RM plc (RM) Earnings Call Transcript & Summary

Hello, and welcome to the RM plc full year results call. My name is Emily, and I will be coordinating the call today. [Operator Instructions] I will now hand the call over to our host, Chief Executive, Neil Martin. Please go ahead.

Hello, everybody, and welcome to RM's full year results for 2021. My name is Neil Martin, RM's Chief Executive. And I'm joined on this webcast this morning by Mark Berry, our Chief Financial Officer; and also Nigel Kirkland, our Chief Information Officer. Starting with the agenda. We split the presentation into 3 sections. I'll outline the highlights of 2021. Mark will then look at the financials in more detail and take you through the performance of each of the divisions. And then we will then move into a section on our strategy and outlook. As part of this, Nigel will give an overview of our program to change the group-wide IT platform and the impact that we believe this will have on our end. Finally, we will then open up for questions. So on the highlights. Let me start with a reminder of the market context for 2021. It was another year impacted by COVID with similar levels of school closures alongside the cancellation of school exams in the U.K. and Ireland and continued restrictions around the world that impacted our customers and our work with them. Against this backdrop, I would say that we delivered a satisfactory performance. Revenues grew 12% to GBP 211 million, and adjusted operating profit grew 22% to GBP 18.5 million, both positive but there is a little way to go before we return to the pre-COVID levels of 2019. Net debt ended the year at GBP 18 million, alongside an improved pension position. And we have increased the dividend to 4.7p per share, reflecting the improved financial performance. Moving away from the financials. An integral part of 2021 was a review of our strategy. Reiterating what I said at the half year, our #1 priority is to establish a clear path to sustainable growth. There are positive trends in the education market to support this. But to capitalize on these, we need to adapt. This is primarily about ensuring we have the right ambition, a clear focus on the customer need and improving our execution, particularly in our go-to-market activities. I will run through this later in the presentation, but we've made a number of changes to put us on that track and are making early progress. One item to note as we run through the presentation is that we've changed the names of 2 of our divisions to reflect the changes in the customer proposition. RM Resources remains the same, but RM Results becomes RM Assessment, acknowledging its broader product portfolio and the shift from a focus on exam marking only to one engaged in digital solutions throughout the assessment and the life cycle. And RM Education becomes RM Technology, highlighting the division's focus on improving the technology environment in schools to support learner outcomes. I will now hand over to Mark to take you through the financial summary and divisional review.

