RM shares fall 44% after warning of slowing IT spending by schools

RM, which supplies software and computer kit to the education sector, saw its market value nearly halve yesterday after issuing a surprise profit warning.

The company said pre-tax profits before goodwill amortisation in the year ended 30 September would still show growth over last year's £15.5m. But it said the figure was likely to fall below expectations of about £18m. Its shares dropped 44.4 per cent to 197.5p.

Richard Girling, chief executive, said the shortfall was partly because schools had been granted a longer period of time to spend government funding. That, he said, was exacerbated by the fact that schools were now taking decisions on how to spend government funding directly rather than from Local Education Authorities.

"In simple terms, RM underestimated the effect of further devolution of spend and increased time for that spend," Mr Girling said. "We just got it wrong basically."

He said he did not know what proportion of orders had actually been lost rather than just deferred, saying: "Some of it is not lost. Some of it is".

RM, whose financial year ends on 30 September, relies on the second half of the year for the bulk of its profits, with the final quarter and month of September particularly crucial.

"We have a very seasonal business and there is a lot that has to happen in the last quarter and last month of the year in terms of order intake and shipments," Mr Girling said. "To a degree, September is always a nail-biting month for us."

RM said yesterday that order intake in the second half, particularly during the last quarter, had been lower than expected.

UBS Warburg, RM's house broker, immediately wiped £17m off its this year's sales forecasts to £243m and lowered its pre-tax profit estimate by about £1.5m to £16.2m. For the following year, £31m was lopped off sales forecasts, while profit estimates were cut 10 per cent to about £18m.

RM said it continued to keep a firm handle on operating expenses and said its year-end cash position was expected to be "significantly ahead" of the previous year's.

Despite the profits alert, Mr Girling remained upbeat on the company's prospects and the visibility of orders going forward.

The market will continue to grow, he said, noting education expenditures are set to rise by 9 per cent year-on-year and the government is committed to information technologies.

"This is still going to be a good year for RM," he said. "It's still going to be record turnover, record profit. I don't think any of the fundamentals that are driving our business have changed. That said, one tends to be a bit cautious after one has had to do this."