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RNS
Cambian Group PLC  -  CMBN   

Final Results

Released 07:05 21-Mar-2018

RNS Number : 3991I
Cambian Group PLC
21 March 2018
 

21 March 2018                                                                                                                              

Cambian Group plc

("Cambian" or "the Group" or "the Company")

Audited results for the year ended 31 December 2017

 

Summary financials

2017 FY

2016 FY

Revenue

£196.0m

£182.1m

Adjusted EBITDA1

£18.7m

£16.2m

Adjusted EBITDA margin

9.5%

8.9%

Operating profit/(loss) before exceptional items2

£2.4m

£(0.2)m

Operating (loss)

£(8.8)m

£(7.6)m

Profit/(loss) before tax, exceptional and extinguished items3

£2.2m

£(0.4)m

(Loss) before tax

£(9.0)m

£(37.4)m

Net cash4

£82.8m

£116.1m

Adjusted basic earnings per share5

3.6p

2.4p

Statutory basic (loss) per share

 

(4.3)p

(17.2)p

Statutory basic (loss) per share - discontinued

 

(2.0)p

(85.6)p

Dividend per share - special dividend

27.1p

nil

Full year ordinary dividend per share

0.39p

nil

 

1 Adjusted EBITDA is earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, merger and 

acquisition (M&A) costs, IPO share option charges and exceptional items (note 3).

2 Exceptional items are defined in the accounting policies (note 1 and note 5).

3 Extinguished items relate to finance costs on the bank debt that were settled on sale of the Adult Services business (note 7).

4 Cash and cash equivalents, including service user monies, net of obligations under finance leases (note 17).

5 Adjusted basic earnings per share is defined as statutory basic earnings per share before amortisation of acquired intangible assets, 

M&A costs, IPO share option charges and exceptional and extinguished items, net of the tax effect of these adjustments (note 10).

Operational highlights

·     Established foundations of a children's services platform to change lives and create value for the future.

·       High quality regulatory ratings with 80% of facilities rated as "Good" or "Outstanding" at 31 December 2017 (31 December 2016: 83%).

·       Average occupancy held at 1,286 places (2016: 1,294), whilst continued re-positioning to higher severity, with average utilisation increasing to 78% (2016: 74%) following a planned reduction in operational capacity to 1,643 places (2016: 1,744)6.

·       Average fostering placements of 634 (2016: 645) with fill rate 1.41 (2016: 1.37) and ending the year at 6496.

·       Completed the transitional services agreement in June 2017 following the sale of the Adult Services business.

·       Good progress in reducing head office costs and identification of further operational efficiencies underway.

·       Strengthened executive management team.

6 2016 operational KPIs re-presented to reflect calculation based on average daily rather than monthly occupancy levels.

Financial highlights

·       Revenue growth of 8% to £196.0m (2016: £182.1m) from an increase in average fee levels, due to a move to higher severity services, as well as £2.4m one-off other income from the transitional services agreement. Underlying revenue growth excluding other income was 6%.

·       Adjusted EBITDA growth of 15% to £18.7m (2016: £16.2m) reflecting revenue growth as well as cost savings at head office, offset by one-off impacts following the sale of Adult Services business and provision for "sleep-ins".

·       Margin improvement of 60bps with adjusted EBITDA margin of 9.5% (2016: 8.9%).

·       Underlying business has performed in line with the Board's expectations while managing the complex separation issues and continued re-positioning of services to higher severity.

·       Loss before tax of £9.0m (2016: £37.4m loss) after reduction in finance costs.

·       Strong balance sheet with net cash of £82.8m (2016: £116.1m) following the special dividend of £50m returned to shareholders in September 2017 and before a further special dividend of £15m returned in February 2018.

·       Full year dividend of 0.39 pence per share (2016: nil pence). Final dividend announced of 0.25 pence per share (2016: nil pence), in line with commitment to resume a progressive dividend policy outlined in December 2016, and following the reinstated dividend at half year with the interim payment of 0.14 pence per share (2016 H1: nil pence).

Saleem Asaria, Chief Executive Officer, commented:

"2018 will be a year of consolidation and we will continue to invest in the systems and support for our staff necessary to deliver on our plans to return, in a measured fashion, to capacity led growth.

The year has started broadly in line with the Board's expectations taking into account the temporary setback following the current affairs television programme, in December 2017, and further investment in quality and workforce capability. Our focus this year is to continue to improve quality whilst re-positioning services to higher severity with corresponding fee increases.

We remain confident for the medium-term outlook and the Group's longer-term potential, while in the short-term we expect to continue to make progress in 2018 and look forward to the future with confidence."

 

Enquiries:

 

 

Cambian Group plc +44 (0) 208 735 6150

CNC +44 (0) 203 755 1600

 

Saleem Asaria, Chief Executive Officer

Anoop Kang, Chief Financial Officer

 

Richard Campbell +44 (0) 777 578 4933

Katherine Fennell +44 (0) 797 182 8445

 

       

 

A results presentation will be held for analysts at 9.00am today at the offices of Investec Bank Plc, 2 Gresham Street, London EC2V 7QP. If you would like to attend, please confirm your attendance to katherine.fennell@cnc-communications.com.

For those unable to attend, conference call dial-in details are available below. The presentation to be given by management will be made available ahead of time at: http://www.cambiangroup.com/cambiangroup/investor/home.aspx 

 

 

Conference Call:

Conference ID                         43261606#

UK FreeCall Dial-In                 0800 358 9473

Std International Dial-In           +44 (0) 333 300 0804

Conference Call Replay (accessible for 90 days):

Conference ID                         301223354#

UK FreeCall                            0800 358 2049

Std International                     +44 (0) 333 300 0819

 

About Cambian:

Cambian Group is one of the UK's leading children's specialist education and behavioural health service providers. Founded in 2004, it has grown to become a significant partner to the UK public sector. The Group's services have a specific focus on children who present high severity needs with challenging behaviours and complex care requirements. Cambian looks after almost 2,000 children and employs over 4,500 people across a portfolio of 222 residential facilities, specialist schools and fostering offices located in England and Wales.

 

 

 

Chairman's statement

Overview

Following the sale of our Adult Services business to Cygnet Health Care Limited (Cygnet), a wholly owned subsidiary of the US company Universal Health Services, Inc. at the end of 2016, Cambian became a pure children's specialist education and behavioural health services business, offering a full range of essential services from therapeutic fostering through to specialist schools and residential care. As at the end of 2017, we managed 222 facilities and employed over 4,500 staff, looking after 1,920 children and young people.

2017 has been a year of transition as we established our platform to achieve modest growth and become the leading provider in children's services. As part of the conditions of the sale of our Adult Services business to Cygnet, we undertook to support these activities through a transitional services agreement (TSA) on commercial terms with Cygnet, which required significant management and staff resources until the TSA completed at the end of June. We were not therefore able to right size all our cost base until the second half of last year. However, since then we have undertaken a significant cost-cutting exercise. This will result in approximately £8.5 million of cost reductions on an annualised basis, half of which have been reflected in 2017.

We have also spent 2017 repositioning the business towards a differentiated integrated recovery model incorporating care, education and therapy for children with the highest needs, which is where we believe there is a significant shortage of care and education facilities. This transformation has led us to review all of our facilities and where appropriate we have closed certain facilities that cannot be re-positioned cost-effectively. We have largely completed this process with one facility likely to be closed or sold in 2018. This transformation has also led us to review the strength of our management team and its ability to deliver more acute services, as a result of which we have made a number of senior hires, comprising Head of Special Educational Needs, Head of Fostering, Director of Quality and Director of People. We are confident that we now have the right senior management team to successfully manage and grow the business.

Our focus during the year has been to fill existing capacity, increase fee levels from higher acuity services and reduce the cost base to increase margins. Good progress has been made on increasing average fee levels and average occupancy levels have been maintained whilst re-positioning services.

Financial results and position

Revenue increased by 8% to £196.0 million (2016: £182.1 million), after the inclusion of £2.4 million TSA income, with 6% underlying growth in revenue from operations, while adjusted EBITDA was £18.7 million (2016: £16.2 million). Operating profits before exceptional items were £2.4 million (2016: £0.2 million loss). Adjusted earnings per share were 3.6 pence (2016: 2.4 pence).

On a statutory basis, we are reporting an operating loss of £8.8 million (2016: £7.6 million loss), pre-tax loss of £9.0 million (2016: £37.4 million loss) and loss for the year from continuing operations of £7.8 million (2016: £31.2 million). The loss for the year from discontinued operations was £3.6 million (2016: £155.0 million profit) and the total loss for the year was £11.4 million (2016: £123.8 million profit). The statutory basic loss per share from continuing operations was 4.3 pence (2016: 17.2 pence loss).

The Group's closing capacity was 1,643 places, a decrease of 6% over prior year end places of 1,744 in line with the plan, with average utilisation of 78% (2016: 74%).

We ended the year with a strong balance sheet. Net assets were £311.4 million, with net cash of £82.8 million and no debt. We also entered into a three year £30 million revolving credit facility agreement in May with a fixed margin of 2.0% over LIBOR payable on the amounts drawn. This facility is currently undrawn.

Board changes

We were delighted to welcome Anoop Kang who joined the Board as Chief Financial Officer on 12 July 2017. Anoop's most recent role was as Group Financial Controller at Kier Group plc, having previously held senior positions in the construction industry. Martin Hopcroft, who joined the Group in late 2015, stepped down as Chief Financial Officer on this date. We now have a strong triumvirate running the business with Saleem Asaria as CEO, Anne Marie Carrie as COO and Anoop Kang as CFO.

At the conclusion of the Company's Annual General Meeting on 5 June 2017, both Alison Halsey, Chair of the Audit Committee, and Christopher Brinsmead, Senior Independent Director and Chair of the Remuneration Committee, stepped down from the Board.

At the same date, Dr Graham Rich became Senior Independent Director in addition to his role as Chair of the Quality and Safeguarding Committee. Mike Butterworth took over as Chair of the Audit Committee on 1 January 2017 and Donald Muir took over as Chair of the Remuneration Committee on 5 June 2017.

We would like to thank Martin, Alison and Christopher for the extremely valuable contribution they made to Cambian during a time of significant transition.

We also appointed Catherine Apthorpe as our new Company Secretary on 1 March 2017.

Following an independent Board review undertaken by The People Stuff towards the end of last year, we have decided to appoint an additional non-executive director with significant experience in children's services. We expect to make the appointment during 2018.

Standards of care

We rightly judge ourselves on the high quality care and successful outcomes which we achieve for children placed under our care. Although this is not the only standard, 80% of our services were rated "Good" or "Outstanding" by our regulators at year end (2016: 83%). One of our Key Performance Indicators is to increase this percentage in the medium term to over 85% and to have no facilities rated as "Inadequate".

Dividends and dividend policy

Following the sale of the Adult Services business, the Board reviewed the future cash requirements of the business and decided to return an element to shareholders. Accordingly, on 15 September 2017, a special dividend of £50 million (27.1 pence per share) was paid to shareholders.

In addition following a review of the Company's capital requirements for the next three years, on 30 January 2018 the Board declared a further special dividend of £15 million (8.2 pence per share). This was paid on 28 February 2018.

The Board intends to maintain a progressive dividend policy. Following the reinstatement of the dividend at the 2017 half year (0.14 pence per share paid on 31 October 2017) and the Board's commitment to resume a progressive dividend policy, the Board is recommending a full year dividend, for the year ended 31 December 2017, of 0.39 pence per share (2016: nil pence). Subject to shareholder approval, the final dividend of 0.25 pence per share (2016: nil pence) will be paid on 31 July 2018 to shareholders on the register at the close of business on 6 July 2018.

Our people

Nothing of what we do to improve the lives of the children placed in our care would be achievable without the hard work and dedication of the front-line staff and managers throughout our organisation. We are, first and foremost, a care business and the quality of our work and outcomes has been, and will always be, our priority.

With the appointment of a new and highly experienced Director of People at the end of last year, we are reviewing our recruitment, training and induction processes to ensure that we offer rewarding and satisfying career prospects to all members of our staff, thus ensuring a stable, skilled and contented workforce.

Future strategy

Our aim is to be the highest quality provider of specialist education and behavioural health services for children. We are concentrating on those areas that have a high severity of need, covering the full range of services from residential care and education to day education and therapeutic fostering. Our focus is on those with autism, learning difficulties, emotional and social difficulties, mental health needs, and those suffering as a result of sexual abuse or exploitation. We estimate our target market to be 88,000 children. We intend to achieve this by building the industry's best leadership and workforce, installing robust processes and systems, improving quality levels and occupancy, and driving capacity led but measured growth.

Christopher Kemball
Chairman

 

 

Chief Executive's strategic review

Overview

The clear focus in 2017 was to navigate our Group towards becoming the highest quality provider of specialist education and behavioural health services for children and young people. To that end, I am pleased to report that we made significant progress across the following key objectives:

 

·    Maintained focus on quality.

·    Completed the Transitional Services Agreement (TSA) with Cygnet in June 2017, allowing us to focus purely on our Children's Services business.

·    Began right-sizing our cost base to align our business with its sole focus on Children's Services. We continue to identify further operational efficiencies.

·    Strengthened our executive management team.

·    Identified four detailed execution components to deliver our medium-term plan alongside KPIs against which to be measured.

Business performance

During what has been a year of significant change following the sale of the Adult Services business I am pleased to report that the underlying business has performed in line with our expectations. This is a huge credit to all the teams across the Group. At the same time, we are proud to have improved the lives of the children in our care with 80% of our services rated "Good" or "Outstanding" with our regulators at year end (2016: 83%).

Revenue increased by 8% to £196.0 million (2016: £182.1 million) including £2.4 million one-off other income during the period from the TSA.  Underlying growth in revenue was 6% driven by an increase in average fee levels, which reflected a planned shift to focusing on higher severity services.

Our adjusted EBITDA increased by 15%, to £18.7 million (2016: £16.2 million) with adjusted EBITDA margins of 9.5% (2016: 8.9%) reflecting the growth in revenue as well as cost savings made in our head office functions. These positives were offset by one-off impacts resulting from the sale of the Adult Services business and a provision made for changes to legislation regarding staff "sleep-ins" at our facilities.

Operating profit before exceptional items was £2.4 million (2016: £0.2 million loss) with a statutory operating loss of £8.8 million (2016: £7.6 million loss). The loss from discontinued operations following the sale of the Adult Services business was £3.6 million (2016: £155.0 million profit).

Average occupancy was broadly level at 1,286 places (2016: 1,294) with an underlying transition towards higher severity cases during the year. Average utilisation increased to 78% (2016: 74%) following a planned reduction in operational capacity to 1,643 (2016: 1,744).

Average occupancy in the fostering division was 634 (2016: 645) with 649 placements at the end of the year.

Creating a strong Children's Services platform

The completion of the TSA allowed us to focus on reducing our central costs to align our business with its new scale and focus on Children's Services with an efficient overhead structure. We reduced our cost base in the second half of the year and are continuing to identify further operational efficiencies that will be delivered during 2018 and 2019.

During the period, I am pleased to report that we have significantly strengthened our management team to ensure we are able to execute on our strategy. Our key appointments include the following experienced leaders:

·    Anoop Kang, formerly at Kier Group and Balfour Beatty, joined us as CFO.

·    Rob Walker, previously at Mencap, joined us as People Director.

·    Dr Sharon Menghini, formerly Director of Children's Services at a number of local authorities, joined us as Quality Director.

·    Tommy McDonald-Milner, previously Chief Executive of Minerva Education and Options Group, joined us as Managing Director of Special Educational Needs.

·    Lynn Webb, formerly Chief Operating Officer at Foster Care Associates, joined as us Managing Director of Fostering.

 

I am delighted to reiterate the strategic intent for the Group, announced in January 2018, which outlines our ambition over the medium-term:

·    Highest quality - aligned to our vision to be highest quality provider of specialist education and behavioural health services to children and young people in the UK

·    Focus on higher severity children - a continuation of the strategy that we started in 2016. We currently hold a market leading position with consistent and robust demand for our services. Average fee levels are higher than the industry average and commensurate with the higher severity needs of our children and young people

·    Building a platform to change lives and create value - consisting of the following factors:

A specialist focus on higher severity children

Established quality and safeguarding protocols

The in-house skills and expertise necessary to operate the platform

Defined models for care and therapeutic intervention

Real time data and measurable outcomes for the children we look after

Value for money for the customers who refer children to us

A defined strategy for recruitment, training and development

A national footprint

Fully operational real estate and sales & marketing functions

A strong brand backed by a culture of innovation

Robust business information and systems

A strong balance sheet

We also defined our aspirations for the Group by outlining our medium-term KPIs. Our ambition is to increase revenue by a compound annual growth rate of more than 5% with an adjusted EBITDA margin in excess of 16%. We have also set targets to increase our average scores with our regulators to over 85% "Good" or "Outstanding", increase occupancy levels to more than 85% and to continue to increase our average daily fee through re-positioning to higher severity services.

Our capital expenditure plan targets investment of £50 million on growth and capacity increases, £15 million to £20 million to enhance and upgrade our existing facilities and £15 million to £20 million on systems and IT investment by 2020. Our ambition is to deliver a return on capital employed on new projects in excess of 20% and over 85% operating cash conversion.

This plan is targeted while maintaining a strong balance sheet, net debt to adjusted EBITDA of less than 1.5x and a progressive dividend policy backed by consistent EPS growth.

Execution components and 2018

We have defined four components to execute our strategy.

Build industry's best leadership and workforce. We will continue to build our leadership teams, ensuring we have the right people in place across the Group to manage our facilities and also mentor and develop all Cambian staff to ensure high quality standards of care. This will require investment in training and quality assurance. We will strengthen our procedures and recruitment resources to build a leading workforce capacity with highly qualified and experienced staff running our teams across the Group. We will also focus on our employee engagement, producing measurable improvements in their engagement in the business with the aim of reducing staff turnover to less than 20%, minimising reliance on agency staff to less than 3% of our total employee cost and improving our employee net promoter score to +45%.

Put in enabling systems and data. As important to the future will be the need to capture high quality data - not only to monitor both the performance and development of our staff, and to manage the performance of our business, but also to give high quality clinical evidence of the quality of the outcomes that we offer our children. We will invest over the next three years in integrated systems and IT that will allow us to achieve these important, and differentiating, back and front office capabilities across finance, HR and IT as well as the therapeutic interventions and outcomes of our service users.

Optimise cost and operations. We will continue to optimise our cost base and identify further operational efficiencies across the Group. In addition, we will maintain our relentless focus on the quality of service delivery across the Group and industry leading regulatory scores.

Drive capacity led growth. Finally, we will deploy £15 million to £20 million over the next three years to enhance and upgrade existing facilities as we improve the environments of those in our care as well as completing the re-positioning of our facilities to higher severity services. We shall also begin a measured return to increasing capacity by developing new facilities organically, using our experienced in-house property team, as well as continuing to evaluate targeted bolt-on acquisitions as we begin to deploy £50 million with a targeted return on capital employed in excess of 20%. These investments combined have led us to a comprehensive plan for investing £85 million in capital expenditure by 2020.

Quality and regulatory

Our aim is to be the highest quality provider of specialist education and behavioural health services for our children and young people.

At year end 80% of our services were rated "Good" or "Outstanding" with Ofsted or the Care Quality Commission (CQC) (2016: 83%). This performance is against a backdrop of the continued raising of quality standards in the sector reflected in an increasingly stringent regulatory environment and an enhanced rigour of inspections. We welcome this evolution in the drive to improve the focus on quality of care and appropriate outcomes for our children. Our success in achieving our targeted regulatory ratings, and occupancy levels, is directly aligned to our ambition of building the industry's best leadership and workforce over the medium-term. This journey may not be linear, with some areas of outstanding practice and others where additional focus may be required. The percentage of our facilities rated "Good" and "Outstanding" may fluctuate in the short-term as we continue to re-position to higher severity and improve the capability of our workforce.

Our independent Quality & Safeguarding Committee, chaired by Dr Graham Rich, provides rigorous oversight of our regulatory and safeguarding performance and has been strengthened by the appointment of Dr Sharon Menghini as Director of Quality.

We are continually examining ways in which we can improve our standards of care and are investing significantly in better selection, training and induction of staff. It was therefore particularly disappointing that Cambian was featured in a current affairs television programme broadcast in December 2017, which included undercover video footage taken, without notice or permission, at a number of care facilities managed by independent providers; three of which are operated by Cambian. Since then, we have identified areas where we believe we can improve our service and discussed these in detail with our regulator, Ofsted, prior to implementing them.

Summary and outlook

2018 will be a year of consolidation and we will continue to invest in the systems and support for our staff necessary to deliver on our plans to return, in a measured fashion, to capacity led growth.

The year has started broadly in line with the Board's expectations taking into account the temporary setback following the current affairs television programme, in December 2017, and further investment in quality and workforce capability. Our focus this year is to continue to improve quality whilst re-positioning services to higher severity with corresponding fee increases.

We remain confident for the medium-term outlook and the Group's longer-term potential, while in the short-term we expect to continue to make progress in 2018 and look forward to the future with confidence.

Saleem Asaria
Chief Executive Officer

 

 

Chief Financial Officer's review

Capacity and occupancy

 

 

2017 FY1

2016 FY2

Average operational capacity

1,641

1,751

Average occupancy

1,286

1,294

Average utilisation

78%

74%

Closing operational capacity

1,643

1,744

Closing occupancy

1,271

1,270

Closing utilisation

77%

73%

Average fostering placements3

634

645

Fill rate4

1.41

1.37

 

1 Includes five assets owned by Cygnet Health Care Ltd on 1 January 2017 but transferred to Cambian during the period (Stranded Assets)

 2 Re-presented to reflect calculation based on average daily rather than monthly occupancy levels (continuing operations).

3 Fostering is excluded from the capacity and occupancy numbers and disclosed separately.

4 Ratio of foster placements to foster parents.

Average occupancy remained broadly flat during the year whilst the Group continues to re-position its services. Average utilisation increased to 78% (2016: 74%) reflecting sustained conversion of service user referrals as well as the planned reduction in capacity. Operational capacity was reduced by a net 101 places in the year predominantly within the Specialist Education division in the first half. Excluding the impact of reduced capacity from re-positioning, average occupancy was 73%. Fostering placements were down 2% at 634 although finished the year at 649 placements.

Fees

 (£)

2017 FY1

2016 FY2

Average daily fee (excluding Fostering)3

348

320

Fostering average daily fee3

132

129

 

1 Includes Stranded Assets owned by Cygnet Health Care Ltd on 1 January 2017 but transferred to Cambian during the period.

2 Re-presented to reflect calculation based on average daily rather than monthly occupancy levels (continuing operations).

3 Average daily fee from placement revenue (excluding £2.4m of TSA income) and total number of occupied 'bed days' or foster 

placement days during the period.

The average daily fee increased by 9% to £348 reflecting improved fee levels from higher severity services as the Group continued its strategy to re-position services to higher severity. Fostering average daily fee increased 2% to £132 per day.

 

 

Summary income statement (continuing operations)

 (£ million)

2017 FY

2016 FY

Variance %

Revenue

196.0

182.1

+8%

Adjusted EBITDA1

18.7

16.2

+15%

Depreciation

(11.1)

(9.9)

 

Amortisation

(4.2)

(4.2)

 

IPO Share option charge

(1.1)

(2.2)

 

Profit/(loss) on disposal of PPE

0.1

(0.1)

 

Operating profit/(loss) before exceptional items

2.4

(0.2)

 

Exceptional items

(11.2)

(7.4)

 

Operating loss

(8.8)

(7.6)

 

Net finance costs

(0.2)

(29.8)

 

Loss before tax

(9.0)

(37.4)

+76%

 

 

 

 

Adjusted EBITDA margin (%)

9.5%

8.9%

 

Adjusted basic earnings per share (p)2

3.6p

2.4p

+50%

Statutory basic (loss) per share (p)

(4.3)p

(17.2)p

 

Full year ordinary dividend per share (p)

0.39p

nil p

 

 

1 Adjusted EBITDA is earnings from continuing operations before net finance costs, tax, depreciation, amortisation, profit or loss on 

disposal of assets, merger and acquisition costs, IPO share option charges and exceptional items (note 3).

2 Adjusted basic earnings per share is defined as statutory basic earnings per share before amortisation of acquired intangible assets, 

M&A costs, IPO share option charges and exceptional and extinguished items, net of the tax effect of these adjustments (note 10).

Revenue

Group revenue increased by 8% to £196.0 million (2016: £182.1 million) reflecting the re-positioning to higher severity services and increases in fees. This also included £2.4 million of other income in connection with the disposal of the Adult Services business. Underlying revenue growth, excluding other income, was 6%. As part of the sale, the Group entered into a TSA to provide services relating to IT, finance, procurement and estates to the purchasers. These services ended on 28 June 2017 allowing the Group to focus on its core operations. Fostering revenue remained flat at £30.6 million (2016: £30.5 million) with improvements in fees being offset by the number of placements.

Adjusted EBITDA

Adjusted EBITDA increased by 15% to £18.7 million (2016: £16.2 million). This reflects the growth in revenue from improved fee levels as well as benefiting from central cost reduction initiatives. Administrative expenses increased by 3% from £44.8 million to £46.2 million. The adjusted EBITDA was partially impacted by delays in transferring back to the Group five assets temporarily stranded following the sale of the Adult Services business (Stranded Assets). All of these assets were successfully transferred back to the Group by 30 June 2017. Despite the Group also incurring additional costs to accelerate the completion of the TSA, the adjusted EBITDA margin percentage improved from 8.9% to 9.5% in the year.

Operating profit/(loss)

Operating profit before exceptional items increased by £2.6 million to £2.4 million (2016: £0.2 million operating loss), which reflect the benefits of the operational efficiencies and focus on the Children's Services business. Depreciation for the year was £11.1 million (2016: £9.9 million). Amortisation of acquired intangibles remained flat at £4.2 million.

The charge on IPO option plans of £1.1 million (2016: £2.2 million) arises on the Continuation Option Plan shares awarded as part of the IPO, the impact of which is excluded from adjusted EBITDA. The decrease reflected the vesting of the first tranche of this plan after the transfer of certain participants to the Adult Services business. Charges on future or post-IPO share-based awards are included within adjusted EBITDA. After exceptional items, the operating loss was £8.8 million (2016: £7.6 million loss) for the year.

Exceptional items

The directors have used judgement in determining those items which, individually or, if of a similar type, in aggregate, need to be disclosed separately due to their size or incidence in order to obtain a more clear and consistent presentation of the Group's underlying performance.

Exceptional items of £11.2 million were recorded in the year (2016: £7.4 million). £5.2 million relates to the impairment of an asset that could not be cost effectively re-positioned to higher severity. £3.5m relates to the potential impact of the National Minimum Wage Regulations 2015 ("sleep-ins") for 2016 and prior years. £1.2 million relates to costs associated with the disposal of the Adult Services business. £0.9 million relates to costs of Group restructuring and reorganisation and £0.6 million relates to costs associated with IT restructuring post the disposal of the Adult Services business.

Taxation

The tax credit for the year was £1.2 million (2016: £6.2 million tax credit), equating to an effective tax rate of 18.2% (2016: 24.9%) on an underlying basis before exceptional items. The difference between the current statutory rate and the effective tax rate is principally due to the recognition of historic tax losses that are expected to be utilised in future periods.

Earnings per share

The adjusted earnings per share increased by 50% to 3.6 pence per share (2016: 2.4 pence per share). The statutory loss per share from continuing operations was 4.3 pence per share (2016: 17.2 pence per share). Taking into account discontinued operations the total statutory loss per share was 6.3 pence per share (2016: 68.6 pence per share profit). The 2016 earnings per share principally relates to discontinued operations as a result of the profit on sale of the Adult Services business.

Return of capital

On 15 September 2017, a special dividend of £50 million (27.1 pence per share) was paid to shareholders in line with previous announcements on the return of capital to shareholders following the sale of the Adult Services business.

In addition, following a review of the Group's capital requirements over the medium term, the Board declared a further special dividend of £15 million in January 2018. This was paid on 28 February 2018.

Dividend

Following the sale of the Adult Services business, the balance sheet strength and confidence in the Group's outlook over the medium term, the Board decided to reinstate the dividend at an appropriate level during 2017. The Board is recommending a full year dividend, for the year ended 31 December 2017, of 0.39 pence per share (2016: nil pence). An interim dividend of 0.14 pence per share was paid on 31 October 2017. Subject to shareholder approval, the final dividend of 0.25 pence per share (2016: nil pence) will be paid on 31 July 2018 to shareholders on the register at the close of business on 6 July 2018.

Discontinued operations

 (£ million)

2017 FY

2016 FY

Profit before tax

-

10.8

Tax

-

(0.1)

Profit from discontinued operations

-

10.7

(Loss)/profit on sale of discontinued operations

(3.6)

144.3

(Loss)/profit for the year from discontinued operations

(3.6)

155.0

 

Discontinued operations relates to the disposal of the Adult Services business. The disposal took place on 28 December 2016 for an initial consideration of £383.0 million excluding directly attributable costs.

The Sale and Purchase Agreement ("SPA") for the disposal of the Adult Services business required agreement of a Closing Statement, as is customary in such transactions. This was concluded on 19 September 2017, after agreement was reached between the Group and the buyer, and is reflected in the results for the period. Following a net adjustment of £4.0 million payable to the buyer the final consideration for the Adult Services business is £379.0 million excluding directly attributable costs.

Cash flow

Net cash from operating activities was an inflow of £29.9 million (2016: £3.4 million), with working capital movements reflecting an excellent performance on cash collections in the second half of the year. This represents an operating cash to adjusted EBITDA conversion rate of 151%. Net cash was £82.8 million at the year end (2016: £116.1 million). This movement reflected the positive operating cash flow partially offset by the payment of dividends in the year of £49.7 million.

Capital expenditure

Capital expenditure was £10.8 million (2016: £6.4 million) in the year, of which £6.1 million (2016: £4.5 million) was spent on the development of new capacity and £4.7 million (2016: £1.9 million) on the maintenance of existing units. Going forward, capital expenditure will increase as the Group invests in growth and capacity increases, enhancements and upgrades to existing facilities, and systems and IT.

Financing facilities

In May 2017, the Group entered into a three year £30 million revolving credit facility with Barclays for general corporate purposes with a fixed margin of 2.0% over LIBOR on amounts drawn under the facility, together with customary fees, covenants, baskets and undertakings. No drawdowns have been made to date.

Anoop Kang

Chief Financial Officer

 

Principal risks and uncertainties

The principal risks and uncertainties facing the business are considered to be as follows:

Risk

Description & Impact

Quality of Service

Failure to provide a high quality and consistent level of care for the children and young people placed under our charge.

Regulatory Breach

Loss or suspension of operating licences due to a major statutory, regulatory or contractual compliance breach.

Service Innovation

Insufficient innovation in our business model, service offerings or model of care reduces our competitiveness in the market.

Incident Response

Inability to effectively react and respond to a major incident or systematic incidents in a timely and controlled manner.

Relationships

Failure to create and maintain strong relationships with commissioners to ensure referrals and conversions at appropriate prices.

Systems & Processes

Immaturity of financial and operational systems and processes prevents effective business operations and sustainable future growth.

Attraction & Retention

Failure to attract and maintain an effective, high quality resource and talent base may prevent the delivery of a high quality service to the service users. Reduction in size and diversification of the Group following the disposal of the Adult Services business may make it more difficult to attract and retain key employees. Potential adverse impact on recruitment in healthcare as a result of Brexit.

Strategy & Performance

Failure to develop, execute and operate a strategic plan that ensures continued viable growth.

Integration

Failure to realise the benefits and synergies of effectively integrating new sites and acquisitions.

Business Change

Failure to effectively deliver key business change programmes to improve controls and processes.

Government Action

Failure to anticipate or respond to changes in government policy or regulation.

National Living Wage

Additional costs of national living wage on "sleep-ins" could be material.

 

Further details on the principal risks and uncertainties, and mitigation, can be found in the Group's Annual Report and Accounts.

  

Statement of Directors' responsibilities

The responsibility statement below has been prepared in connection with the Group's annual report and accounts for the year ended 31 December 2017.  Certain parts thereof are not included in this announcement.

 

Each of the directors, whose names and functions are listed in the annual report for the year ended 31 December 2017 confirm that, to the best of their knowledge:

 

·      the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the undertakings included in the consolidation taken as a whole;

·      the strategic report includes a fair review of the development and performance of the business and the position of the Company and its subsidiary undertakings, together with a description of the principal risks and uncertainties that they face; and

·      the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

 

 

 

By order of the Board

 

Saleem Asaria                                                    Anoop Kang

Chief Executive Officer                                       Chief Financial Officer

 

 

Cautionary Statement

Certain statements in this preliminary announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Independent Auditors' report to the shareholders of Cambian Group Plc on the preliminary announcement

 

We confirm that we have issued an unqualified opinion on the full financial statements of Cambian Group Plc.

 

Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks:

 

 

Revenue recognition

Key audit matter description

The Group recognised revenue of £196.0m (2016: £182.1m) over the period in which its behavioural health services in specialist high severity care are provided.  The Group measures revenue at the fair value of the consideration received or receivable in respect of services rendered.

 

A significant proportion of the Group's services are billed in advance based on the expected services to be provided. Where services delivered differ from those expected, credit notes are issued to ensure revenue is accurately recorded. Due to the manual nature of the information on which billings and credit notes are based a key audit matter has been identified around the risk of inaccurate revenue recognition.

 

How the scope of our audit responded to the key audit matter

We developed an expectation of recorded revenue based on key metrics, including occupancy data and fee rates (a sample of which were traced to source documentation), on a site by site basis and compared this to the actual revenue recognised. Where a reasonable expectation could not be formed, e.g. due to new sites or changes in service conditions, we traced a sample of transactions to invoice.

 

We tested the accuracy of invoicing by sampling credit notes from after year end and confirmed their accuracy through comparison to occupancy data and the original invoice that had been raised.  We also assessed the recoverability of the invoices sampled.  We gained assurance over the completeness of credit notes through ensuring credit notes had been raised in sequential order.

 

Key observations

We have assessed revenue on a site by site basis to be in line with our expectations and we consider revenue to be free from material misstatement.

 

 

Assessment of the carrying value of goodwill

Key audit matter description

The carrying value of goodwill (2017 & 2016 - £75.8m), is considered a key audit matter due to the size of the balance and the significant judgement involved in the annual impairment assessment.  Judgemental aspects include assumptions of future profitability, revenue growth, margins and the selection of appropriate discount rates, all of which may be susceptible to management bias.  We have identified a risk of fraud in relation to this judgement.

How the scope of our audit responded to the key audit matter

We have obtained management's goodwill impairment review calculations and assessed the mechanical accuracy of the model.  Furthermore, we challenged the assumptions and inputs used in the impairment model including the revenue growth rates and margins, discount rates, long term growth rates and the sensitivities applied and disclosed.  We have also assessed management's historical forecasting accuracy.

 

Our procedures included reviewing forecast cash flows with reference to historical trading performance and the Board approved budgets and consulting with our valuation specialists who benchmarked assumptions such as the discount rate to macroeconomic and market data.

 

The long term growth rate used in the cash flow projections was assessed to check that it did not materially differ to the average long term growth rate for the UK.

 

We have also performed sensitivity analysis on the impairment model to determine if a reasonable possible adverse change in the key assumptions, results in the carrying amount exceeding the recoverable amount for any cash generating unit.

 

Key observations

We concluded that the assumptions and judgements set out in management's model are reasonable and we concur with the Directors' assessment that there is no impairment. We also considered the disclosures within the consolidated financial statements to be appropriate.

 

 

Provision for National Living Wage payments for 'sleep-ins'

Key audit matter description

The Group, in common with a number of mental health care providers in the industry, is undergoing a National Living Wage audit by HMRC.  During 2017 there have been developments relating to other social care employers that indicate that this matter is being pursued by HMRC and that the outcome of cases is based on the individual set of circumstances.

 

Given the complexity of applying the regulations and judgment involved in calculating the provision Management has identified this as a key source of estimation uncertainty.  This has been identified as a key audit matter and a risk of fraud in relation to this judgement has been identified.

 

How the scope of our audit responded to the key audit matter

We reviewed the Group's records of policies and procedures with regard to compliance with the National Living Wage regulations and in particular, the process for employees working on sleep-in shifts.

 

We consulted with our in-house employment tax specialists in order to challenge management's assumptions on the application of the regulations and implications of non-compliance.

 

We challenged the underlying assumptions and adequacy of the provision through testing the mathematical accuracy of the provision and testing the underlying data on which the provision is based on a sample basis.

 

We performed a sensitivity analysis on the provision by flexing management's key assumptions to ascertain a range of possible outcomes based on reasonably possible movements in such assumptions.

 

Key observations

We consider the judgements made by management to be appropriate in light of the complexity of the assessment and we concur that this is a key source of estimation uncertainty.

 

 

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

 

Our liability for this report, and for our full audit report on the financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

 

Deloitte LLP

 

Statutory Auditor

 

Statement of Comprehensive Income

For the year ended 31 December 2017

 

 

 

 

2017

Re-presented1

2016

 

Note

£'000

£'000

Continuing operations

 

 

 

Revenue

 

195,952

182,055

Cost of sales

 

(158,513)

(144,841)

Gross profit

 

37,439

37,214

Administrative expenses

 

(46,253)

(44,837)

Operating loss

 

(8,814)

(7,623)

Operating profit/(loss) before exceptional items

 

2,350

(228)

Exceptional items within administrative expenses

5

(11,164)

(7,395)

Operating loss

 

(8,814)

(7,623)

Finance income

 

218

13

Finance costs

6

(399)

(29,784)

Loss before tax

 

(8,995)

(37,394)

Profit/(loss) before tax, exceptional and extinguished items

 

2,169

(401)

Exceptional items within administrative expenses

5

(11,164)

(7,395)

Extinguished items within finance costs

7

-

(29,598)

Loss before tax

 

(8,995)

(37,394)

Tax

8

1,198

6,217

Loss for the year from continuing operations

 

(7,797)

(31,177)

Discontinued operations

 

 

 

(Loss)/profit for the year from discontinued operations

9

(3,566)

155,003

(Loss)/profit for the year 2

 

(11,363)

123,826

 

 

 

 

Fair value loss from cash flow hedge 3

 

-

(1,752)

Deferred tax relating to fair value loss 3

 

-

316

Recycling of cash flow hedge

 

-

2,353

Other comprehensive profit for the year

 

-

917

 

 

 

 

Total comprehensive (loss)/income for the year 2

 

(11,363)

124,743

 

 

 

 

Loss per share from continuing operations - basic & diluted

10

(4.3)p

(17.2)p

1 Re-presented cost of sales and administration expenses (see note 19).

2 Wholly attributable to owners of the ultimate controlling party.

3 Items that may be reclassified to profit and loss.

 

 

Consolidated Balance Sheet

As at 31 December 2017

 

 

 

Restated

 

 

2017

2016

(restated) 1

 

Note

£'000

£'000

Goodwill

11

75,783

75,783

Other intangible assets

12

41,678

45,928

Property, plant and equipment

13

170,703

177,183

Non-current assets

 

288,164

298,894

 

 

 

 

Trade and other receivables

 

22,609

41,414

Cash and cash equivalents

 

83,056

116,657

Current tax asset

 

-

2,771

Prepayments and accrued income

 

3,224

3,040

Current assets

 

108,889

163,882

 

 

 

 

Total assets

 

397,053

462,776

 

 

 

 

Trade and other payables

 

(22,208)

(32,892)

Provisions

14

(1,603)

(5,492)

Deferred revenue

 

(28,491)

(27,314)

Current tax liability

 

(1,729)

-

Obligations under finance leases

 

(132)

(273)

Current liabilities

 

(54,163)

(65,971)

 

 

 

 

Net current assets

 

54,726

97,911

 

 

 

 

Obligation under finance leases

 

(144)

(277)

Provisions

14

(9,777)

-

Deferred tax liabilities

 

(21,540)

(25,221)

Non-current liabilities

 

(31,461)

(25,498)

 

 

 

 

Total liabilities

 

(85,624)

(91,469)

 

 

 

 

Net assets

 

311,429

371,307

 

 

 

 

Share capital

15

1,842

1,842

Share premium

 

20,499

20,499

Merger reserve

 

391,459

391,459

Other reserves

 

(138,494)

(139,665)

Retained earnings

 

36,123

97,172

Total equity

 

311,429

371,307

 

1 Restated between share premium and merger reserve (see note 18).

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

 

Share capital

 

Share premium

 

Merger reserve

Cash flow hedging reserve

Other reserves

Retained earnings

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2016

1,842

386,653

-

(917)

(116,589)

(26,654)

244,335

Effect of prior year restatement (note 18)

-

(366,154)

391,459

-

(25,305)

-

-

Restated balance at 1 January 2016

1,842

20,499

391,459

(917)

(141,894)

(26,654)

244,335

Profit for the year

-

-

-

-

-

123,826

123,826

Loss on effective portion of cash flow hedge, net of deferred tax

-

-

 

-

 

(1,436)

-

-

(1,436)

Recycling of the cash flow hedge reserve to profit and loss, net of deferred tax

-

-

 

-

 

2,353

-

-

2,353

Credit for equity-settled share-based payments

-

-

-

-

2,229

-

2,229

Balance at 31 December 2016

1,842

20,499

391,459

-

(139,665)

97,172

371,307

Loss for the year

-

-

-

-

-

(11,363)

(11,363)

Dividends paid

-

-

-

-

-

(49,686)

(49,686)

Credit for equity-settled share-based payments

-

-

-

-

1,171

-

1,171

Balance at 31 December 2017

1,842

20,499

391,459

-

(138,494)

36,123

311,429

 

 

 

 

Consolidated Cash Flow Statement

For the year ended 31 December 2017

 

 

2017

2016

 

Note

£'000

£'000

Net cash inflow from operating activities

16

29,884

3,449

 

 

 

 

Proceeds on disposal of property, plant and equipment

 

1,081

973

Purchase of property, plant and equipment

 

(10,764)

(12,547)

Sale of Adult Services business - discontinued operations

 

(3,985)

373,744

Net cash (used in)/from investing activities

 

(13,668)

362,170

 

 

 

 

Repayment of borrowings

 

-

(275,000)

New bank loans raised, net of issue costs

 

-

10,550

Repayment of obligations under finance leases

 

(294)

(252)

Dividends paid

 

(49,686)

-

Net cash used in financing activities

 

(49,980)

(264,702)

 

 

 

 

Net (decrease)/increase in cash & cash equivalents

 

(33,764)

100,917

 

 

 

 

Increase/(decrease) in cash held on behalf of clients

 

163

(2,307)

Cash and cash equivalents at beginning of year

 

116,657

18,047

Cash and cash equivalents at end of year

 

83,056

116,657

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

1. Accounting policies

Basis of preparation

Cambian Group plc ("Company") is incorporated in Great Britain under the Companies Act. The principal activity of the Company and its subsidiaries ("Group") is the provision of specialist behavioural healthcare services.

This preliminary announcement is based on the Group's financial statements for the year ended 31 December 2017 which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 31 December 2017.

The financial information does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by the way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

Exceptional items

Exceptional and extinguished items reflect items of non-recurring expenditure that have been disclosed separately due to their size or incidence in order to obtain clear and consistent presentation of the Group's performance (see note 5).

Going concern

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for at least 12 months from the date of approval of these financial statements. Accordingly, they have adopted the going concern basis of accounting in preparing the financial statements.

2. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 1, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

Critical judgements in applying the Group's accounting policies

The following are the critical judgements that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the historical financial information. Those involving estimations are dealt with separately below.

Exceptional items

The directors have used judgement in determining those items which, individually or, if of a similar type, in aggregate, need to be disclosed separately due to their size or incidence in order to obtain a more clear and consistent presentation of the Group's underlying performance.  

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Sleep-ins

A sleep-in refers to a type of work shift, commonly used in the care industry, where employees "sleep-in" and are paid an allowance for doing so. HMRC's view is that hours spent by employees performing sleep-in count as "working time" and therefore should be included when calculating whether or not someone has been paid in accordance with the National Minimum Wage Regulations 2015. In November 2017, HMRC reiterated its position and invited companies to join the Social Care Compliance Scheme, a self-reporting scheme aimed at concluding historic payments regarding sleep-ins. Cambian have opted into the scheme. Whilst a number of other care service providers have challenged HMRC's original view, if it is ultimately individually determined that Cambian had to pay each individual engaged in a sleep-in an amount by reference to the National Living Wage, the additional cost could be material. The directors have used their judgement to provide for this matter. The amount has not been separately disclosed to avoid prejudicing the dispute.

Onerous contract

Cambian is a party to an exclusive supply agreement in respect of pharmaceutical supplies at its sites. This contract did not automatically transfer with the Adult Services business. The supplier has indicated that in its view the sale is in breach of the agreement and is seeking either a novation of the agreement or compensation. Litigation has been formally threatened but not yet commenced, and the directors have used their judgement to provide for this. The amount has not been separately disclosed to avoid prejudicing the dispute.

Carrying value of property, plant and equipment

Determining whether property, plant and equipment is impaired requires an estimation of the value in use, and if required, estimation of the fair value less costs of disposal. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the property, plant and equipment, and a suitable discount rate in order to calculate present value.

3. Segmental analysis

On 28 December 2016, the Group made a substantial disposal with the sale of the Adult Services business. As required by accounting standards, Children's Services are reported as "continuing operations" and Adult Services are reported as "discontinued operations", however they are presented together in order to provide a fuller understanding of the overall trading performance over the last two years.

The Group assesses performance using adjusted EBITDA as its primary measure. This reflects the underlying performance of the business and provides an additional useful comparison of how the business is managed and measured on a day to day basis. Our KPIs are aligned to our strategy and together are used to measure the performance of our business and form the basis of the performance measures for remuneration.

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

3. Segmental analysis (continued)

 

Continuing

Discontinued

2017

 

£'000

£'000

£'000

Revenue

195,952

-

195,952

Cost of sales

(158,513)

-

(158,513)

Gross profit

37,439

-

37,439

Administrative expenses before adjustments and exceptional items

(18,752)

-

(18,752)

Adjusted EBITDA

18,687

-

18,687

Depreciation

(11,124)

-

(11,124)

Amortisation

(4,250)

-

(4,250)

Loss on disposal of property, plant and equipment

137

-

137

IPO share option charges

(1,100)

-

(1,100)

Operating profit/(loss) before exceptional items

2,350

-

2,350

Exceptional items

(11,164)

-

(11,164)

Operating (loss)/profit

(8,814)

-

(8,814)

Finance income

218

-

218

Finance costs

(399)

-

(399)

(Loss)/profit before tax

(8,995)

-

(8,995)

Tax

1,198

-

1,198

(Loss)/profit before sale of discontinued operations

(7,797)

-

(7,797)

(Loss)/profit on sale of discontinued operations

-

(3,566)

(3,566)

(Loss)/profit for the year

(7,797)

(3,566)

(11,363)

 

 

Continuing

Discontinued

2016

 

£'000

£'000

£'000

Revenue

182,055

142,086

324,141

Cost of sales

(144,841)

(86,883)

(231,724)

Gross profit

37,214

55,203

92,417

Administrative expenses before adjustments and exceptional items

(20,987)

(26,444)

(47,431)

Adjusted EBITDA

16,227

28,759

44,986

Depreciation

(9,831)

(6,647)

(16,478)

Amortisation

(4,263)

(1,505)

(5,768)

Loss on disposal of property, plant and equipment

(131)

8

(123)

IPO share option charges

(2,230)

-

(2,230)

Operating (loss)/profit before exceptional items

(228)

20,615

20,387

Exceptional items

(7,395)

(9,740)

(17,135)

Operating (loss)/profit

(7,623)

10,875

3,252

Finance income

13

1

14

Finance costs

(29,784)

(46)

(29,830)

(Loss)/profit before tax

(37,394)

10,830

(26,564)

Tax

6,217

(105)

6,112

(Loss)/profit before sale of discontinued operations

(31,177)

10,725

(20,452)

Profit on sale of discontinued operations

-

144,278

144,278

(Loss)/profit for the year

(31,177)

155,003

123,826

 

    

 

   

Notes to the financial statements

For the year ended 31 December 2017

 

4. Staff costs

 

 

2017

2016

 

 

£'000

£'000

Wages and salaries

 

98,811

95,231

Social security costs

 

8,638

7,814

Other pension costs

 

1,384

1,252

Share-based payment expense

 

1,520

2,229

Staff costs

 

110,353

106,526

 

 

 

2017

2016

 

 

Number

Number

Nursing, care and support staff

 

3,965

6,361

Estates, sales and marketing, quality, management and administration

 

574

880

Average number of employees & directors

 

4,539

7,241

 

The 2016 staff numbers are represented by continuing and discontinued operations per the table below:

 

Continuing

Discontinued

2016

 

Nursing, care and support staff

Number

3,880

Number

2,481

Number

6,361

Estates, sales and marketing, quality, management and administration

537

343

880

Average number of employees & directors

4,417

2,824

7,241

 

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

5. Exceptional items

 

 

2017

2016

 

 

£'000

£'000

Impairment of property, plant and equipment (note 13)

 

5,177

-

Sleep-ins

 

3,460

1,922

Costs associated with the disposal of Adult Services business

 

1,245

1,041

Post disposal restructuring and reorganisation costs

 

888

-

IT systems costs

 

642

-

Reversal of prior period exceptional provision

 

(248)

-

Refinancing costs

 

-

2,446

Capitalised finance costs written off

 

-

1,854

IT project costs written off

 

-

132

Exceptional items

 

11,164

7,395

 

Impairment of property, plant and equipment relates to an impairment charge relating to of one of Cambian's sites. Sleep-ins is the provision for 2016 and prior years relating to the potential impact of National Minimum Wage Regulations 2015. Costs associated with the disposal of the Adult Services business relates to costs related specifically to the disposal and largely consist of professional fees associated with the completion process and staff retention incentives incurred during the transitional services agreement. Post disposal restructuring and reorganisation costs relate to costs incurred in restructuring the central functions. IT systems costs relate predominantly to professional fees incurred in connection with process simplification and system costs following the sale of the Adult Services business. Reversal of prior period exceptional provision relates to a tax liability provided for relating to the acquisition of By the Bridge Holdings Limited.

 

Refinancing costs include the engagement of legal and financial specialists to assist in the financial restructuring in April 2016. Capitalised finance costs written off relate to the previously capitalised finance fees included in the carrying value of the borrowings prior to the financial restructuring in April 2016. IT project costs written off relate to a decision taken in late 2015 to cancel a project to integrate Finance, HR and CRM systems.

 

A cash outflow of £12.4m (2016: £5.3m) occurred as a result of exceptional items, and is included as part of net cash inflow from operating activities.

 

6. Finance costs

 

 

2017

2016

 

 

£'000

£'000

Interest on bank loans

 

-

19,280

Bank loan charges

 

380

135

Amortised loan issue costs

 

-

8,160

Settlement costs of financial instruments

 

-

2,158

Interest on obligations under finance leases

 

19

51

Finance costs

 

399

29,784

 

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

7. Extinguished items

 

 

 

 

2017

2016

 

 

£'000

£'000

Interest on bank loans

 

-

19,280

Amortised loan issue costs

 

-

8,160

Settlement costs of financial instruments

 

-

2,158

Extinguished items

 

-

29,598

 

All bank debt was settled on the sale of the Adult Services business, so all costs of the financing facilities are reported as extinguished items within continuing operations.

 

 

8. Tax

 

 

 

2017

2016

 

 

£'000

£'000

Current tax

 

2,483

(4,762)

Deferred tax

 

(3,681)

(1,455)

Tax credit

 

(1,198)

(6,217)

 

 

Corporation tax is calculated at 19.3% (2016: 20.0%) of the estimated taxable profit for the year.

 

The charge for the year can be reconciled to the profit in the income statement as follows:

 

 

2017

2016

 

£'000

£'000

Loss before tax

(8,995)

(37,394)

Tax at the UK corporation tax rate of 19.3% (2016: 20.0%)

(1,731)

(7,479)

Expenses not deductible for tax purposes

1,907

3,831

Short term timing differences

(1,301)

678

Difference in tax rates

(31)

(49)

Unrecognised temporary differences

1

(687)

Adjustments to prior years

(43)

(2,464)

Effect of rate change on deferred tax

-

(2,108)

Discontinued operations

-

2,061

Tax credit for the year

(1,198)

(6,217)

 

 

Some exceptional costs are capital in nature and therefore not tax deductible, and it is estimated that £5.3m (2016: £8.2m) of the exceptional costs will be deductible, which has reduced the tax charge by £1.0m (2016: £1.6m). The Group has also released historic exceptional tax provisions, which has reduced the tax charge by £0.6m (2016: nil).

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

9. Sale of discontinued operations

On 5 December 2016, the Group entered into a sale agreement to dispose of Cambian Healthcare Limited and its subsidiaries, Care Aspirations Developments Limited and its subsidiaries, and Cambian Care Services, ("the Adult Services business"), which carried out all of the Group's Adult Services operations. The disposal was completed on 28 December 2016, on which date control of the Adult Services business passed to the acquirer, Cygnet Health Care Limited ("Cygnet").

 

A profit of £144.3m was reported in the year ended 31 December 2016 on the disposal of the Adult Services business, being the difference between the proceeds of disposal and the carrying amount of the subsidiaries' net assets sold. Under the terms of the Share Purchase Agreement, Cambian delivered a Closing Statement on 24 April 2017 to Cygnet. The Closing Statement was agreed between the Company and Cygnet on 19 September 2017 resulting in a reduction in the purchase price of £4.0m to £379.0m (excluding directly attributable costs). The final consideration after directly attributable costs of £3.6m was £375.4m.

 

2017

2016

 

£'000

£'000

 

 

 

Total consideration received in cash and equivalents

-

383,026

Purchase price adjustment

(4,015)

-

Directly attributable costs

449

(3,999)

Consideration

(3,566)

379,027

Net assets sold

-

(234,749)

(Loss)/profit on sale

(3,566)

144,278

Profit before sale of discontinued operations

-

10,725

Total (loss)/profit after tax for the year

(3,566)

155,003

 

 

 

 

The below table provides a breakdown of the final profit on sale of the Adult Services business:

 

 

 

 

 

 

£'000

Total consideration received in cash and equivalents

 

383,026

Purchase price adjustment

 

(4,015)

Directly attributable costs

 

(3,550)

Consideration

 

375,461

Net assets sold

 

(234,749)

Profit on sale

 

140,712

 

 

 

 

  

 

 

  

 

Notes to the financial statements

For the year ended 31 December 2017

 

10. (Loss)/earnings per share

 

 

2017

2016

 

£'000

£'000

Continuing operations

 

 

Loss

(7,797)

(31,177)

Exceptional items - net of tax credit £1.0m (2016: £1.1m)

10,162

6,301

Amortisation of intangibles - net of tax credit £0.8m (2016: £0.8m)

3,435

3,413

Charge on IPO option plans - net of tax credit £0.3m (2016: £0.1m)

800

2,105

Extinguished items - net of tax credit £nil (2016: £5.9m)

-

23,678

Adjusted earnings

6,600

4,320

 

 

 

Discontinued operations

 

 

(Loss)/profit

(3,566)

155,003

Exceptional items - net of tax credit £nil (2016: £0.1m)

-

9,597

Amortisation of intangibles - net of tax credit £nil (2016: £0.3m)

-

1,199

Loss/(profit) on sale of investment - net of tax charge £nil (2016: £nil)

3,566

(144,278)

Adjusted earnings

-

21,521

 

 

 

Total operations

 

 

(Loss)/profit

(11,363)

123,826

Exceptional items - net of tax credit £1.0m (2016: £1.2m)

10,162

15,898

Amortisation of intangibles - net of tax credit £0.8m (2016: £1.1m)

3,435

4,612

Charge on IPO option plans - net of tax credit £0.3m (2016: £0.1m)

800

2,105

Loss/(profit) on sale of investment - net of tax charge £nil (2016: £nil)

3,566

(144,278)

Extinguished items

-

23,678

Adjusted earnings

6,600

25,841

 

 

 

 

 

 

 

  

 

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

10. (Loss)/earnings per share (continued)

 

2017

2016

 

pence

pence

Continuing operations

 

 

EPS from continuing operations1

(4.3)

(17.2)

Exceptional items

5.6

3.5

Amortisation of intangibles

1.9

1.9

Charge on IPO option plans

0.4

1.2

Extinguished items

-

13.0

Adjusted EPS

3.6

2.4

 

 

 

Discontinued operations

 

 

EPS from discontinued operations1

(2.0)

85.6

Exceptional items

-

5.3

Amortisation of intangibles

-

0.7

(Loss)/profit on sale of investment

2.0

(79.7)

Adjusted EPS

-

11.9

 

 

 

Total operations

 

 

EPS for total Group1

(6.3)

68.4

Exceptional items

5.6

8.8

Amortisation of intangibles

1.9

2.6

Charge on IPO option plans

0.4

1.2

(Loss)/profit on sale of investment

2.0

(79.7)

Extinguished items

-

13.0

Adjusted EPS

3.6

14.3

 

1 Basic and diluted

 

2017

2016

Weighted average number of shares

Number

Number

Number of ordinary shares for the purpose of basic EPS

182,402,674

180,977,198

Dilutive effect of share options

-

-

Number of ordinary shares for the purpose of diluted EPS

182,402,674

180,977,198

 

11. Goodwill

 

2017

2016

 

£'000

£'000

Cost

 

 

As at 1 January

76,102

114,591

Disposals

-

(38,489)

As at 31 December

76,102

76,102

 

 

 

Impairment

 

 

As at 1 January

(319)

(319)

Charge for the year

-

-

As at 31 December

(319)

(319)

 

 

 

Net book value

 

 

As at 31 December

75,783

75,783

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

 

12. Other intangible assets

 

 

Customer

Relationships

Non-compete

Agreements

Total

 

£'000

£'000

£'000

Cost

 

 

 

As at 1 January 2016

83,803

681

84,484

Disposals

(23,504)

(340)

(23,844)

As at 31 December 2016

60,299

341

60,640

As at 31 December 2017

60,299

341

60,640

 

 

 

 

Amortisation

 

 

 

As at 1 January 2016

(12,074)

(223)

(12,297)

Charge for the year

(5,586)

(182)

(5,768)

Disposals

3,013

340

3,353

As at 31 December 2016

(14,647)

(65)

(14,712)

Charge for the year

(4,223)

(27)

(4,250)

As at 31 December 2017

(18,870)

(92)

(18,962)

 

 

 

 

Net book value

 

 

 

As at 31 December 2016

45,652

276

45,928

As at 31 December 2017

41,429

249

41,678

 

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

13. Property, plant and equipment

 

Land

and

buildings

Fixture, fittings and

equipment

Motor

vehicles

Assets

under

construction

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

As at 1 January 2016

398,625

44,183

1,559

17,415

461,782

Additions

2,239

8,131

-

2,177

12,547

Transfers

7,459

854

-

(8,313)

-

Disposals and write offs

(488)

(578)

(311)

(300)

(1,677)

Disposal of business

(210,692)

(18,087)

(199)

(4,613)

(233,591)

As at 31 December 2016

197,143

34,503

1,049

6,366

239,061

Additions

1,701

5,046

33

3,984

10,764

Transfers

1,389

1,249

(27)

(2,611)

-

Disposals

(1,315)

(205)

(367)

(2)

(1,889)

As at 31 December 2017

198,918

40,593

688

7,737

247,936

 

 

 

 

 

 

Depreciation

 

 

 

 

 

As at 1 January 2016

(73,589)

(23,501)

(704)

-

(97,794)

Charge for the year

(8,303)

(8,052)

(123)

-

(16,478)

Disposal

49

340

198

-

587

Disposal of business

40,072

11,547

188

-

51,807

As at 31 December 2016

(41,771)

(19,666)

(441)

-

(61,878)

Charge for the year

(4,571)

(6,514)

(39)

-

(11,124)

Impairment losses recognised in profit and loss

(5,177)

-

-

-

(5,177)

Disposals

456

267

223

-

946

As at 31 December 2017

(51,063)

(25,913)

(257)

-

(77,233)

 

 

 

 

 

 

Net book value

 

 

 

 

 

As at 31 December 2016

155,372

14,837

608

6,366

177,183

As at 31 December 2017

148,309

14,226

431

7,737

170,703

 

Impairment losses recognised in the year

 

During the year the Group carried out an assessment of impairment indicators in its property, plant and equipment. A review of the recoverable amount of those assets with impairment indicators was performed. The recoverable amount, which is the higher of fair value less cost of disposal and the value in use, has been determined initially based on value in use calculations. These calculations use cash flow projections for operational assets at the balance sheet date based on financial budgets approved by the Board of Directors for the forthcoming year and forecasts for up to three years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this year are extrapolated using growth rates, which do not exceed the expected long-term economic growth rate. The review has led to an impairment loss of £5.2m in land and buildings, which has been recognised in the statement of comprehensive income.

 

The key assumptions for the value in use calculations are those regarding discount rates, long-term growth rates, mature occupancy rates, asset level fill rates, patient fee rates and costs. Mature occupancy rates, asset level fill up rates, patient fee rates and direct costs are derived from bottom up, asset by asset level analysis produced as part of management's annual budget process and are not dissimilar to past experience at the point of budget production. The Group has assumed a growth rate of 2% into perpetuity when assessing its future cash flows. Management estimates discount rates using pre-tax rates that reflect the market assessment of the time value of money as at each balance sheet date, adjusted for the risks specific to the Group.

 

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

13. Property, plant and equipment (continued)

Where the value in use has indicated an impairment, the Group also estimated fair value less costs of disposal of the related land and buildings, through use of external valuations, based on recent market prices of assets with similar age and obsolescence.

 

The discount rate used in measuring value in use was 8.5% (2016: 7.9%) per annum. An impairment assessment was performed in 2016 but there was no indication of impairment.

 

The impairment losses have been included in profit or loss in the administrative expenses line item.

 

14. Provisions

 

2017

2016

 

£'000

£'000

As at 1 January

5,492

-

Recognised

5,888

5,492

As at 31 December

11,380

5,492

 

 

2017

2016

 

£'000

£'000

Current

1,603

5,492

Non-current

9,777

-

As at 31 December

11,380

5,492

 

 

 

15. Share capital

Ordinary shares of 1p each

2017

2016

2017

2016

Issued and fully paid

Number

Number

£'000

£'000

As at 1 January

184,198,746

184,198,746

1,842

1,842

As at 31 December

184,198,746

184,198,746

1,842

1,842

 

16. Net cash from operating activities

 

2017

2016

 

£'000

£'000

Loss for the year from continuing operations

(8,995)

(37,394)

Profit for the year from discontinued operations

-

10,725

Tax charge on sale of discontinued operations

-

105

Finance costs

399

29,830

Finance income

(218)

(14)

(Profit)/loss on disposal of property, plant and equipment

(138)

123

Impairment on property, plant and equipment

5,177

-

Amortisation of intangible assets

4,250

5,768

Depreciation of property, plant and equipment

11,124

16,478

Other non-cash items

1,342

4,083

Operating cash flows before movements in working capital

12,941

29,704

Decrease/(increase) in receivables

19,729

(24,712)

(Decrease)/increase in payables

(4,635)

24,170

Net cash inflow before interest and tax

28,035

29,162

Interest paid

(123)

(22,356)

Tax received/(paid)

1,972

(3,357)

Net cash inflow from operating activities

29,884

3,449

 

 

 

Notes to the financial statements

For the year ended 31 December 2017

 

17. Net cash

 

2017

2016

 

£'000

£'000

Cash and bank balances

82,102

115,871

Cash held on behalf of clients

954

786

Cash and cash equivalents

83,056

116,657

Amounts due under hire purchase obligations

(276)

(550)

Net cash

82,780

116,107

 

Cash and cash equivalents include cash held on behalf of clients, for which there is an equivalent liability. All interest earned is passed to clients and excluded from the Group's consolidated income statement.

 

18. Restatement

Cambian Group Plc acquired Cambian Capital Limited, Care Aspirations Capital Limited and Advanced Childcare Capital Limited and their underlying subsidiaries on 15 April 2014. The difference between the initial cost of Cambian Group Plc's investments in these subsidiaries (determined by reference to their fair value at the date of acquisition) and the nominal value of the shares issued in exchange was initially classified as share premium. Following further review and analysis, and as confirmed by external legal and accounting advice, it has been determined that this difference of £366.2m should instead have been classified as a merger reserve as required by section 612 of the Companies Act 2006. Consequently, the Company has retrospectively restated the equity classification of this £366.2m balance from share premium to merger reserve. There are no further adjustments required as a result.

 

A merger reserve created as a result of a share placement of Cambian Group Plc shares in March 2015 that was previously categorised as part of other reserves as no separate merger reserve account existed has been reclassified as merger reserve.

 

19. Re-presentation

 

The Group has reviewed its allocation of divisional and central costs between cost of sales and administrative expenses, and realigned the classification to be more representative of the business model and the environment in which the Group operates. This change results in the financial statements providing reliable and more relevant information about the effects of transactions on the entity's financial positon and performance. The resulting change is reflected below:

 

 

 

Pre-adjustment

31 December

2016

£'000

Adjustment £'000

Re-presented

31 December

 2016

£'000

 

 

 

 

 

Revenue

 

182,055

-

182,055

Cost of sales

 

(120,741)

(24,100)

(144,841)

Gross profit

 

61,314

(24,100)

37,214

Administrative expenses

 

(68,937)

24,100

(44,837)

Operating loss

 

(7,623)

-

(7,623)

 

 

 

 

 


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