Thank you, Neil, and good morning, everyone. I'm Mark Berry, CFO of RM, and it's a pleasure to be taking you through our full year results this morning. So moving on then to look at our financial overview. After a challenging 2020, our financial performance improved during 2021. Group revenues were up 12% from GBP 189 million to GBP 211 million, and adjusted operating profits increased by GBP 3.4 million to GBP 18.5 million. Adjusted diluted EPS increased to 16.4p. And as Neil said, net debt at the end of the year was in line with our expectations of GBP 18.3 million. Net debt was GBP 17 million higher than at the same time last year, and the increase was driven by good underlying cash conversion being offset by planned spend on our group-wide IT platform and warehouse consolidation programs. We have a GBP 70 million revolving credit facility in place, which we continue to use to fund these investments. And turning to the dividend. For 2021, we're proposing to pay a final dividend of 3p per share, which takes the full year dividend of 4.7p per share. On the next slide, we bridge our revenue and profit movements versus 2020. Group revenue increased by GBP 21.9 million or 12% versus the prior year and was mainly driven by our Resources business, which increased its revenues by 24%. Group revenues recovered strongly as we moved into Q2, following the reopening of U.K. schools in March, and this was driven by strong trading in RM Resources, which benefited from an increase in resource spend on outdoor teaching, physical education and people well-being as well as on managing ongoing COVID transmission risks. Adjusted operating profit increased by 22% to GBP 18.5 million. This was driven by that revenue growth, but was partially offset by increased operating costs, in particular, in respect of freight within Resources and together with the resumption of certain key projects that were paused in 2020 and with the non-repeated prior year cost savings associated with our response to the pandemic. On the next slide, we set out the key components of our income statements. And I'll focus specifically on the items below operating profit. Interest was GBP 1.4 million for the year and comprised the cost of servicing our debt facility together with finance costs related to our defined benefit pension schemes. Adjusted profit before tax was therefore GBP 17.1 million, up 22% from GBP 14 million in the prior year. Tax in the period was GBP 3.3 million, and the adjusted effective tax rate was 19.2%. Lastly, post tax adjusted items were GBP 9.6 million, and of these GBP 7 million related to costs incurred during FY '21 in respect of our new IT platform implementation, which were expensed in the year following a change to Software-as-a-Service accounting guidance. The remaining GBP 2.6 million comprised the amortization of acquisition intangibles, dual running costs and property-related items. After deducting these adjusted items, profit after tax fell to GBP 4.2 million. On the next slide, we take a look at the key drivers of our group cash flow. We'll start with the cash inflow from operations, which was good at GBP 17.3 million. This was despite a GBP 3.5 million cash outflow in the first half of the year in respect of VAT payments, which were deferred from 2020. We've ended up the GBP 8.9 million cash impact of adjusted items to arrive at GBP 8.4 million of cash generated from operations in the year. Next, we deduct net CapEx of GBP 11.8 million and then deduct our normal working -- normal outflows relating to pension payments, dividends, tax, interest and lease costs. The overall net cash outflow for the year was therefore GBP 17 million, leaving year-end net debt at GBP 18.3 million. And I think it's important to note here that our cash outflow is driven by that planned spend on our 2 investment programs. In terms of guidance, we expect spend on the programs to remain at these elevated levels throughout the first half of FY '22 before reducing significantly in the second half. Moving on to the next slide and on to pensions. Our IAS19 pension position improved by GBP 49.1 million in the year, moving from a deficit of GBP 18.7 million at the start of the year to a surplus of GBP 30.4 million at the end of November. The improved position was driven primarily by better-than-expected asset returns within the schemes and an increase in the discount rate, which reflects bond yields. These were partially offset by an increase in the inflation rate. Our current annual cash flows in respect of pension are circa GBP 4.4 million per annum, and the latest triennial valuation of the scheme is nearing conclusion. I'll now move on to look at the performance of each of our 3 divisions in 2021. So we start with the RM Resources division. And for those of you less familiar with the business, RM Resources provides educational resources and supplies to schools and nurseries both in the U.K. and internationally. And as we've outlined, the picture remains one which was again dominated by our experience of COVID and the associated U.K. school closures. Overall, revenue growth was strong though and was up 24% versus 2020. U.K. revenue was up 22% versus 2020, but more importantly, recovered to the full, as ahead of the revenue we achieved pre-COVID in 2019. International revenues, however, remained 18% below 2019 levels despite being almost 40% ahead of 2020. And it's the international schools market, that's the one area that continues to lag 2019 as the number of pupils in attendance remains materially lower than pre-pandemic levels. The chart on the top right of this slide shows our year-on-year order intake accelerated in Q2 after the reopening of U.K. schools. And in our view, therefore, it's clear that our TTS brands have market share and highlights the underlying strength of the business and, in particular, on brand strength and specific curriculum knowledge. Operating profit in Resources increased to GBP 10.1 million, which was up GBP 7 million versus the GBP 3.1 million achieved in the prior year. And the impact of revenue growth was partially offset by higher product and freight costs associated with both COVID and Brexit in the year. Moving on to RM Assessment. RM Assessment provides IT software and end-to-end digital assessment services to government ministries, exam boards and awarding bodies, both in the U.K. and internationally. Revenues in Assessment were in line with 2020 at GBP 31.9 million and was supported by the partial recovery of global exam activity in the year, offset by the in-sourcing of a customer in 2020. And as you can see from the table on the top right of this slide, in the U.K., almost all school exams remained canceled in 2021 and overall activity was still 95% below the levels we saw in 2019. Set against this, however, were an increase in activity in other U.K. non-school exams and an increase in exam activity outside of the U.K. And with this backdrop, this was a resilient performance given the scale of exam cancellations. Operating profit was, however, lower due to a combination of low cost in FY '20, driven by widespread lockdowns, and wage inflation which increased delivery costs in FY '21, most acutely in India. As we move on to 2022, our sales pipeline remains delayed by the pandemic, but we are seeing some new business wins, and we also have good forward visibility from long-term contract renewals. And finally, moving on to the RM Technology division. RM Technology provides ICT software and services to U.K. schools and colleges. This division has been relatively resilient during the pandemic through the period of school lockdown. RM Technology offers a portfolio of products and services that supported the technology environment in schools throughout the pandemic, and revenues were stable and in line with prior year despite the store closures we experienced in the first half. Profit was lower, however, driven by a combination of factors, principally comprising lower gross margins driven by revenue mix, an increase in operating costs in FY '21 post the lockdown period and the absence of certain onetime benefits in the prior year. And Neil will talk about the Technology division in more detail later. I'll now hand back to him to take you through the strategy and outlook section.

