scheme invests significantly in return-seeking assets such as global equities which have seen very strong returns. The effect of strong equity returns coupled with the Scheme’s high levels of hedging have had a positive impact on the assets over the year. RPI/CPI reform On 25 November 2020, the government and UK Statistics Authority confirmed that RPI will be changing from February 2030 to bring it into line with the CPIH index, with no compensation to the holders of index-linked gilts. In the year ended 30 November 2021, the Group has reviewed and revised the previous approach to setting the RPI and CPI assumptions to reflect the expectations that these reforms proceed as planned. Assets At start of year Interest on Scheme assets Return on Scheme assets excluding interest on Scheme assets Administrative expenses Contributions from Group Contributions from employees Benefits paid At end of year Obligations At start of year Interest cost Actuarial losses Benefits paid Past service cost (GMP) Current service costs Contributions from employees At end of year Pension deficit Pension surplus Net pension surplus/(deficit) RM Scheme CARE Scheme Platinum Scheme Year ended 30 November 2021 Year ended 30 November 2020 £000 £000 £000 £000 £000 268,149 4,285 44,910 - 3,700 - (4,322) 15,918 240 1,631 - 696 - (627) 2,994 48 55 (52) 54 - (38) 316,722 17,858 3,061 287,061 4,573 46,596 (52) 4,450 - (4,987) 337,641 (280,888) (22,497) (2,329) (305,714) (4,460) (1,152) 4.322 - - - (282,178) - 34,544 34,544 (331) (342) 626 - - - (22,544) (4,686) - (4,686) (36) (242) 39 - - - (4,827) (1,736) 4,987 - - - (2,568) (307,290) - 493 493 (4,686) 35,037 30,351 257,164 5,528 26,851 (7) 4,094 6 (6,575) 287,061 (263,139) (5,611) (43,153) 6,575 (350) (30) (6) (305,714) (19,318) 665 (18,653) Included within the CARE Scheme obligations is an unfunded liability of £161,000 (2020: £183,000) which is a liability of the Group and not the Scheme. Reconciliation of net defined benefit obligation Year ended 30 November 2021 Year ended 30 November 2020 Net obligation at the start of the year Cost included in Income Statement Scheme remeasurements included in the Statement of Comprehensive Income Cash contribution Net pension surplus/(deficit) £000 (18,653) (306) 44,860 4,450 30,351 £000 (5,975) (470) (16,302) 4,094 (18,653) 164 165 FINANCIAL STATEMENTS Obligation by participant status Year ended 30 November 2021 Year ended 30 November 2020 Expected cash flows Expected employer contributions for the following year ended 30 November Expected total benefit payments Year 1 Year 2 Year 3 Year 4 Year 5 Years 6–10 Key risks Year ended 30 November 2021 Year ended 30 November 2020 £000 4,450 4,194 4,369 4,493 4,780 5,346 £000 4,583 3,831 4,258 4,625 4,860 5,334 33,612 33,946 The Schemes expose the Group to a number of risks: • • • Investment risk The Scheme holds investments in asset classes, such as equities, which have volatile market values and while these assets are expected to provide real returns over the long term, the short-term volatility can cause additional funding to be required if a deficit emerges. Interest rate risk The Scheme's liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the Scheme holds assets such as equities and diversified growth funds the value of the assets and liabilities may not move in the same way. Inflation risk A significant proportion of the benefits under the Scheme are linked to inflation. Although the Scheme's assets are expected to provide a good hedge against inflation over the long term, movements over the short term could lead to deficits emerging. • Mortality risk In the event that members live longer than assumed a deficit will emerge in the Scheme. Active Vested deferreds Retirees £000 1,611 243,139 62,540 307,290 £000 1,463 254,650 49,601 305,714 Under the current agreements, the Group expect to pay approximately £4,400,000 in contributions in the year ending 30 November 2022. Value of Scheme assets Cash and cash equivalents, including escrow Equity instruments Equity instruments Debt instruments Liability-driven investments Insurance contract Significant actuarial assumptions Discount rate (RM Scheme) Discount rate (CARE Scheme) Discount rate (Platinum Scheme) Rate of RPI price inflation Rate of CPI price inflation - period before 1 January 2030 Rate of CPI price inflation - period after 1 January 2030 Rate of salary increases (Platinum Scheme) Rate of pensions increases pre 6 April 1997 service pre 1 June 2005 service post 31 May 2005 service Fair value hierarchy Level 1 Level 1 Level 2 Level 2 Level 2 Level 3 Year ended 30 November 2021 Year ended 30 November 2020 £000 542 129,809 27,529 3,061 150,147 26,553 337,641 £000 1,629 