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RNS
CareTech Holdings PLC   -  CTH   

Preliminary Results

Released 07:00 12-Dec-2019

RNS Number : 6402W
CareTech Holdings PLC
12 December 2019
 

For immediate release                            

12 December 2019

 

 

CareTech Holdings PLC

("CareTech" or "the Group")

Preliminary Results for the year ended 30 September 2019

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care and education services to adults and children in the UK, is pleased to announce its unaudited preliminary results for the year ended 30 September 2019.

Highlights       

 

·      Completion of transformational acquisition of Cambian Group plc ("Cambian") in October 2018 for £278.5m (net of cash acquired)

·      Unconditional regulatory clearance for the integration of Cambian from the Competition and Markets Authority ("CMA") in February 2019

·      Integration of Cambian well underway, £3m PBT synergies delivered and all KPI's on track

·      Cambian EBITDA margin considerably improved over last published results

·      Independent property portfolio valuation of the Enlarged Group of £774m at the date of acquisition(iv)

·      Banking facilities renewed until 2022/2023

·      Completion of ground rent transaction raising £31m net proceeds in January 2019

·      CQC and Ofsted ratings continue to be ahead of sector averages

·      Staff retention initiatives proving successful with retention rates ahead of sector average

·      Overall capacity was 5,079 (2018: 2,622)

 

Financial Highlights

 

·      Revenue increased to £395.0m. CareTech like-for-like improved to £196.5m (2018: £185.7m)

·      EBITDA(i) increased by 67.4% to £73.5m (2018: £43.9m). CareTech like-for-like improved to  £44.3m(ii) (2018: £43.9m)

·      Underlying profit before tax(iii) increased by 52.5% to £50.2m (2018: £32.9m).

·      Operating profit increased 95.7% to £39.5m (2018: £20.2m)

·      Underlying basic EPS at 37.60p per share (2018:35.07p)

·      Cash inflows from operating activities before adjustment items of £66.3m (2018: £39.4m).

·      Proposed full year dividend increased by 6.4% to 11.7p (2018: 11.0p)

 

(i)             EBITDA is operating profit stated before depreciation, share-based payments charge and non-underlying items.

(ii)             Like-for-Like EBITDA reflects the effect of re-configurations during the year

(iii)            Underlying profit before tax and underlying basic earnings per share are stated before non-underlying items

(iv)           September 2018 market value of CareTech property portfolio of £424m and Cambian £350m.

 

 

 

Commenting on the results, Farouq Sheikh, Group Executive Chairman of CareTech, said:

"I am delighted to be reporting our first full year financial results following the acquisition of Cambian in October 2018. The Group's performance reflects the plans we set out at the time of the acquisition and delivers a substantial increase in revenue and EBITDA compared with the same period last year.

"This has been a year of transformational change within the Group and I am pleased to report that the Group's trading performance in the year is ahead of market expectations and we have delivered on all of our key work streams and metrics and maintaining focus on our core business, all of which have been achieved with the backdrop of the Cambian acquisition, the subsequent CMA investigation and the sad passing of our Finance Director, Michael Hill.   

"Like for like, the performance of the CareTech business in the year was stronger when compared with the same period last year. The EBITDA margins of the CareTech business are in line with market expectations and the EBITDA margins of the Cambian business, before synergies, show considerable improvement when compared with their historic announced margins.

"The integration plan for the combined business is well underway following the unconditional clearance issued by the CMA in February 2019. The Group confirms that synergies of £3m of profit before tax have been achieved.

"I am particularly pleased to see our already excellent quality ratings increase for both CareTech and Cambian. This is testament to the dedication and efforts of our operational teams.

 

"I have no doubt that the next few years will see continued growth through a combination of the integration of Cambian, reconfigurations and organic developments, in order to deliver our target of double digit growth in underlying EPS.

 

"CareTech has grown into a leading national provider of specialist social care and education services to some of the most vulnerable people in our society.  I would like to thank everyone involved in the delivery of positive outcomes for those individuals who we support."