Hello? Apologies for that. Thank you, Mark. So moving on to the strategy outlook. Taking a step back for a moment. RM has been trading in the education marketplace for almost 50 years, and seen significant change throughout this period. More recently, this has involved the move away from its heartland of hardware manufacturer, the rise and fall of the government's Building Schools for the Future program and then COVID. Throughout this journey, it has shown tremendous resilience. And on taking the Chief Executive role in the second quarter of 2021, the first priority was to build on this rich heritage and ensure we had a strategy to build a successful growing business in a market that will undergo accelerating change, following its experience through the pandemic. So let me start by taking a moment to outline the overarching investment case for taking RM forward. As outlined, the market is changing. And through this change, structural growth opportunities arise for RM, but we need to change the group to fully capitalize on them, a strategy reset. But to be clear, however, this is a reset, not a radical change. RM has excellent foundations in good markets, built over that 50 years. It has a unique breadth of knowledge and expertise, strong market positions and long-standing relationships with some of the leading global organizations in their field. As I stated earlier, this is primarily about ensuring we have the right ambition, a clear focus on the customer need and making sure we can improve our execution. This reset will be underpinned by 3 important enablers: the implementation of our new IT platform and single automated warehouse, a new go-to-market structure and operating model and great talent and culture with investment in key leadership positions. This will provide the platform to deliver sustainable growth, strong cash generation and improved returns for shareholders. So let me start by looking at the market drivers on the next slide. There are 3 that are important for RM. The first 2 are all about the use of technology and digital enablement in education and assessment. The experience of our customers through the pandemic will accelerate this, starting from a relatively low base. Digital penetration of global education spend is much lower than many other sectors at below 5%, which is expected to build over the coming years. The U.K. education technology sector played an increasingly important role for schools throughout the pandemic, proving the value that technology can have in a school environment. The digital assessment story is similar. Millions of exams are sat around the world, predominantly on paper. To give an example, in the U.K., of the 38 million exams sat in 2019, 94% of those were on paper. There is now growing acceptance of the benefits associated with digital solutions and also how this can feed back into the learning process on a more regular and ongoing basis. Finally, is the aggregation of procurement in schools. Schools are starting to group together in trusts, and the size of these trusts are growing. In 2015, 10% of English schools were in trusts of 6 schools or more. This has increased to 25% in 2019, and we see this trend continuing. It is also important as larger trusts start to procure key services, such as technology support centrally. We're adapting our propositions in a number of areas to ensure that they're closely aligned to these market drivers to be strategic partners on our customers' digital maturity journey rather than a purely product-led mindset. On a very simple level, our strategy looks to deliver on 5 headline objectives to improve the organization's delivery. Firstly, reach more customers. We have a defined number of potential customers, and therefore, we need to be focused on taking market share when the market is changing. For example, we outlined how school trusts are changing their procurement approach. The RM Technology division is amber here on the schedule because although we are one of the market leaders in outsourced IT managed services, we currently only work with the 2% of U.K. schools, highlighting the opportunity in a changing market. Next, improve our share of customer spend. The cost to sell is relatively high in education in that it is therefore imperative that we optimize our share of customer spend when a relationship is established, an area where we can improve. When we look at customer reach, RM Resources is green as it has a really strong channel, with sales to almost 90% of U.K. primary schools. However, it can improve its share of customer spend and is therefore amber on this measure. We are a business with 2 brands, targeting different aspects of the resources market, TTS and Consortium. But only 1/3 of our customers buy from both brands, meaning sales are lost to competitors. This is not helped by the fact that they have different and separate e-commerce platforms, something that will be addressed by the implementation of our new technology program. Furthermore, we do not currently leverage larger group relationships across the divisions for the benefit of the group, an opportunity we're looking to unlock. Third is operational excellence. For us, this means the increased use of technology to improve our efficiency and reduce the cost of delivering great service. At the moment, this is amber as our cost to serve is above that of some of our competitors. This again will improve through the implementation of our new platform and single automated warehouse, more than closing the technology gap on our peers. Next, attract and retain talent. Like a lot of businesses, this has never been more critical and requires real leadership focus. And finally, we need to maintain the good financial discipline as we move into the next phase of our journey and balance the needs and expectations of all key stakeholders. Moving forward, there are 3 key enablers that are important to underpin the delivery of these objectives, and we will take you through each of these in turn. We will start with Nigel Kirkland, taking you through the story of our new group-wide digital and automated platforms in more detail. Nigel?