111,373 24,174 2,995 117,486 29,404 287,061 Year ended 30 November 2021 Year ended 30 November 2020 1.75% 1.75% 1.75% 3.15% 2.15% 3.15% N/A 1.50% 2.90% 2.05% 1.60% 1.50% 1.60% 2.90% 2.10% 2.10% N/A 1.50% 2.80% 2.00% Post retirement mortality table S2PA CMI 2020 1.25% S2PA CMI 2019 1.25% Weighted average duration of defined benefit obligation 24 years 23 years Assumed life expectancy on retirement at age 65: Retiring at the accounting date (male member aged 65) Retiring 20 years after the accounting date (male member aged 45) 21.9 23.3 22.4 23.7 166 167 FINANCIAL STATEMENTS Sensitivities to assumptions - one item changed with all others held constant 27. OWN SHARES --------------------------------- 30 November 2021 --------------------------------- 30 November 2020 Base £m 287.1 (305.7) (18.6) 1.60% 1.50% 1.60% 2.90% 2.10% -0.1% +0.1% discount discount Base £m rate £m rate -0.1% RPI +0.1% RPI Life +1 yr £m £m £m £m Analysis of net balance sheet position: Fair value of Scheme assets 337.6 337.9 337.3 337.3 337.9 338.8 Present value of Scheme obligations (307.3) (314.3) (300.6) (301.4) (313.5) (318.7) Net pension surplus/(deficit) 30.3 23.6 36.7 35.9 24.4 20.1 Actuarial assumptions: Discount rate (RM Scheme) 1.75% 1.65% 1.85% 1.75% 1.75% 1.75% Discount rate (CARE Scheme) 1.75% 1.65% 1.85% 1.75% 1.75% 1.75% Discount rate (Platinum Scheme) 1.75% 1.65% 1.85% 1.75% 1.75% 1.75% Rate of RPI Rate of CPI Mortality table 3.15% 3.15% 3.15% 3.05% 3.25% 3.15% 2.15% 2.15% 2.15% 2.05% 2.25% 2.15% --------------------------- S2PA CMI 2020 1.25% --------------------------- S2PA CMI 2019 1.25% The significant actuarial assumptions are the discount rate applied to pension liabilities together with RPI/CPI and mortality as shown in the above table. We note that every 0.1% movement in discount rate has a c.£7m impact on the deficit (2020: £7m) and a 0.1% movement in RPI has a c.£6m impact (2020: £5m). Insurance assets The RM Scheme also holds insurance policies covering benefits for some pensions in payment. The value of these annuities is £26.6m at 30 November 2021. This value has been calculated using the same assumptions as used to value the liabilities. The method of determining the value of the insurance annuities is determined by projecting the expected benefit payments using the agreed assumptions and then discounting the resulting cash flows back to 30 November 2021. Liability driven investments (LDI) The RM Scheme contains LDI portfolio of £150.18m at 30 November 2021. The portfolio is valued at market value as no bid valuation is available. The components of the LDI portfolio are determined by the Trustee’s investment adviser with the aim to provide a good match to the Scheme’s exposure to interest rate and inflation risks within the value of its liabilities. Liability driven investments are expected to move broadly in line with the rise and fall in liability values, thus providing a degree of protection to the Scheme’s funding position. 168 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 EST has waived any entitlement to the receipt of normal 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 December 2019 Shares released to award holders At 30 November 2020 Shares released to award holders At 30 November 2021 Ordinary shares of 22/7p Number ‘000 1,399 (230) 1,169 (550) 619 £000 1,007 (166) 841 (397) 444 The valuation of the shares is weighted average cost. The maximum number of own shares held in the year was 1,168,921. 28. SHARE-BASED PAYMENTS The Group operates the following executive and employee equity-settled share-based payment scheme known as the RM plc Performance Share Plan 2010 (the “PSP Scheme”). Three awards were made under the PSP Scheme during the year ended 30 November 2021. The fair values of awards made under this Scheme have been assessed using Black-Scholes and Monte-Carlo models, as appropriate to the scheme, at the date of grant. The fair values of awards are expensed over the period between grant and vesting. The weighted average fair value of the award made during the year was £1.416 per share and key assumptions include risk free rate of 0.17%, dividend yield of 1.48% and volatility of Company share price of 47%. Share-based payment awards exercised in the period and 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 deferred bonus scheme is partially matched by the release of own shares held. RM plc Performance Share Plan 2010 ('PSP Scheme') The Group uses the PSP Scheme for the remuneration of senior executives and senior management. Details of Directors’ awards are contained within the Remuneration Report. Participation has been subject to various vesting conditions, including EPS, total shareholder return (TSR) and share price conditions. The awards issued in 2021 do not include an EPS vesting condition. If the participants leave the Group’s employment, in most circumstances the award lapses. Details of performance share plan shares are as follows: Group At 1 December 2019 Granted during the year Lapsed during the year Exercised during the year At 30 November 2020 Granted during the year Lapsed during the year Exercised during the year At 30 November 2021 Maximum number of shares Market price on grant 2,091,000 712,500 (530,000) (270,000) 2,003,500 905,000 (710,825) (561,675) 1,636,000 £1.72 £2.23 169 FINANCIAL STATEMENTS The plans outstanding at 30 November 2021 had a weighted average contractual life of 1.6 years (2020: 1.3 years). The weighted average exercise price was £nil (2020: £nil). The weighted average market share price at date of exercise was £2.09 (2020: £2.43). Where total shareholder return (TSR) is used as a performance condition, 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. Where earnings per share (EPS) is used as a performance condition, the EPS Performance Target is that EPS for the final Financial Year of the measurement period. In March 2003 the Company established the RM plc Employee Share Trust to hedge the future obligations of the Group in respect of share scheme awards. These shares are used to hedge the estimated liability but until vesting represents own shares held – see Note 27. Performance conditions 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. 29. GUARANTEES AND CONTINGENT LIABILITIES a) Guarantees The Company has entered into guarantees relating to the performance and liabilities of certain major contracts of its subsidiaries. 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. 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. 30. LEASES AND COMMITMENTS a) Lease commitments The outstanding lease commitments for leases that fall within the scope of IFRS 16 are recognised in the balance sheet as lease liabilities (see Note 22). Other leases that are of low value or less than a year (except properties) are disclosed in the table below. Group Within 1 year In years 2 to 5 inclusive The Company has no operating leases. b) Capital commitments 2021 £000 7 2 9 2020 £000 23 2 25 At 30 November 2021 amounts contracted but not provided for total £502,000 and relate to outstanding commitments on the ERP project cost (2020: £1,896,000). The Company had no capital commitments during the year. 31. FINANCIAL RISK MANAGEMENT Carrying value of financial assets and financial liabilities Financial assets Trade and other receivables – current Trade and other receivables – non-current Cash and short-term deposits Financial liabilities Trade and other payables – current Trade and other payables – non-current Group Company Note 2021 £000 2020 £000 2021 £000 2020 £000 20 20 22 22 26,252 26,402 1 - 82 3,560 29,894 63 7,263 7,329 5,941 32,406 - - 7,264 7,329 (47,342) (44,853) (49,720) (64,273) (17,803) (18,147) - - Bank loans and overdrafts (21,826) (7,259) (19,744) (4,779) (86,971) (70,259) (69,464) (69,052) All receivables classified as financial assets are loans and receivables except for forward foreign exchange contracts of £164,000 (2020: £nil) which are classified as fair value through profit or loss. All liabilities classified as financial liabilities are held at amortised cost except for forward foreign exchange contracts of £nil (2020: £76,000) which are classified as fair value through profit or loss. The Directors consider that the carrying amount of all financial assets and financial liabilities approximates their fair value, therefore fair value information for financial assets and financial liabilities not shown at fair value is not disclosed. 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. The main risks arising from the Company’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. Foreign currency risk a) Translation All financial assets are classified as loans and receivables. All liabilities classified as financial liabilities are held at amortised cost except for forward foreign exchange contracts of £164,000 asset (2020: £76,000 liability) which are classified as fair value through profit or loss. The Group also maintains foreign currency denominated cash accounts, but only holds balances required to settle its payables. 