 

 

For further information, please contact:

 

CareTech Holdings PLC

01707 601 800

Farouq Sheikh, Group Executive Chairman

 

Gareth Dufton, Interim Group Finance Director

 

 

 

Buchanan

0207 466 5000

Mark Court

 

Sophie Wills

 

Tilly Abraham

 

 

 

Panmure Gordon (NOMAD and Joint Broker)

020 7886 2500

Emma Earl

 

Freddy Crossley

 

Charles Leigh-Pemberton

 

 

 

WH Ireland (Joint Broker)

020 7220 1666

Adrian Hadden

 

Jessica Cave

 

Matthew Chan

 

 

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

About CareTech

 

CareTech Holdings plc is a leading provider of specialist social care and education services, supporting around 4,500 adults and children with a wide range of complex needs in more than 550 residential facilities and specialist schools around the UK and employing approximately 10,000 staff.

 

Committed to the highest standards of care and care governance, CareTech provides its innovative care pathways covering; Adult learning disabilities and specialist services; Children's residential and education services; and foster care.

 

CareTech, which was founded in 1993, began trading on the AIM market of the London Stock Exchange in October 2005 under the ticker symbol CTH.

 

For further information please visit: www.caretech-uk.com

 

Group Chairman's Statement

"Delivering high quality support and care to individuals with complex needs to achieve positive outcomes"

I am delighted to be reporting our first full year financial results following the acquisition of Cambian on 19 October 2018.

A year of delivery and change

 

I am privileged to present our results for the period ending 30 September 2019. In the year we are celebrating our 25th Anniversary in care, the Group has become a leading national social care provider to young people and adults and is now the largest provider of care and education services to children in the UK. This is a real milestone for CareTech.  2019 has proved to be another exceptionally busy and successful year, with the acquisition of Cambian delivering:  

 

·      an extended care pathway and broader geographic and acuity service offering;

·      operational best practices across the Group to better service partners and service users;

·      improved Ofsted quality ratings to 80%;

·      synergies of £3m PBT synergies as set out in our acquisition plan;

·      margin improvement to 13.4% pre-synergies; and

·      delivering a transformational business which is earnings accretive for shareholders.

 

Whilst Cambian has been the largest acquisition in CareTech's history and significant progress has been made on its integration, our core business continues to grow and perform well. In this regard, I am pleased to report:

 

·     

·      improvement on CQC and Ofsted Quality Ratings;

·      accelerated organic growth initiatives including property purchases and reconfigurations;

·      strong occupancy levels have been maintained throughout the year;

·      staff retention initiatives have proven successful with retention rates ahead of sector average;

·      exciting initiatives and partnerships launched by the CareTech Charitable Foundation.

 

Management have performed extremely well to manage these various workstreams whilst ensuring that the business moves forward on all fronts. The Group has stood out from its peers as a company that can successfully combine quality, integrity, and sound financial acumen and has consistently achieved good care quality ratings. Our credibility as the provider of choice has never been stronger and we continue our successful growth strategy with a confident outlook.

This is only possible due to the dedication, determination and hard work of our staff. To acknowledge their success, I was proud to celebrate their achievements with them at our 5th National Care Awards in November this year.

In line with our ethos of promoting the CareTech culture, the Group announced in October 2019, the most wide-ranging share ownership incentive plan to include c.600 individuals across the business including home managers, back office staff and executive management.  This, together with our various training and incentive programmes, gives us a highly committed staff team who deliver positive outcomes for our service users.

Financial results and position

The Group's performance reflects the scale of the acquisition of Cambian and delivers a substantial increase in revenue, EBITDA and other income statement items together with the cash flows for the period following completion on 19 October 2018.

 

 

2019

2018

Change

Revenue

£395.0m

£185.7m

113%

       CareTech like-for-like revenue

£196.5m

£185.7m

6%

EBITDA

£73.5m

£43.9m

68%

       CareTech like-for-like EBITDA

£44.3m

£43.9m

1%

Underlying profit before tax

£50.2m

£32.9m

53%

Underlying basic earnings per share

37.60p

35.07p

7%

Statutory profit before tax

£24.3m

£15.4m

58%

Statutory earnings per share

18.38p

14.07p

31%

Cash flow from operating activities[i]

£66.3m

£39.4m

68%

Final dividend per share

7.95p

7.50p

6%

[i]  Cash flow from operating activities before non-underlying items

 

I am pleased to report that the Group's trading performance in the year to date is in line with market expectations. This report includes presentational changes first outlined in the trading update issued on 1 May 2019 to reflect the on-going integration of the two businesses, most notably, in the reporting of operational information which is presented as the following three outcome-based operating divisions: Adults Services, Children's Services and Foster Care.

 

Revenue increased by 112.7% to £395.0m (2018: £185.7m). The split of revenue is £196.5m for CareTech and £198.5m for Cambian. Like-for-like CareTech's revenue in the period increased 5.8% from £185.7m.

