RM plc (LON:RM) Chief Financial Officer Simon Goodwin caught up with DirectorsTalk to discuss the strong growth in Assessment, the development of the RM Ava platform, further efficiency opportunities, and the Group’s full-year outlook.
Q1: First off, could you just explain to us what’s driving Assessment’s strong growth and how sustainable that momentum is?
A1: There is a continuous global demand for high-stakes examinations, and that market is steadily moving from traditional paper-based examinations to digital examinations.
RM is a really trusted partner in that space, offering a safe path to that digital assessment. We’re already working with the world’s largest examination boards on the marking of their paper exams and increasingly on that transition to their fully digital assessments.
So, in terms of sustainable growth momentum, we see this coming from both nurturing our existing relationships with existing customers, but also increasingly attracting new customers as well.
We’re focused on delivering a brilliant experience for our current customers and their candidates, and that remains a top priority, which will help us maintain our very, very high contract renewal rate. We’re really pleased it was at 100% in the first half of this year.
In attracting new customers, the scalability of our new RM Ava platform will allow us to increase volumes of assessments and to onboard a wider range of customers.
To that end, our pipeline has doubled since the end of last year, not only within our traditional general qualifications education sector, but also expanding into professional qualifications and hopefully now moving into government-regulated testing, where there’s a really consistent ongoing need for large-scale and secure assessments.
We’re really pleased to confirm that we’ve had a couple of new wins in this professional qualifications space already this year.
Q2: You touched on RM Ava. How will that strengthen your market position, and what milestones should investors watch in that space?
A2: Well, we’ve already announced that we’re investing about £20 million into the world-leading platform that is RM Ava. We started that a couple of years ago.
RM Ava will span the entire assessment lifecycle, from content creation and secure online testing to marking and feedback, and even the ability to provide AI-driven marking. Ava will be a highly reliable, industrial-scale platform that can scale to multimillion-candidate volumes, opening up these new target markets that we just talked about.
With regard to milestones, the build involves bringing our best existing assessment tools, as well as new modules, into a single cloud-based platform. Several new modules are already live, and the full build will be complete by the end of 2027. At that point, all of our current tools and all of our customers will have migrated to RM Ava.
With a steady shift to digital assessment, we then see revenue expansion opportunities, both with our current customers through increased test volumes and new features, alongside a significant expansion of opportunities across the expanded target markets that I’ve already mentioned.
Q3: With £20 million of annualised savings delivered, how much more efficiency is still available?
A3: There’s a lot we’re doing now to separate our three existing businesses from the legacy IT systems that RM has operated under for a number of years. We’re well advanced in doing that, and that will enable further efficiencies and cost savings as we bring those divisions onto a more modern set of systems.
To that point, each business now has its own legal entity. We achieved that at the end of the first half of this year and we’re well under way with giving each business a standalone ERP system, separating them from the legacy RM systems.
We anticipate this will be complete in the first half of 2027 and by that point, we’ll be able to deliver an additional £3 million-plus of further annualised cost savings by the end of next year.
Q4: What needs to change for Technology to return to growth?
A4: I think, as everyone’s aware, there are some real pressures on the UK education budget at the moment and schools, especially in the UK, are really feeling the pinch, with costs increasing and their budgets not increasing in line. You add to that the economic impacts of the conflict in the Middle East, which has been affecting our TTS business and has led to a bit of softer trading within TTS, especially in the first half-year.
In Technology especially, there’s anticipated movement in the Connect the Classroom initiative, which is a government-funded plan and programme that allows schools to invest in their own connectivity, alongside a post-COVID infrastructure refresh cycle.
So, four years on from COVID, we’re now seeing schools needing to replace the IT that they invested in at the time and we’re hopeful that Technology will benefit from that refresh cycle.
We’re equipping the business to make the most of those opportunities with new tools, new sales structures, and new product releases, so we’ll be well placed to benefit from an upturn in the market as that happens over the next months and years.
We have already seen an uptick in contract wins within Technology towards the end of the first half-year and whilst TTS’s revenues were slightly impacted by these temporary challenges, it continues to be a strong business. We see fantastic future international growth opportunities.
Q5: Finally, what are the biggest opportunities for meeting full-year expectations?
A: So, last year we set out four strategic initiatives to give us the focus that we need to achieve growth both this year and in the future.
So, those were to separate our three businesses, as we’ve just discussed, and we’ve made good progress on that; strengthening RM Ava and investing a further £6 million in its development this year; investing in our sales and marketing capability, especially within the Assessment business, to meet those new business goals and opportunities; and ultimately to improve working capital flexibility.
So, in terms of the full-year expectations, we do expect those external challenges I mentioned earlier to continue, and they will slightly impact our revenues this year. However, we remain on course to meet full-year market expectations for adjusted operating profit and EBITDA, and a greater proportion of that profit will come from our Assessment business, as we’ve seen recently.
So, we’re confident that by staying focused and delivering on our strategic initiatives, we’ll build a resilient and growing business, and we’re very excited by the great potential for RM Ava as we expand into new sectors.