Thank you, Neil, and good morning, everyone. My name is Nigel Kirkland, the Chief Information Officer at RM. And I'm going to spend the next few minutes talking you through the transformation program that internally we call Evolution. And in simplest terms, Evolution is a program of activity we're delivering to transform and improve the business processes across our RM. Its focus is about harnessing new technology to add value to our business operations to the customers we serve and to support our growth agenda. RM's current systems and infrastructure are outdated and poorly integrated, consisting of a mixture of in-house applications developed around RM as a manufacturing organization alongside systems inherited through acquisitions. It has resulted in an inefficient operation that does not have the capability to create data-driven intelligence quickly and then act upon it to the benefit of RM and our customers. For those of you interested in the key stats, we are moving from 8 core systems and 50 legacy integrations to 4 core systems which, for the first time, will give us an end-to-end integration of our key business processes, all the way from cost of demand through our operations and to our suppliers. The scope of the program touches the whole organization and it brings all 3 of the divisions in the business together technologically. The principle that the whole is greater than the sum of the parts applies as we are improving collective capability and knowledge-sharing across the group to break down silos, to enrich our data using all organizational touch points and to improve our cross-selling capabilities. The program is now well advanced. So let me update you on the implementation road map. We split the delivery into a series of deployments, starting with the foundational technology and then the 2 brands in the Resources business, with the first major deployment next month, and then finally, into our technology and assessment businesses, which will be a quicker deployment as we will be reusing existing configuration from earlier deployments. This is a complex program with multiple projects and impacts to the business and our customers. So we've taken a risk-based approach in delivering this together with the business. One of the key elements to derisk the implementation was to run a series of pilot releases with our customers our suppliers and the business in a limited capacity to ensure that the end-to-end processes operated and completed as it has been designed to do. These pilots have provided an invaluable feedback loop to get real-time and real-life experience of the new systems and the processes. The business outcomes from Evolution can be grouped into 4 key areas. The first benefit is in revenue generation. With a single view of our customer and improved dashboard reporting, we're able to generate better insight and segmentation models, and this will ultimately increase customer propensity, retention and share of wallet. As Neil mentioned earlier, in RM Resources, only 1/3 of our customers buy both brands. And the new integrated platform should remove barriers to improving this, enabling customers to shop both brands in a single basket and also accelerate the journey from 60% online buying to being fully digital. Indeed, during pilot testing of the new digital functionality with real customers, the feedback included some great comments like a great shopping experience, great content, the videos really do show the products off, and my personal favorite, seeing TTS products when shopping at Consortium has certainly made us think about creating a setting list for our nurseries. And when they have funds, we will expect them to purchase items from the setting list. Secondly, we will see benefits in operational performance and customer experience. We will have an improved and consolidated digital platform, which houses all of our product data from a single platform. This gives customers a personalized customer experience and a feature-rich journey. Alongside this, we will have improved customer service management tools and capability. Our assessment and technology customers will benefit from our ServiceNow offering, which gives them a single place to see a real-time view on the performance and the status of services they are receiving from us. This functionality will be complemented by self-service and omni-channel customer interaction supported by AI and automation, which means we will be able to provide faster and more proactive resolution to customer requirements. Supply chain optimization. This is primarily focused in our RM Resources, and this is our third area of benefit. We will be using a single platform for our suppliers, enabling us to share forecast data to support their planning processes. With one set of data and reduced manual processes together with automated warehouse operations and carrier integration, we will have an end-to-end view of our supply chain and single source of the [ truth ] reporting. Finally, securing our technology. This is where we can benefit from the enhanced security of our systems and our data using technology from leading vendors such as Microsoft and ServiceNow, giving us applications designed and built with the latest functionality and security in mind. We are looking to create a data-driven decision-making culture that empowers our people to generate new insights and to transform from being data processors to data consumers. Evolution is a significant program that will benefit -- that will have many benefits to RM, but fundamentally, it is about providing us with a modern and scalable technology foundation that can continue to grow with the business and move our systems from being an inhibitor of growth to one which is an asset to our competitive position. I will now hand back to Neil.

Let me start by switching off my mute button. Thank you, Nigel. Moving on to our operating model. The work we did in each division as part of the strategy review highlighted the need for greater customer focus given the accelerating changes in our marketplace. As a result of this, it was clear that we needed to make some changes. One of these was to change -- a change to the divisional structure. We previously had our Assessment and Technology divisions under a single leadership team. These divisions have struggled through the COVID period to rebuild the lost revenues of 2019 associated with the planned conclusion of the government's Building Schools for the Future program and the in-sourcing of an assessment customer that Mark mentioned earlier. We subsequently reorganized on the 2 leadership teams to provide the market focus, and we believe this will set the divisions on the path to improve performance going forward. Alongside this, we're reviewing a wider operating model to ensure that we are delivering efficiently and effectively. This has identified some opportunities to create shared centers of excellence that can deliver better value to the whole group, for example, a group bid function and also consolidated software development center. Finally, talent and culture is clearly critical. RM has a strong, purpose-led culture, aligns to the vision of our customers to improve educational outcomes. We see opportunities to develop further to improve the business, and we see investments in key leadership positions as a fundamental building block to support this. As part of this, we've made 13 new appointments to the senior leadership team both at a group level and in the divisions. To call out a few, at group level, we have Mark and Nigel, who are with us today; a Chief People Officer and Technology Managing Director joining. We have also appointed the current Director of U.K. Education at Microsoft to be our Group Strategy and Customer Director who look to unlock some of that value of the cross-selling across the group. Our new Head of Group Bid Management joined a few months ago to lead our consolidated team, and we have 2 new directors leading on sales and market development in Assessment and Technology. Reaching our full potential will take time, and we see this progress in phases. To date, we have reset the group and divisional strategies, changed the structure of the divisions and progressing on some wider changes to the operating model. Our new group-wide systems program moves into implementation phase this quarter. And of the 13 senior appointments I mentioned, 10 have started and a further 3 join in the coming months. We now move into a transition phase, which represents a material change for the organization. We need to embed and mature the new systems and leadership and focus on building and converting the sales pipeline that has been delayed by COVID, which has compounded the customer losses I mentioned earlier. The change is most material in the Technology division, where the midterm opportunity is really encouraging but will require change through this transition period. And like many businesses, the current inflation pressure is challenging, compounded by the proportion of our costs weighted to India, which is experiencing material wage inflation, particularly in technical roles. Being realistic, the transition will likely take at least 18 months before we reach an enhanced performance phase where we can fully leverage our investment in the business, alongside our greater customer and market focus. It is also at this stage where we move beyond pre-COVID levels of financial performance to deliver a satisfactory improvement in our financial performance, given the continued COVID disruption. I'm encouraged by the market trends. But to capitalize on these, RM does need to adapt with a clearer commercial focus. Acknowledging this, we've reset our strategy and are making good early progress. We will build performance and returns through a transition phase of change that will deliver a stronger platform for the business. This is an exciting time to be involved in education and assessment sectors and the reward we are focused on is sustainable growth in a purpose-led organization, delivering improved shareholder value. Thank you for your time, and I'll now hand over to Chloe from Hedland who will manage the question-and-answer session. Chloe?

Thank you. We're just going to pass back to Emily, who's going to remind everyone how to ask a question either via the webcast or the conference line.

Before Emily does that, I guess we can start. We have got some questions already on the webcast. So the first question is for Neil. And whether you could please talk us through how you see both the market dynamics and the macro trends impacting each division in relation to the forecast.

Yes. Thank you, Chloe. So if I take us through each division, I'll start with Resources. Resources had a really strong year in 2021. And despite the 8 weeks of closures, as Mark mentioned, in the U.K. delivered performance in excess of 2019, which was a really material results and saw good market share gains. Think as we move forward, there's a real focus in schools at the moment around recapturing that lost learning with a real return to basics on math, phonics, literacy, et cetera. And that really plays to the strength of the TTS brand. We expect -- although it's difficult to predict how much of that spend was catch-up in 2021, we expect to continue to progress. And as COVID restrictions start to reduce, we also would expect to see our international performance continue to improve as restrictions are lowered. I think moving into the Assessment division. There's clearly been a reevaluation as a result of COVID about the resilience and delivery of exam systems. And we do see a real change in terms of exam delivery over coming years. I think that will move differently in different sectors. I think we're starting to see professional organizations like accountancy awarding bodies, et cetera, moving more quickly. Similarly, I think universities are having a bit of a reevaluation of their approach to assessment as they have more students who aren't regularly in lectures or regularly on site. And I think the general debate now around exams is that it's a when, not if, in terms of the broader general qualifications in school exams. But we have seen movements in our international organizations and customers and colleagues moving a little bit more quickly than the U.K. But we definitely see that as a structural growth opportunity that we are well positioned to capitalize on. And then finally, in the Technology division. We see the combination of 2 factors, which I've mentioned. One is the role of technology in schools has clearly raised its profile through the pandemic. And I think that the lessons of lockdown in schools and papers written by the Department of Education is that the developments that have been made in helping a much broader digital literacy in schools won't decline. But we do see this as the start of a long digital maturity journey for schools, all of them starting at slightly different places with slightly different resources and capabilities. And we'll start to see then the role of multi-academy trust being more dominant in that procurement cycle as more of those reach a level of scale and look to partners to advise and support them on that digital maturity journey, which we see to be the benefit of the RM Technology division as we move forward.

Thanks, Neil. I'm just going to put you back on to Emily, who can remind you on how to ask questions via the webcast and audio.

[Operator Instructions]

Thanks, Emily. We do have a couple of further questions on the webcast platform. The first is from Julian Yates at Investec. Can you talk about your software IP and the Technology division in terms of product prioritization and earnings quality and plans for that forward?

Yes. Thank you, Julian. I think one of the things in the Technology division that has been important is -- as a division that had a number of go-to-market propositions, one of the things that the strategy review highlighted was a need to be very clear on how we represent ourselves to the market. And the lead was to be the technology partner to enable schools and trusts to improve teaching and learning. And I think establishing ourselves as that to bring greater clarity to that role is important. A number of our software platforms are actually innate -- are software that enable the delivery of our managed services and are part of that story that we have. I think more broadly, we are seeing changes in the software environment and marketplace, and we need to make sure that we have products that are competitive and can win at scale in this market. And that is part of our view of how we take that forward. But I think it's important that the proposition into the market is very clear, that we are the strategic partner for schools and that we can make sure that all of our products and services deliver value in that space.

Thanks, Neil. Next, we have 3 questions from Andy Smith at Panmure. I'll ask these one by one just to make it easier for the responses. The first is, has RM seen any increased benefit from the increased Department of Education budgets?

I think when you look at how those Department of Education budgets feed into schools, I think that -- to take the journey back, 2010 to 2019 saw a 9% real term decline in school budgets and that sort of benign environment through 2010 to 2019. The commitment of the GBP 14 billion and some incremental levels around COVID recovery have been established to effectively get back to 2023 to be in line with that real terms number of 2010. So on a real-term basis, there's not been an increase in funding in that period, but it is recovering from where we've seen. I think there's a lot of mix of state in schools at the moment in terms of where they are and how they've experienced through the pandemic. I think certainly, what we've seen in Resources that as there has need to be a focus on managing transmission risk, a focus on lost learning and literacy and math skills and being able to use outdoor environments, to a much greater degree, has really benefited our Resources business. I think more broadly, there are the dynamics around pay increases and starting salaries for teachers that have been established. So I think as we move forward, I wouldn't say that the increases in funding in recent years are going to make a material change and we don't see funding to be a driver of growth. We see change in the landscape of the use of technology and the role of multi-academy trusts in that procurement cycle will be a greater driver than funding. That said, anything that reverses the real terms decline in funding is positive even if it just gets back to 2010 levels.