170 171 FINANCIAL STATEMENTS b) Transaction c) Foreign exchange rate sensitivity 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 a proportion of its inventory in US Dollars and operating costs in the Group’s subsidiary RM Education Solutions India Pvt Limited 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 purchased are designed to cover 75-100% of forecast currency denominated purchases and the contracts are set up to provide coverage over future fixed price periods, typically for the following 12 months. To manage the Indian Rupee to Sterling risk, the contracts purchased are designed to cover 75-85% of forecast Rupee costs and are renewed on a revolving basis of approximately 11 to 18 months. The total amount of outstanding forward foreign exchange contracts to which the Group was committed was: Forward contract value Forward contract value Mark to market value Fair value 2021 Currency Contract type Currency ‘000 US Dollar Indian Rupee Buy Buy 3,285 432,265 £000 (2,442) (4,084) (6,526) 2020 £000 (2,458) (4,232) (6,690) Forward contract value Forward contract value Mark to market value Currency Contract type Currency ‘000 US Dollar Indian Rupee Buy Buy 1,680 622,227 £000 (1,288) (6,218) (7,506) £000 (1,318) (6,264) (7,582) £000 16 148 164 Fair value £000 30 46 76 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 contract value of £6,526,000 (2020: £7,506,000) and fair value asset of £164,000 liability (2020: £76,000 liability) have been designated as effective hedges in accordance with IFRS 9 Financial Instruments: Recognition and Measurement. The movement in fair value of hedged derivative financial instruments during the year was a credit of £222,000 (2020: debit of £385,000) which has been recognised in Other Comprehensive Income and presented in the hedging reserve in equity. In addition, the Group retains the gain or loss on realised foreign currency contracts used to hedge non-financial assets which are realised when the asset is recognised. No forward foreign currency exchange contracts have been designated as ineffective hedges in accordance with IFRS 9 Financial Instruments: Recognition and Measurement at 30 November 2021 (2020: nil). Commercially effective hedges may lead to income statement volatility in the future, particularly if the hedges do not meet the criteria of an effective hedge in accordance with IFRS 9 Financial Instruments: Recognition and Measurement. All Rupee forward contracts are settled on a net basis. The following table details how the Group’s income and equity would increase/(decrease) if there were a 10% increase/(decrease) in the amount of the respective currency which could be purchased with £Sterling (assuming all other variables remain constant), for example from $1.32:£1 to $1.45:£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. A 10% weakening of Sterling against the relevant currency would be estimated to have a comparable but opposite impact on income and equity. The total amount of outstanding forward foreign exchange contracts to which the Group was committed was: Group Forward foreign exchange contracts Sensitivity Group 10% increase in foreign exchange rates against Sterling: US Dollar Australian Dollar Indian Rupee 2021 2020 Nominal value Fair value Nominal value Fair value £000 (6,526) £000 164 £000 (7,506) £000 76 2021 Income £000 2020 Equity £000 Income £000 Equity £000 (175) (355) 82 (175) (393) 397 (23) (555) 8 (23) (549) 325 All the forward exchange contracts mature within 1 year. In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the analysis does not reflect management’s proactive monitoring methods and processes for exchange risk. Interest rate risk The only significant interest-bearing financial assets or liabilities relate to the Group’s borrowings referred to below. During the year, average net debt was £15,789,000 (2020: £16,309,000) and the maximum borrowings position was £29,709,000 (2020: £29,619,000). The Group has a committed revolving credit facility with HSBC Bank plc and Barclays Bank plc, which was originally signed on 5 July 2019 and which was extended on 22 September 2021. The facility expires on 4 July 2023. The facility is for £70,000,000 with an accordion option to increase the facility by a further £30,000,000. The accordion extension does not need the permission of the existing lenders. The current bank credit facility ends on 4 July 2023 but has an option to extend for a further 1 year. The extension remains subject to agreement with the lenders but the Board has no reason to believe the debt would not be renewed. Of the funds available, £5,000,000 is allocated to an on-demand working capital facility leaving the remainder unallocated. Under the facility the Company is bound to covenants of at least 4 times interest cover/EBITDA and up to 2.5 times Net Debt/EBITDA. The £2.1m drawdown at the year end is not contractually due for repayment until 2023. Interest is payable quarterly based on the drawdown at this date. Separate to this, the Group has a number