 

Group EBITDA of £73.5m (2018: £43.9m) represents growth of 67.4% when compared with the same period last year. The split of EBITDA is £44.3m for CareTech and £29.3m for Cambian. Like-for-like, CareTech's EBITDA increased by 1% reflecting the effect of re-configurations during the year. The EBITDA margin was 18.6% (2018: 23.5%) which reflects the acquisition of Cambian whose margins are historically lower than the CareTech EBITDA margins. Like-for-like, CareTech EBITDA remained broadly flat at 22.5% reflecting business mix and timing of re-configurations.

 

Cambian's EBITDA margin, before synergies was 13.4%, which reflects a considerable increase on the last reported margin prior to the acquisition of 10.9% and a significant step towards our medium term target of 16%.

 

Underlying profit before tax increased by 52.5% to £50.2m (2018: £32.9m) and underlying basic earnings per share was 37.60p (2018: 35.07p), representing an improved return to shareholders following the Cambian acquisition.

 

We entered into new banking facilities at the time of the acquisition of Cambian which include term loans of £322m and an undrawn revolving credit facility of £25m. In January 2019, the Group completed its second ground rent transaction with Alpha Capital, raising £31m of net proceeds on attractive terms providing further capital for investment. The Group's property valuation of £774m was undertaken in September 2018, establishing a loan to value at approximately 40% whilst the net debt to EBITDA is just under 4.0x and the Board remain committed on reducing net debt to EBITDA in the medium term to under 3.0x.

Progress on Cambian

The acquisition of Cambian was immediately followed by the CMA placing a hold separate embargo over the combined business. Following the unconditional clearance of the acquisition from the CMA in February 2019, the integration of the two businesses commenced. Significant headway has been made into this.

Cambian shares CareTech's commitment to delivering the highest standards of care and together the Group will benefit from favourable demographics underpinned by the growth in outsourcing to the private sector and from the increasingly stringent regulatory environment. Ofsted ratings increased from 77% at the date of acquisition to 80% Good or Outstanding. Best practice is being shared across the Group which we will seek to capitalise on over the coming years. The EBITDA margin of the Cambian business was 13.4%, before synergies which shows considerable improvement when compared with their historic announced margins of 10.9% pre acquisition. This puts us in a good position to deliver our medium term target of 16% pre synergies as set out at the time of acquisition.

The Group reports that it has delivered £3m of pre-tax profit synergies for the year and is on track and already taken action to deliver pre-tax profit synergies of £5m for the year ended 30 September 2020. Initiatives that have been implemented include, inter alia:

-     The former CEO, CFO, COO and all Non-Executive Board members of Cambian have left the Group;

-     A number of senior management savings have been delivered;

-     A number of back-office functions have been integrated and cost savings identified;

-     The Group has exercised a break clause on the lease of the Cambian head office in Hammersmith and all employees have been relocated to the CareTech head office;

-     A number of ongoing IT costs have been streamlined and a new IT strategy put in place; and

-     A number of non-staff synergy savings such as in Procurement and Estates have been made.

Following a year of ownership, we have established a strong operational fit, enhanced our management team and extended our care pathways. This provides us with a solid platform to build upon in the future.

Dividend

The Board intends to maintain a progressive dividend policy. The Board has proposed a final dividend of 7.95p (2018: 7.5p) per share bringing the total dividend for the year to 11.7p (2018: 11.0p) per share.  This represents a full year increase of 6.4% year on year.  The final dividend will be paid, subject to shareholder approval, on 6 May 2020, with an ex-dividend date of 5 March 2020 and an associated record date of 6 March 2020.

Our Board

We were delighted to welcome Professor Moira Livingston to the Board as a Non-Executive Director on 1 May 2019. Moira has been involved in health and social care for 32 years and spent many years working initially as a Doctor in the field of older-age psychiatry and latterly as a senior clinical leader and manager in the NHS. Moira has held a number of Director level leadership roles in the healthcare sector and she will Chair the Group's Care Quality and Governance Committee as well as join the Remuneration Committee and the Audit Committee.

Mike Adams OBE also become an Executive Director which has enabled him to pursue a strategic role within the Group and to push forward the Purple business model. Purple's vision is to transform thinking and "change the conversation" by bringing together disabled people and business, creating sustainable solutions for the benefit of society and to add value to CareTech's growing service user base.

We also intend to welcome Christopher Dickinson (FCA) to the Board as Group Chief Financial Officer on 13 January 2020. Christopher has spent the last year as Cambian Chief Financial Officer and prior to joining CareTech was a Managing Director at Jefferies where he acted for CareTech on its acquisition of Cambian. On behalf of the Group, I would also like to thank Gareth Dufton who stepped in as Interim Group Finance Director and has supported the Group on the sad passing of Michael Hill last December.

It is expected that an additional Non-Executive Director will be appointed during early 2020.

Our people

Our people are our most critical asset. Nothing of what we do to improve the lives of the adults and children placed in our care would be achievable without the hard work and dedication of the front-line staff and managers throughout the organisation. I am always drawn to the achievements of our excellent front line staff, which is inevitable as we are first and foremost a care organisation.  Their care and commitment would be much less without the dedicated support of our administrators and support teams whose hard work and energy is critical to the success of the Group and the care we provide. In terms of staff retention, the Group's retention rates sits at 74% (which is analysed as 77% for CareTech employees and 71% for Cambian employees) and compares favourably to the industry average of under 70%.

We continue to strive to be the 'employer of choice' within the sector. As part of the Group's focus on attracting and retaining the best talent in the sector, CareTech announced a new ExSOP and CSOP scheme in October 2019. This is the most wide-ranging share incentive plan to include approximately 600 individuals from across the business including home managers, back office staff and executive management, demonstrating our commitment to create a culture of share ownership and to ensure our staff share in the success of our business. We plan to introduce another CareTech Sharesave Scheme in early 2020 as part of our staff retention strategy.

To embed our culture across our business we reward our people throughout the year culminating in the fifth Care Awards ceremony in November 2019. We were delighted to host a number of parents, carers and families and also gave the opportunity for our shareholders to experience our culture first hand.

 

Social responsibility

The CareTech Foundation was created in 2017 and is an independent grant-making corporate foundation registered with the Charity Commission. It is the first corporate foundation in the UK social care sector, demonstrating the company's commitment to wider society and to its staff and its desire to play a strong leadership role within the social care sector. CareTech has continued its support both financially and more widely during 2019 and I am pleased to see the Foundation growing from strength to strength. Highlights during the year include:

 

·      launching a new partnership with Birkbeck, University of London in the construction and development of the world-first ToddlerLab which will incorporate the highest quality of technology to play a key role in the research and understanding of autism;

·      recently supporting Depaul UK for their Mental Health and Wellbeing for Homeless Young People programme in the North East; and

·      a new Staff Hardship Grants fund to enable us to provide small grants to CareTech staff was also launched.

 

We were also delighted to have officially supported the Special Olympics Great Britain (Team SOGB) at the March 2019 Special Olympics World Summer Games, held in Abu Dhabi, United Arab Emirates (UAE), with over 190 countries participating in a truly spectacular and successful global event. CareTech's involvement with Team SOGB and the World Games arose from the close pathway affinity between our national expertise in supporting people with learning disabilities through our living, learning and employment support services and the Special Olympics movement using sport to build confidence, skill and determination for athletes with intellectual and learning disabilities as a gateway to empowerment, competence, acceptance and joy. The Games were a real highlight on the 2019 World Sporting Humanitarian calendar and Team SOGB excelled against the competition winning an outstanding tally of 61 Gold, 57 Silver and 46 Bronze Medals. 

Purple Tuesday was launched again on 12 November 2019 and was a huge success. The consumer spending power of disabled people and their families is worth £249 billion and is rising by an average of 14% per annum. Yet, less than 10% of businesses have a targeted plan to access the disability market. Purple is driving the agenda to improve awareness and the customer experience for disabled people.

Outlook and prospects

Our aim is to be the highest quality provider of quality support and care for individuals who often have complex needs. I am proud of our track record and the culture we have embedded within the organisation. We listen to our service users, their families, to our staff and work closely with the local authorities, independent inspectors and regulators to continually improve and set best practice.

 

The next financial year will see CareTech grow through the continued integration of the Cambian business together with organic developments and reconfigurations.   In addition we will continue to look at bolt-on acquisitions as part of our wider strategy to consolidate the market in the UK, as well as a bolt-on opportunity in the Gulf region where we are in advanced discussions with a potential partner.  We also continue to invest time in how we can enhance further the use of technology as a validation of our work as well as for diagnostic and assessment purposes.

 

As the business grows, we will continue to further strengthen our management team offering a forceful blend of experience, commercial wisdom and dedication to care.  I have no doubt that the next few years will see continuing growth in line with market expectations and care excellence which will help deliver our target of double digit growth in underlying EPS.

 

On behalf of our Board, I would like to thank our many stakeholders and all CareTech employees, including those joining us from Cambian during the year, for their dedication and commitment to the Company and for going the extra mile. Finally, I would also like to thank our shareholders for your continued support.

 

 

 

 

Farouq Sheikh

Group Executive Chairman

12 December 2019
 

Group Chief Executive's Statement and Performance Review

"Our focus remains to provide innovative service solutions that transform outcomes for service users and delivers value to commissioners"

Delivering purposeful progress 

The Group has continued to build on our values driven, and quality focussed, approach to transforming outcomes for service users in our care, and delivering value to commissioners. During the year we have deepened our relationships with key stakeholders and are well positioned to serve local authority partners and communities with responsive and innovative service solutions. Our care priorities drive successful outcomes for our service users and follow closely the guidance from central Government and commissioning needs locally.

The Group also continues to realise the benefit of organisational improvements put in place over the past few years. We have continued to strengthen our management structure through the Cambian acquisition and plan for further senior appointments. These along with investment in our processes and new systems will drive efficiencies across the Group. 

Commitment to high quality

Our commitment is to provide high quality support and care for all our services users. By embedding a culture of quality we have seen our quality ratings continually improve and this year is no exception. Our rising CQC ratings to 95% demonstrate the high standards of care our service users receive. We have also shown improvement in our Children's Services blended quality rating of 82% with both CareTech and Cambian showing improvement. This is a Key Performance Indicator for the Group. We have built and continue to strengthen an open and honest working relationship with our regulators and those who commission us to deliver services. 

During the year, I am delighted that our teams have received external recognition for  the quality of services we deliver. I would like to congratulate The Oakleaf Group for winning the Health Investor Awards 2019 'Complex Care Provider of the Year' award, Spark of Genius winning the LaingBuisson 'Public Private Partnership Award', and Branas Isaf for counting three winners in the National Wales Care Awards.

We are continually improving and examining ways to improve our quality standards including investing significantly in the training and induction of our staff and deciding to strengthen our internal compliance team. The appointment of Professor Moira Livingston to Chair our independent Care Quality and Governance Committee will reinforce our approach and ensure we deliver on our strategy.

Business performance

Following the acquisition of Cambian, it was announced that the Group will change the reporting operating segments to more accurately reflect the Group's management and internal reporting structure, a review of each operational division is set out below:

 

 

1.         Adults Services

Year to 30 September 2019

 

CareTech

Revenue

£123.6m (2018: £118.7m)

EBITDA before unallocated costs

£32.7m (2018: £31.9m)

Capacity

1,968 (2018: 1,968)

 

Adults Services comprises the core CareTech Adult Learning Disabilities business, the Specialist Services business and Learning Services business.

The Group offers a flexible, person-centred approach with support offered on an individual planned basis both within a registered residential setting and in step-down supported housing. Demand remains high across the spectrum for the support of people with learning disabilities and the Group recognises an increasing complexity of need for referrals to specialist services within the Group. Specialist Services comprise the Adult Mental Health Services and Oakleaf Care (Hartwell). Specialist Services works in partnerships with the NHS to ensure a successful transition out of acute care, delivering pathways to independence. We have an outstanding track record for helping people away from acute care and supporting them in their own homes.

The market for high acuity care and the support of people with learning disability is estimated to be £5.8bn and growing year on year due to demographics and individuals living longer. Demand for lower acuity support has been impacted by the cuts in Local Authority expenditure but this is not an area of activity in which CareTech operates. Conversely, resources for those with the highest level of need are being maintained and increased in some Local Authorities.

Across the Group, the focus on quality continues with CQC ratings at 95% which compares favourably to 86% the previous year and the market average of 84%.

Revenues for the Division was £

During the past year we have withdrawn 4 adult places in services for reconfiguration into new care models, a further 47 supported living contracts came to an end plus an additional 51 beds have been brought into service.

2.         Children's Services

Year to 30 September 2019

 

CareTech

Cambian

Total

Revenue

£64.9m (2018: £58.7m)

£165.7m

£230.6m

EBITDA before unallocated costs

£18.2m (2018: £17.0m)

£37.4m

£55.6m

Capacity

351 (2018: 353)  

1,582

1,933

 

A number of children and young people need to live in specialised residential services and receive specialist education.  As far as practicable we aim to help these children move into a more normalised family style environment. This segment contains children's residential care homes, which includes facilities for children with learning difficulties and emotional behavioural disorders (EBD), and specialist schools. The Group operates services that cater for local needs but also manage certain highly specialised services that have a national catchment. The Cambian acquisition has increased the geographical spread of Children's Services across the UK as well as increasing the types of services being offered including Complex Needs, Social, Emotional and Mental Health (SEMH) and Child and Adolescent Mental Health Services (CAMHS).

The Ofsted ratings for the CareTech services are 93% (2018: 86%) Good or Outstanding and 80% for the Cambian services compared with 77% at the date of acquisition. This results in a blended 82% Good and Outstanding ratings for Children's Services across the Group, an increase from 78% when compared with our half year results.

Revenues and EBITDA before unallocated costs for the Division were £230.6m and £55.6m respectively. Like-for-like, CareTech's revenues increased by 10.5% and EBITDA by 7.1%. During the year, we have seen an improvement in Cambian's EBITDA margins through increased staff retention and improved quality ratings which lead to increased occupancy levels which in turn lead to increased EBITDA margins.

There has been a net increase of 4 places in Cambian homes since acquisition due to one new home registration occurring in August 2019.   

3.         Foster Care

Year to 30 September 2019

 

CareTech

Cambian

Total

Revenue

£8.0m (2018: £8.2m)

£32.8m

£40.8m

EBITDA before unallocated costs

£1.5m (2018: £1.9m)

£6.0m

£7.5m

Capacity

301 (2018: 301)

877

1,178

 

Foster Care comprises CareTech's and Cambian's fostering services.

 

Foster Care provides for both mainstream and specialist foster care in small supportive groups across England and Wales for children with disabilities.  We also provide foster care family assessments in the home rather than in a residential setting. Fostering is an important part of our care pathway and considerably less expensive than residential care.  It is generally held that fostering in an ordinary family home delivers better quality than any residential setting.  However, the rising tide of fostering has been constrained by the challenge of finding foster carers with the right skill and motivation alongside preference by social workers to place within Local Authority services rather than the independent sector.

The acquisition of Cambian enhances our Foster Care service through offering a more specialist therapeutic service. With a combined capacity of 1,178 places, the Group has established one of the largest independent fostering agencies in England and Wales.

Revenues for the Division were £40.8m analysed as CareTech £8.0m and Cambian £32.8m. EBITDA for this Division was £7.5m analysed as CareTech £1.5m and £6.0m Cambian.

 

Looking forward, we are training our foster carers with the skills required to manage more complex work and have linked the fostering division with our residential team for children so that we can maintain an effective care pathway.

Summary and outlook

 

This has been a year of transformational change for CareTech and I am pleased to report that we are delivering all of our key objectives including the integration of the Cambian business.

 

Our strategy and the fundamentals of the markets we serve remain sound.  We are integral to providing service solutions to commissioners to meet the specialist and complex needs of children and adults. Our opportunity over the medium term is to drive organic revenue and further consolidate our market position through bolt-on acquisitions that fit with our strategic objectives and meet our financial criteria. 

 

We are a values driven, quality focused Group and I am confident that through the energy and commitment of all our people we will continue to innovate and transform care pathways.

 

I am honoured to lead a Group that is making a real difference to so many lives.  I would like to conclude by expressing my sincere thanks to our staff at all levels in the organisation for their hard work, commitment and dedication to the organisation.

 

 

 

 

 

Haroon Sheikh

Group Chief Executive Officer

12 December 2019

 

 

Group Financial Review

Highlights

·     

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Results

Included in the Group consolidated results for the year ended 30 September 2019 are Cambian's revenue, EBITDA and other income statement items together with cash flows for the period following completion on 19 October 2018.

Following the acquisition of Cambian and to reflect the on-going integration of the two businesses, we are reporting three operating segments:

·      Adults Services, comprising the core CareTech Adult Learning Disabilities business (ALD) as well as the Specialist Services business (SS) and Learning Services;

·      Children's Services, comprising CareTech's and Cambian's children's services; and

·      Foster Care, comprising CareTech's and Cambian's fostering services

For the year to 30 September 2019, we have also provided segmental data in Note 2 for the historic CareTech and Cambian businesses to enable a like for like analysis in the first year following the acquisition. For subsequent financial years, the results of the Group will be combined on the basis of the operating segments described above.   The change in reporting segments reflects the way the business is managed and reported.

Capacity and occupancy

As at the balance sheet date, Group capacity was 5,079. 

CareTech's capacity was 2,620 with blended occupancy 87% and mature occupancy 92%.  CareTech's organic developments have continued during the year ended 30 September 2019 with the addition of 56 new beds whilst reconfigurations reduced capacity by a net 11 beds. A further 47 supported living contracts came to an end, resulting in a net decrease of 2 places for CareTech.

The occupancy of the Cambian business as at 30 September each year is affected by the timing of the start of the educational year because a number of non-residential Cambian schools operate on a 38-week basis with the new educational term commencing in October, with total capacity at 2,459 with blended occupancy 73% and mature occupancy 74%.

 

 

Condensed Income Statement before non-underlying items

 

2019

2018

 

 

£m

£m

Growth

Revenue

395.0

185.7

112.7%

Gross profit

133.0

65.3

 

Administrative expenses excluding depreciation and share-based payments charge

(59.4)

(21.4)

 

EBITDA

73.5

43.9

67.4%

 

 

 

 

EBITDA margin

18.6%

23.6%

 

 

 

 

 

Depreciation

(10.6)

(5.9)

 

Share-based payments charge

(0.1)

(0.2)

 

Underlying operating profit

62.9

37.8

66.4%

Net financial expenses

(12.7)

(4.9)

 

Underlying profit before tax

50.2

32.9

52.6%

Underlying taxation

(9.4)

(5.8)

 

 

 

 

 

Underlying effective tax rate

18.7%

17.5%

 

 

 

 

 

Underlying profit for the year

40.7

27.1

 

Non-controlling interest

(0.4)

(0.6)

 

 

 

 

 

Weighted average number of diluted shares (millions)

107.6

75.7

 

Underlying basic earnings per share

37.60p

35.07p

 

Full year dividend per share

11.7p

11.0p

 

 

Revenue

Group revenue increased by 112.7% to £395.0m (2018: £185.7m) with like for like revenues increasing by 5.8% year on year.

 

In the established Adults Services segment we continued to experience high levels of occupancy and reported 93% occupancy at 30 September 2019.  When this is blended with the facilities that are being reconfigured and so are under development, the blended occupancy level at 30 September 2019 was 89% of capacity (September 2018: 86%).  As in recent years the demand for residential services continues to be encouraging for high acuity users.

 

Annual fee rate negotiations with Local Authorities across the Group have received a favourable response. The National Minimum Wage increased from 1 April 2019, as did increases to both employer and employee pension contributions. The Group believe this has positively influenced its discussions with Local Authorities, who recognise that front line staff are an integral part of quality of delivery.

 

In Children's Services, total revenue has risen by 292.9% reflecting that Cambian was the largest provider of specialist education and behavioural health services for children in the UK.  

 

 

 

 

 

 

Table 2 - Revenue and EBITDA

 

2019

2019

2018

2018

 

 

Revenue

 

EBITDA

 

Revenue

 

EBITDA

 

£m

£m

£m

£m

Adults Services

 

 

 

 

CareTech

123.6

32.7

118.8

31.9

Cambian

    -          

-

-

-

 

      123.6           

               32.7

             118.8         

               31.9

Children's Services

 

 

 

 

CareTech

64.9

18.2

58.7

17.0

Cambian

      165.7         

37.5

-

-

 

      230.6          

55.7                

              58.7         

17.0              

Foster Care

 

 

 

 

CareTech

8.0

1.5

8.2

1.9

Cambian

             32.8  

6.0

-

-

 

      40.8       

                 7.5

              8.2           

                 1.9

 

Total

 

 

 

 

CareTech

196.5

52.4

185.7

50.8

Cambian

198.5               

43.5

-

-

 

      395.0       

              95.9

            185.7           

              50.8

 

 

EBITDA

 

Divisional EBITDA before unallocated overheads was £95.9m which comprises £52.4m for CareTech (and represents an increase of 3.3% year on year) and Cambian of £43.5m.  Total unallocated corporate overheads are £22.3m resulting in EBITDA of £73.5m.

 

EBITDA margin has decreased from 23.6% to 18.6% as a consequence of the Cambian EBITDA margin being at a lower rate than the CareTech business prior to acquisition.