And then the next question, also coming from Andy at Panmure is around providing some guidance for CapEx expenditure in FY '22.

Mark, do you want to pick that one up?

Yes. So we are anticipating our IT platform implementation to take another 6 or so months to complete. So my guidance on overall spend for next year for FY '22 is a net outflow of GBP 7 million. That's GBP 10 million gross approximately net of circa GBP 3 million proceeds on the final warehouse sale from a freehold perspective. Of that net GBP 7 million, it's what we used to call CapEx because a proportion of that CapEx number will actually eventually be expensed in line with the SaaS accounting guidance. But at a net cash outflow of around GBP 7 million in FY '22.

Thanks, Mark. And then the final question from Andy at Panmure is around whether it be possible to give a market share per division.

We'll have a go. So in the Resources division, in the U.K., the market is about GBP 1 billion. And therefore, we would say our U.K. market share is about 9% in that area and we're a market leader. In the Assessment, it's very, very difficult. It's a global market. A lot of the opportunities that exist are greenfield opportunities, that it's the transition of paper-based processes becoming digitized. So the addressable market is significant. The pace of change in capitalizing that market is difficult to predict, but I don't have a market share figure. I think if we took just outsourced assessment services in the U.K. which, I think, is about GBP 60 million, we would be a market leader in that. But that's not the whole of the market that we focus on. And then in Technology, rather than market share, I'll quote a proportion of the U.K. schools that we deal with because that data is a bit more difficult. So we sell products to 19% of U.K. schools, and only 2% of customers, however, by a strategic relationship of outsourced IT. So I think that gives an indication of the opportunity that exists for us to increase our share of wallet but also increase reach in a market that is changing. Hopefully, that helps understand the market a little bit better.

Thank you very much, Neil. Our next question is from Harold Evans at Singer Capital Markets. Please, could you expand on what, if anything, you're looking to change in the RM Results and Technology divisions from a go-to-market and product and services perspective. Any specific initiatives would be very helpful to get more color on.

Yes. I think -- thank you, Harold. I think the overarching approach is the -- so I'll start with the Assessment division. We came from a heritage of having a very strong e-marking platform. So this is where exams are sat on paper and then we take that paper, digitize it and our software was used by markers to mark exams anywhere in the world on tablets or laptops, et cetera. Since the acquisition of SoNET in 2019, which enabled us to provide an end-to-end digital solution both in terms of exam authoring, exam sitting and then marking, one of the things that we've focused on is how do we change from providing products and services that meet a certain need to being the partner of education organizations and awarding bodies on their digital maturity journey. So we work with some of the strongest and most advanced organizations in assessment globally, whether that be really powerful brands like International Baccalaureate or Cambridge Assessment or forward-thinking governments in terms of their approach to digital assessment like New Zealand or parts of Australia. All of that gives us an incredibly rich knowledge of any organization looking at a digital maturity journey. And therefore, the proposition is about repositioning ourselves not as a provider of a platform, but as the organization to guide you through that digital maturity journey. And I think it's similar in Technology as an organization with a rich heritage in that space and a transition from being a hardware manufacturer focused on delivering into that Building Schools for the Future program. We have a number of products. But historically, we've almost done point solution of products, each approaching the market individually and branded individually. And I think, again, this is about working with schools and trusts on that maturity journey to improve the use of technology so it stops being a concern or a hindrance and starts being something that they can mature through to the point where technology is an enabler to improving teaching and learning. And I think how we approach the market, how we tell that story and how we market behind that are really important changes. That means we will still sell connectivity. We will still sell managed services. We will still sell software. But I think how we then leverage any point relationship with a school or a trust to introduce the broader services and become that partner is a key element of how we take the business forward.

