(By Anthony Miller – Monday, 11th May 2009 8:30am). We have been a staunch supporter of RM from the day we first started writing our software and IT services sector commentary. After all, there can be few missions more important than developing software and providing services to advance the UK educational system. In this regard, RM has many achievements under its belt on its path to become “the leading provider of ICT software, infrastructure and services to UK education”.But the problem they seem to have is making any decent money from it.
In its interim report today (to 31st March – see here), RM recorded essentially no operating profit at all. Although this was an ‘improvement’ on near-£1m H1 08 losses, H2 08 operating margins approached 12%, bringing FY08 margins up to 4.7%. OK, RM, is a business with a strong skew to second-half trading. But even looking over the longer haul, RM’s pre-tax margins last year (5.3%), were lower than in 1999 (7.6%) although the company had grown a modest 7% compound since then.
Part of the recent problem, to be sure, is the cost of bidding for the UK government’s Building Schools for the Future (BSF) programme. RM CEO Terry Sweeney reiterated his expectation that RM’s BSF initiatives would finally turn a profit in FY10. Even if that were the case – which I do worry about, as the more contracts you bid for, the more it costs – profits in RM’s Learning Technologies division (in which its BSF activities reside) generated just a 1.6% margin in H1 09 (FY08: 5.5%) excluding BSF bid costs. Learning Technologies is RM’s biggest division, contributing 75% of total revenues.
I just wonder whether RM is stretching itself a little too far in its quest to cover, if not the whole gamut of education software and services, at least a fair chunk of it. And not just in the UK, but in the US too. It’s great that both the UK and US governments are increasing education spending. But, unless you are running a charity, if you can’t make decent money from it, what’s the point?
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