of performance bonds relating to potential liabilities arising in connection with any Local Government Pension Scheme that the Company participates in as a result of its managed services contracts in the RM Technology Division (which are included in other provisions). The interest payable on loans under the revolving credit facility is between 2.65% and 3.25% above SONIA (the Margin), for the remainder of the committed term subject to certain financial ratios. A commitment fee of 40% of the Margin is payable on the unutilised balance and an arrangement fee of £175,000 was paid in 2021. The fees are recognised in the Consolidated Income Statement on an effective interest rate basis over the duration of the facility. 172 173 FINANCIAL STATEMENTS The interest and currency profile of cash and cash equivalents is shown below: Credit risk Group Sterling (overdraft)/cash and cash equivalents US Dollar Euro Indian Rupee Singapore Dollar Australian Dollar New Zealand Dollar Swedish Krona Cash and cash equivalents Borrowings – Sterling 2021 2020 Floating rate Interest free £000 (637) - - 402 - - - - £000 134 167 86 450 43 831 2 - Total £000 (503) 167 86 852 43 831 2 - (235) 1,713 1,478 20,000 - 20,000 Floating rate Interest free £000 (8) £000 84 Total £000 76 - - - - 133 - - 125 5,000 1,704 1,704 158 108 355 839 77 11 3,336 - 158 108 355 972 77 11 3,461 5,000 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 expected credit losses. Note 20 includes an analysis of trade receivables by type of customer and of the ageing of unimpaired trade receivables. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are investment grade banks. 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 carrying amount of financial assets represents the maximum credit exposure. The Group does not hold any collateral to cover its risks associated with financial assets. 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 has access to overdraft and borrowing facilities (see Interest rate risk section) which mean that the Group can continue to meet its liabilities as they fall due despite having net current liabilities of £1.0m (2020: £0.4m). The levels of investment in the warehouse strategy and IT investment programmes have had a material impact on the cash position of the Group and are explained further in Note 6. The weighted average effective interest rates at the balance sheet date on interest bearing financial assets and liabilities were as follows: Maturity profile of financial liabilities 2021 2020 Weighted average Weighted average The table below highlights the maturity profile of the financial liabilities. 3 months Floating rate interest rate Floating rate interest rate As at 30 November 2021 <3 months to 1 year 1–2 years 2–5 years over 5 years Group Financial assets: Cash and short-term deposits Trade and other receivables (non-current) Financial liabilities: Overdrafts Loans £000 % £000 3,560 - (2,082) (20,000) 0.77 - 1.59 1.74 5,941 - (2,480) (5,000) % 0.41 - 1.67 1.54 Interest rate risk sensitivity (assuming all other variables remain constant): 2021 2020 Financial liabilities Trade payables Lease liabilities Other taxation and social security Other payables Accruals Lease liabilities due after 1 year Borrowings £000 £000 £000 £000 £000 21,277 982 4,603 - 13,408 40,270 - 155 40,424 - 2,783 - 2,893 2,035 7,711 - 464 8,175 3 months - - - - - - - - - - - - - - - - - - 2,300 20,412 22,712 5,610 - 5,610 11,634 - 11,634 Income sensitivity Equity sensitivity Income sensitivity Equity sensitivity As at 30 November 2020 <3 months to 1 year 1–2 years 2–5 years over 5 years Group 1% increase in interest rates 1% decrease in interest rates £000 (185) 185 £000 (185) 185 £000 (15) 15 £000 (15) 15 Financial liabilities Trade payables Lease liabilities Other taxation and social security Other payables Derivative financial instruments Accruals Lease liabilities due after 1 year Borrowings £000 £000 £000 £000 £000 20,620 982 6,847 - 62 8,974 37,485 - 22 - 2,783 - 2,503 14 1,766 7,066 - 65 37,507 7,131 - - - - - - - - - - - - - - - - - - - - - 2,654 5,058 7,712 5,359 - 5,359 12,592 - 12,592 Total £000 21,277 3,765 4,603 2,893 15,443 47,981 19,544 21,030 88,555 Total £000 20,620 3,765 6,847 2,503 76 10,740 44,551 20,605 5,145 70,301 174 175 FINANCIAL STATEMENTS Capital management c) Other related party transactions Independent Search Partnership The Group’s policy is to maintain a strong capital base to maintain investor, creditor and market confidence as to sustain future development of the business. Management monitors the return on capital, as well as the level of dividends to ordinary shareholders and contributions to the defined benefit pension schemes. 