Next question is from [ Paul Lavin ]. And it's regarding whether you can provide any more detail on the implications of the pension surplus.

Mark, one for you, I think.

Yes, I think it's -- with the pension numbers, it's important to draw the distinction between the accounting numbers under IAS19, which are inherently volatile, and the underlying position from a valuation point of view from a technical perspective. So we have a triennial valuation, which is at the end of May 2021. That process is nearing its conclusion literally in the next few weeks. And I think from our perspective, there's an overarching objective of ours to take the pension scheme away from being a story. Our current cash outflows are about GBP 4.5 million per annum. And our previous deficit under the technical provisions was about GBP 45 million 3 years ago. I expect that to be lower, but I do nonetheless expect it to remain as a deficit in the region of around GBP 15 million to GBP 20 million. And I think, therefore, the choices we have ahead of us are -- I don't expect the cash outflow to increase. We may shorten the recovery period. But fundamentally, I think the funding position is in a much better place from a technical point of view, although it's the accounting numbers that provide a surplus. I hope that's clear.

Thanks very much, Mark. Our next question is from Henry Cottrell from the Cambridge Fund. Given that COVID seems to be leading us, RM doesn't seem to be expected a bounce back in the business to improve in 2022 performance. Is there any in more you can say on this please?

Henry. Yes, I think we've talked about this transition period. If we look at the journey of what we've delivered in 2021, which is GBP 18.5 million to pre-pandemic levels, which were more like GBP 27.5 million, GBP 28 million, there's broadly a GBP 9 million, GBP 10 million recovery. And what we're saying is that we need a couple of years to deliver that and to deliver the platform for sustainable growth as an organization. So there'll still be a reasonable build of our revenue and profit numbers through that transition period. But I think 2022 is an important transition year. We do have challenges of the revenue that was in 2019 that wasn't there subsequently in and around Building Schools for the Future revenues, which was the last year of material levels of that. AQA is a customer that in-sourced its activities. And I think what we've seen through this period is the sales pipeline, because of this disruption to schools and governments, we've seen the sales pipeline move to the right in both Technology and Assessment, which has therefore been difficult to recover some of those lost revenues. And I think we have got a challenge that many organizations have got at the moment which is inflation, which in certain parts of our market, we have a high weighting to 1/3 of our staff being in India, which has got much more material wage inflation than in the U.K. And a number of our areas are tied into long-term contracts where we can't pass those levels on to our customers. So whilst we embed the systems, have certain costs associated with that, deal with the management of inflation and rebuild and develop and convert that sales pipeline, that is going to have an impact, particularly through 2022 before we start to see more material levels of recovery to that GBP 27 million, GBP 28 million that we saw in 2019. But we do believe what we're doing, both from a strategic and an enablement point of view, will allow us to deliver sustainable growth from that point forward as the market is providing favorable opportunities for RM in the spaces in which it exists.

And then the final question from the webcast is from [ John Hall ]. And he asks, will you all be singing from the same hymn sheet in terms of the management team regarding driving efficiencies?

I think we can say yes to that. I mean, I think when you look at it, we've mentioned on our operational effectiveness. We do have a legacy infrastructure and we're investing in improving the quality of our technical estates, the integration, the end-to-end automation of our services and our opportunities. And I think, therefore, there's a big program internally that many, many people throughout the organization are involved in. And we've highlighted that in some parts of our organization, that we do lag competitors' operational efficiency. Some people are ahead of us in delivering a single warehouse opportunity. Some people are ahead of us in the provision of the technology environment that we have. So I think the work that we're doing and the enablers that we've mentioned provide a real great platform to improve our efficiency, both for the benefit of our customers and our financial performance.

There are no further questions on either the webcast or the conference call. So on that note, I will hand back to you, Neil, for closing remarks.

Thank you, Chloe. And many thanks for everybody who's joined us today. If you have any further questions, please don't get -- please don't hesitate to get in contact with either ourselves, Mark or myself directly. And we'd be happy to pick up a further conversation with everybody. So it leads me just to thank you for your time today and to close, and wish you all the very best. Thank you very much.