Tuesday, 22 September 2009

RM expects growth in FY09

(By Tola Sargeant, Tuesday 22nd Sept. 09:40am) Education solutions business RM said today that trading during 2009 “has so far been consistent with expectations for the year as a whole”. RM anticipates revenue growth in FY09 (to 30th Sept.) thanks to delivery on some Building Schools for the Future (BSF) contracts, the inclusion of its recently-acquired US subsidiary Computrac, and growth in its general resources business. It's therefore not clear how much of this growth will be organic.

However, there was no mention of profitability. Having reported virtually no operating profit in H1 (see RM – Worthy cause deserves a worthy profit), we will be hoping to see some improvement when the full year results are published in November. The business is, after all, traditionally skewed towards the second half. However, the 12 BSF contracts remain a drain on profitability and are not expected to turn a profit collectively until FY10 at the earliest.

RM is not the only supplier to have found the BSF bidding process expensive and up-front costs high. But for RM, which was keen to protect its leading position in the UK education SITS market, BSF was an opportunity it could not ignore. The question is whether that investment will pay off? With Children’s Secretary Ed Balls looking for £2bn in ‘efficiency savings’ in education, is BSF safe? My gut feeling is that future waves of BSF are likely to be a casualty of funding constraints, but existing contracts are somewhat safer (although by no means immune). So, even if the programme is cancelled, RM could continue to benefit from the long-term support contracts which currently make up around 18% of revenues.

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