Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Education group RM slumps by a quarter after profit warning and job cuts

Education software RM has lost more than a quarter of its value after it issued a profit warning following the UK coalition’s public sector cutbacks, and said it would cut 23% of its workforce.

Following a strategic review it said it would focus on its core business, sell or shut others, reduce its dependency on the second half year which current accounts for 60% of revenues and reorganised its international operations. It said:

After a decade of increasing education budgets, the current climate provides a sharp contrast. Recent reductions in UK public sector expenditure and the termination of the Building Schools for the Future programme have, and will continue to have, an impact on the group in the next few years.

The strategic review has highlighted a number of actions which can be taken to mitigate some of these effects, although the board anticipates earnings volatility as the group adapts to the changing environment.

Among a number of board changes, RM has appointed former government minister Lord Adonis as a non-executive director. It plans to consult with employees about a permanent headcount reduction of 13%, with the disposal programme taking the total percentage of staff leaving the company to 23%.

The executives have decided, which can hardly be argued with, not to take any bonuses in the current year, and the chairman has waived any remuneration for the current year.

As analysts scurried to cut their forecasts, RM’s shares have slumped 26.25p to 74.5p. Robin Speakman at Shore Capital said:

Trading has clearly remained tough through the summer and is set to remain so for longer than we had anticipated, according to management. We believe that the competitive and spending environment is set to be a challenge for a while. We anticipate a requirement to make substantial forecast downgrades for financial years from 2011 to 2014.

However, we believe that the chances of RM emerging as a stronger focused company addressing an internationalising market with long term growth prospects are good, both across products and services.

George O’Connor at Panmure Gordon said:

Shares down 30% as company warns that operating results are to be below current analyst forecasts – but the wheels look to be coming off and the remedial actions not dramatic enough as we read through the strategic and operational review. The big picture is that around 70% of schools are anticipating reductions in capital expenditure – this is hardly news. There is a group-wide restructuring costing around £5m in the current year with annualised remuneration-based cost savings in excess of £12m, divisions representing around 9% of Group revenue are being disposed (surely not enough) and this should make savings of “in excess of £20m”. The company hopes to (finally) integrate previous acquisitions and increase the use of shared service centres. Shareholders should anticipate one-off charges in the current financial year. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds