Cutbacks and job losses at RM send a chill wind through education
Goodbye Sir Tim Brighouse, hello Lord Adonis. The switching of two education icons at board level will be significant for some observers of the dramatic changes going on at education services supplier RM Education as it adjusts to the severe education market conditions ushered in by the Coalition Government.
RM's strategic review reveals a company haemorrhaging up to 23 per cent of its staff (up to 300 people). The growth enjoyed during the BSF years is being cut back with the disposal of assets in the US and Australia and innovative acquisitions in the UK like ISIS (furniture and learning spaces) and DACTA.
It's a severe blow for a company not known for innovation. In a statement issued today (September 29), RM chief executive Terry Sweeney says: "Because of a decline in school spending, and reductions in devolved capital, the UK education market has been challenging over the last year, and is likely to remain so. Along with other businesses dependent on education spending, this means we have to adapt to the new market realities.
“We’re making some tough decisions today in order to give ourselves a sound platform for the future. Through our reorganisation we aim to be more focused and better aligned with what our education customers are going to need in the future. I am confident in RM's future given our long-standing dedication to education, the strength and creativity of our people and a proven track record of helping our customers succeed."
The RM group warned in its interim management statement in July that operating results in the 12 months to September 30 would be lower than previous trends and below analyst forecasts. In carrying out its strategic review the RM board considered alternatives “to deliver value to shareholders”.
The statement issued by RM today warns: “RM is, and will continue to be, dependent on the UK macro-economic environment and particularly public sector spending on education. 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 severity of the cuts will continue to fuel rumours that RM is being prepared for a sale. There has been speculation on Twitter that Pearson is a potential suitor.
'Earnings volatility as RM adapts to the changing environment'
The board also warns of “earnings volatility as RM adapts to the changing environment”. And it announces the application of four themes to its strategy:
- Focus – “on the core business of RM where the Group has in depth market knowledge, a strong reputation with customers and proven ability to deliver earnings and cash flow, together with appropriate scale. Businesses that do not meet these criteria will be considered for exit or disposal”;
- Integrate - “previously acquired companies more fully, obtaining cost synergies and sharing expertise more effectively by structuring each business around compatible product/service offerings”;
- Mitigate seasonality - “rebalance profitability/cash flow and reduce the dependency/risk of the group’s financial performance on a few months of the year”.
- De-risk international strategy: The level of investment in international infrastructure exposes the group to more risk than a strategy based around distribution through resellers. Consequently, the group’s international strategy will in future primarily be based on a distribution model, with direct sales activities where appropriate."
Before the restructure RM was divided into three sections: Learning Technologies (72 per cent of group revenue in the year ended 30 September 2010); Education Resources (22 per cent of group revenue for the same period) and Assessment and Data (6% of Group revenue in FY10). The board felt this showed a “disproportionate” dependence on learning technologies so it has restructured the core businesses into four divisions, each with similar business models.
Now there are four sections: Education Technology; Managed Services; Education Resources: Education Software. Parts of the organisation deemed to not be part of the core business will be disposed of. These include Computrac in the US, Maze (Caz Software) in Australia, and, in the UK, ISIS, and DACTA, the distributor of TOLO and other educational brands..
ISIS is a highly respected company specialising in clever furniture and fittings design for learning spaces while RM considers DACTA less focused on direct routes to schools. RM will also dispense with Easytrace, the ‘access control and cashless catering systems’ outfit that it acquired for its BSF work.
LEGO Education Europe, the joint venture it set up with LEGO Education in January (49 per cent RM and 51 per cent LEGO Education) is unaffected by the changes. RM stresses its continuing commitment to the joint venture which has attracted interest because of the increasing popularity of LEGO's "creative studios" for schools (see "Not another brick in the wall – Stockley's LEGO coup").
TTS and Spacekraft will be retained by RM Education
Its innovative resources brand TTS and special needs specialist SpaceKraft will be retained by RM as core business.
While it's not clear what will happen to RM Education Solutions India, which has 500 employees and an operational cost of of £5 million a year for software development and back-office services, RM intends to "optimise resource allocation" between the UK and India and end up with 75 per cent of its employees based in the UK.
Consultation will be held on the redundancies and executive directors will waive bonuses for the current financial year and the chairman will waive all remuneration for the year following his appointment in June. This is RM's aim for redundancies: "The proposal is to reduce permanent headcount in the continuing operations by approximately 13 per cent from the July 2011 level. Including the businesses to be exited, and the actions taken in March 2011, the proposal would reduce Group permanent headcount by approximately 23 per cent from the September 2010 level."
To add more worry to the injury of redundancies, RM staff will have to watch out for their pensions. The RM board has also been looking to make pension adjustments and the statement says: "Following a review with its pension advisers, and in order to mitigate the growth in future liabilities and to manage the risk associated with the scheme, the Board has entered into discussions with the DB Scheme Trustees regarding the potential closure of the DB Scheme to future accrual."
The radical restructuring at RM, one of the most successful "ICT and learning" companies, is undoubtedly traumatic for its employees who have already seen a steady and unnerving trickle of redundancies. One former employee commented: "It's a very sad day for all RM employees and associates, and all those of us who have worked hard to create first-rate RM services for schools. Of course our hearts go out to those facing redundancy, but even those of us who have already left the company are now very worried about the news that pensions could be affected. We had never imagined that could happen."
RM announcement on "Trading Update and Strategic Review"