32. RELATED PARTY TRANSACTIONS a) Key management personnel The remuneration of the Directors and other key management personnel of the Group during the year, in aggregate, was: Group Short-term employee benefits Post-employment benefits Termination payments Share-based payments Year ended 30 November 2021 Year ended 30 November 2020 £000 3,102 70 - (5) 3,167 £000 1,574 86 129 427 2,216 Share-based payments above include a fair value charge for executive Directors of £220,917 credit (2020: £40,054) in respect of awards to David Brooks, £87,864 (2020: £199,686) in respect of Neil Martin and £9,045 (2020: £nil) in respect of Mark Berry. Further information about the remuneration of individual Directors is provided in the audited section of the Remuneration Report. b) Transactions between the Company and its subsidiary undertakings During the year, the Company entered into the following transactions with its subsidiary undertakings: Company (Payments)/receipts: Management recharges Net intercompany interest payable Dividends received Year ended 30 November 2021 Year ended 30 November 2020 £000 £000 (940) (888) 6,000 (891) (1,153) 5,000 Total amounts owed between the Company and its subsidiary undertakings are disclosed in Notes 20 and 22 respectively. 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. Spinfield School Neil Martin, Executive Director, is a governor of Spinfield School. RM Resources made sales of £nil (2020: £800) to this school. At the year end there is a balance of £nil (2020: £nil) outstanding. Informa plc Patrick Neil Martell, Non-Executive Director of RM plc, is Chief Executive Officer of Informa plc. In the year a payment of £4,251 was made to Informa Markets (UK) Ltd, an indirect subsidiary of Informa plc, relating to an online subscription for legal guidance (2020: £3,900). At the year end there is a balance of £nil (2020: £nil) outstanding. Bellevue Place Education Trust Vicky Griffiths, a Non-Executive Director is a trustee of Bellevue Place Education Trust. RM Resources made sales of £234 (2020:£112) to this Trust. At the year end there is a balance of £nil outstanding (2020: £nil). Vicky Griffiths, a Non-Executive Director is a partner of Independent Search Partnership. In the year a payment of £42,683 was made to Independent Search Partnership (ISP) relating to search fees for recruitment (2020: £nil). Vicky Griffiths did not participate in the decision to use ISP, she did not benefit financially in any way from the arrangement, and she was not involved in the provision of the recruitment services from ISP to RM. At the year end there is a balance of £nil outstanding (2020: £nil). Dulwich College Junior School The husband of Vicky Griffiths, a Non-Executive Director, is Head Teacher of Dulwich College Junior School. RM Resources made sales of £792 (2020: £3,996) to this school. At year end there is a balance of £2 outstanding (2020: £891). Restore Now Charles Bligh, Non-Executive Director of RM plc, is the CEO of Restore plc, which is a supplier to RM of scanning and associated services. Since his appointment on 2 July 2021, the Group has purchased €217,500 and £1,204,279 services from Restore Digital Ltd (part of the Restore plc group). At the year end there is an unpaid balance of £nil outstanding. Charles was not involved in any discussions relating to the use of Restore plc group. 176 177 FINANCIAL STATEMENTS 33. RESTATEMENT FOR CHANGE IN ACCOUNTING POLICY In April 2021, an IFRIC agenda decision was issued in relation to the accounting treatment for configuration and customisation costs in a cloud computing arrangement. This guidance clarified that in order for an intangible asset to be capitalised in relation to customisation and configuration costs in a software-as-a service (SaaS) arrangement, it is necessary for there to be control of the underlying software asset or for there to be a separate intangible asset which meets the definition in IAS 38 Intangible Assets. The Group’s previous policy was to capitalise such customisation and configuration costs. Our major investment IT systems programme, known as Evolution, is predominately using SaaS arrangements and third-party implementation partners to improve our systems and processes. Configuration and associated activity costs which had been previously capitalised during 2019 (£2.0m) and 2020 (£2.3m) will now be expensed following the IFRIC interpretation. The impairment charge expensed in 2020 of £0.7m relating to 2019 costs (now expensed), will be reversed. As the costs are material and do not relate to underlying trading, all Evolution Programme costs expensed through the Income Statement in both 2020 and 2021 will be disclosed as “Adjustments” in the Financial Statements and therefore not included within the Group's adjusted profit figures. These adjustments will include certain dual run costs such as the SaaS licenses themselves (prior to operational use of the system to which the licenses relate), training relating to the Evolution programme, data migration activities and other operating costs that were not previously capitalised (2020: £611,000 reclassified to adjusting expenses (see Note 6)). In addition, as part of the strategy review currently underway the Directors consider that certain activities previously classified as Research and Development administration expenses and certain selling and distribution administration activities are more appropriately classified as Cost of Sales. Therefore for the year ended 30 November 2020, we have reclassified £0.1m from administration activities (£5.1m from R&D and £1.7m from selling & distribution) to cost of sales. This has had no impact on the operating profit reported. These adjustments have the following impact on the primary statements for the year ended 30 November 2020: Consolidated Income Statement Revenue Cost of sales Gross profit Operating expenses Impairment losses Profit from operations Investment income Finance costs Profit before tax Tax Profit for the year Consolidated Statement of Comprehensive Income Profit for the year Other comprehensive expense Total comprehensive expense 178 Year ended 30 November 2020 As reported Restatement impact £000 188,999 (115,034) 73,965 (61,489) (953) 11,523 21 (1,055) 10,489 (2,075) 8,414 £000 - (6,882) 6,882 5,216 705 (961) - - (961) 182 (779) Year ended 30 November 2020 As reported Restatement impact £000 8,414 (13,310) (4,896) £000 (779) - (779) Restated £000 188,999 (121,916) 67,083 (56,273) (248) 10,562 21 (1,055) 9,528 (1,893) 7,635 Restated £000 7,635 (13,310) (5,675) Consolidated Balance Sheet Non-current assets Goodwill Intangible assets Property, plant and equipment Right-of-Use asset Defined benefit pension scheme surplus Other receivables Contract fulfilment assets Deferred tax assets Current assets Inventories Trade and other receivables Contract fulfilment assets Held-for-sale asset Tax assets Cash at bank Total assets Current liabilities Trade and other payables Tax liabilities Provisions Overdraft Net current (liabilities)/assets Non-current liabilities Other payables Provisions Deferred tax liability Defined benefit pension scheme obligation Borrowings Total liabilities Net assets Equity attributable to shareholders Share capital Share premium account Own shares Capital redemption reserve Hedging reserve Translation reserve Retained earnings Total equity Year ended 30 November 2020 Year ended 30 November 2019 Restatement Restatement As reported £000 impact £000 Restated As reported £000 £000 impact £000 Restated £000 49,322 22,354 8,423 19,391 665 63 3,420 5,333 - (3,338) - - - - - - 49,322 19,016 8,423 19,391 665 63 3,420 5,333 108,971 (3,338) 105,633 49,107 23,274 9,183 - 976 939 2,193 3,457 89,129 22,151 31,238 844 1,428 382 5,534 61,577 150,706 - (2,220) - - - - - - (2,220) - - - - 422 - 422 49,107 21,054 9,183 - 976 939 2,193 3,457 86,909 22,151 31,238 844 1,428 804 5,534 61,999 (1,798) 148,908 18,594 31,475 728 4,793 2,633 5,941 64,164 169,797 (61,491) (51,231) (163) (435) (2,480) (64,569) (405) (20,987) (3,998) (3,339) (19,318) (4,779) (52,421) (116,990) 52,807 1,917 27,080 (841) 94 (65) (702) 25,324 52,807 (117) (1,585) (4,006) (56,939) 4,638 (3,483) (3,868) (3,356) (6,951) (16,534) (34,192) (91,131) 59,575 1,917 27,080 (1,007) 94 (411) (497) 32,399 59,575 - - - - - 422 - - - - - - - (1,798) - - - - - - (1,798) (1,798) (51,231) (117) (1,585) (4,006) (56,939) 5,060 (3,483) (3,868) (3,356) (6,951) (16,534) (34,192) (91,131) 57,777 1,917 27,080 (1,007) 94 (411) (497) 30,601 57,777 179 18,594 31,317 728 4,793 2,030 5,941 63,403 172,374 (61,491) (163) (435) (2,480) (64,569) (1,166) (20,987) (3,998) (3,339) (19,318) (4,779) (52,421) (116,990) 55,384 1,917 27,080 (841) 94 (65) (702) 27,901 55,384 - 158 - - 603 - 761 (2,577) - - - - - 761 - - - - - - - (2,577) - - - - - - (2,577) (2,577) FINANCIAL STATEMENTS Consolidated Cash Flow Statement Profit before tax Investment income Finance costs Profit from operations Adjustments for: Pension GMP Amortisation and impairment of intangible assets Depreciation and impairment of property, plant and equipment Gain on disposal of other asset Gain on disposal of property, plant and equipment Gain on foreign exchange derivatives Share-based payment charge Increase in provisions Defined benefit pension scheme administration cost Operating cash flows before movements in working capital Decrease in inventories Decrease in receivables Increase in contract fulfilment assets Movement in payables: Increase in trade and other payables Utilisation of provisions Cash generated from operations Defined benefit pension scheme cash contributions Tax paid Net cash inflow from operating activities Investing activities Interest received Proceeds on disposal of investment asset Proceeds on disposal of property, plant and equipment Purchases of property, plant and equipment Purchases of other intangible assets Net cash used in investing activities Financing activities Repayment of borrowings Borrowing facilities arrangement and commitment fees Interest paid Payment of leasing liabilities Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year 180 Year ended 30 November 2020 Restatement As reported £000 10,489 (21) 1,055 11,523 170 3,778 3,718 (713) (949) (625) 705 1,443 37 19,087 3,557 2,520 (1,111) 6,012 (2,284) 27,781 (4,094) (2,589) 21,098 21 1,560 2,900 (5,801) (2,660) (3,980) (12,000) (226) (501) (2,523) (15,250) 1,868 1,528 65 3,461 impact £000 (960) - - (960) - (740) - - - - - - - (1,700) - (158) - - - (1,858) - - (1,858) - - - - 1,858 1,858 - - - - - - - - - Restated £000 9,529 (21) 1,055 10,563 170 3,038 3,718 (713) (949) (625) 705 1,443 37 17,387 3,557 2,362 (1,111) 6,012 (2,284) 25,923 (4,094) (2,589) 19,240 21 1,560 2,900 (5,801) (802) (2,122) (12,000) (226) (501) (2,523) (15,250) 1,868 1,528 65 3,461 FINANCIAL STATEMENTSSHAREHOLDER INFORMATION FINANCIAL CALENDAR Ex-dividend date for 2021 final dividend Record date for 2021 final dividend Last date for DRIP election Annual General Meeting Payment of 2021 final dividend Announcement of 2022 interim results 17 March 2022 18 March 2022 5 April 2022 7 April 2022 29 April 2022 July 2022 Preliminary announcement of 2022 results February 2023 GLOSSARY The use of Company refers to RM plc. The use of Group refers to RM plc and its subsidiary undertakings covered by the consolidated accounts. CORPORATE WEBSITE Information about the Group’s activities is available at www.rmplc.com. INVESTOR INFORMATION Information for investors is available at www.rmplc.com. Enquiries can be directed to Mark Lágler, Company Secretary, at the Group head office address or at companysecretary@rm.com. 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.rmplc.com. Shareholders can also make changes to their address details and dividend mandates online. All enquiries about individual shareholder matters should be made to the Company’s registrar, Link Asset Services, either via email at shareholderenquiries@linkgroup.co.uk or by telephone to 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales. To help shareholders, the Link Asset Services’ Share Portal at www.signalshares.com contains a frequently asked questions section for shareholders. 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. Electronic communication brings numerous benefits, which include helping us reduce our impact on the environment, increased security (your documents cannot be lost in the post or read by others) and faster notification of information and updates. To sign up to receive e-communications go to Link Asset Services’ Share Portal at www.signalshares.com. All you need to register is your investor code, which can be found on your share certificate or your dividend tax voucher. The Share Portal is a secure online site where you can manage your shareholding quickly and easily. You can check your shareholding and account transactions, change your name, address or dividend mandate details online at any time and vote online via the Share Portal. 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 Link Asset Services, 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, Link Asset Services will not amalgamate the accounts without your written consent. If you would like to amalgamate your multiple accounts into one account, please write to Link Asset Services. AUDITOR Deloitte LLP Four Brindley Place Birmingham B1 2HZ FINANCIAL ADVISERS AND STOCKBROKERS Peel Hunt LLP 120 London Wall London EC2Y 5ET COMPANY SECRETARY Mark Lágler GROUP HEAD OFFICE AND REGISTERED OFFICE 142B Park Drive Milton Park Abingdon Oxfordshire OX14 4SE United Kingdom Telephone: +44 (0)8450 700 300 REGISTERED NUMBER RM plc’s registered number is 01749877 FINANCIAL PUBLIC RELATIONS Headland PR Consultancy LLP 1 Suffolk Lane London EC4R 0AX REGISTRAR Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU LEGAL ADVISER Osborne Clarke One London Wall London EC2Y 5EB 182 183 FINANCIAL STATEMENTS142B Park Drive Milton Park Milton Abingdon Oxfordshire OX14 4SE Telephone: +44 (0)8450 700 300 Stock code: RM. www.rmplc.com 

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