 

The EBITDA margin of the Cambian business was 13.4%, before synergies, showing improvement when compared with their historic announced margins (which, in June 2018, were announced at 11%). The medium term margin target for the Cambian business is 16%.

 

Operating profit and profit before tax

The Group presents Operating Profit and Profit Before Tax as both underlying and statutory results.  Underlying operating profit of £62.9m is EBITDA after depreciation and share-based payments charge.

The depreciation charge is £10.6m (2018: £5.9m) reflecting the investment in land and buildings, motor vehicles and fixtures, fittings and equipment and the share-based payments charge of £60k (2018: £197k).

Statutory operating profit of £39.5m is underlying operating profit less amortisation of £10.2m (2018: £7.4m), acquisition costs of £10.3m (2018: £4.1m), reflecting the costs incurred in acquiring Cambian in October 2018 and other non-underlying items of £2.9m (2018: 5.6m).

Underlying financial expenses increased to £12.7m (2018: £4.9m) due to additional bank financing to fund the cash consideration of the acquisition of Cambian with non-underlying financial expenses of £2.4m (2018: £0.1m) relating to the non-cash movement in derivative financial instruments (£1.5m) which do not qualify for hedge accounting and £0.4m relating to the write off of finance fees on facilities extinguished in the year.

Underlying Profit Before Tax improved to £40.7m (2018: £27.1m) and statutory Profit Before Tax increased to £20.1m (2018: £11.2m).

Taxation

The effective underlying tax rate was 18.7% (2018: 17.5%) and reflects management's expectations of future capital investment through organic developments and reconfigurations relative to available capital allowances and the impact of the reduction in the main rate of corporation tax in the year.

 

Earnings per share

The weighted average number of shares in issue rose to 107.6m mainly due to the issue of 33.2m as consideration shares as part of the Cambian acquisition in October 2018. 

 

Underlying basic earnings per share increased by 7.2% to 37.60p from 35.07p in 2018.

 

Statutory earnings per share increased by 30.6% to 18.38p (2018: 14.07p).

 

Dividends

 

Our policy has been to increase the total dividend per year broadly in line with the movement in underlying diluted earnings per share.  The final dividend will rise broadly in line with the increase in underlying earnings per share and increase to 7.95p per share (2018: 7.50p), bringing the total dividend for the year to 11.7p (2018: 11.0p), a growth of 6.4%.  Dividend cover for 2019, based upon diluted earnings per share before non-underlying items is 3.18 times (2018: 3.19 times).

Cash flow and net debt

 

The cash flow statement and movement in Net Debt for the year is summarised below:

 

 

2019

2018

 

£m

£m

EBITDA

73.5

43.9

Increase in working capital

(7.2)

(4.8)

Cash inflows from operating activities before non-underlying items

66.3

39.1

Tax paid

(5.9)

(4.1)

Interest paid

(10.9)

(4.7)

Dividends paid

(10.8)

(7.5)

Capital expenditure

(31.5)

(17.1)

Proceeds from disposal of fixed assets

31.8

-

Acquisition of Cambian net of cash

(160.3)

-

Non-underlying cash flows

(20.3)

(5.6)

New HP arrangements

(2.4)

-

Movement in Net Debt

(144.1)

0.1

Opening Net Debt

(147.0)

(147.1)

Net Debt as at 30 September 2019

(291.1)

(147.0)

 

A key feature of this business is its strong cash generation.  Cash inflows from operating activities before non-underlying items were £66.3m (2018: £39.1m).

For the period 1 October 2018 to 30 September 2019 Cambian has a 100% EBITDA to cash conversion and CareTech has a 101% cash conversion.   Cambian was acquired mid-October and in the pre-acquisition period (from 1 October to 18 October 2018) there were particularly strong cash receipts.  The mid-month acquisition resulted in the Group being unable to recognise these receipts in the conversion calculation, whilst the payrolls, which typically go out at the end of the month, are recognised in the combined Group cash flows.  Taking this into account, the EBITDA to operating cash conversion for the consolidated Group is 90%. 

Capital expenditure was £31.5m (2018: £17.1m) which includes software development of £2.7m (2018:  £3.9m) and payments of deferred consideration of £1.0m (2018: £Nil).

Other key cash flows in this period include payment of integration costs of £6.5m (2018: £4.3m), payment of acquisition costs of £14.4m (2018: £0.9m), bank fees paid on the new facility of £4.7m (2018: £nil), dividend payments of £10.2m (2018: £7.5m) and corporation tax payments of £5.9m (2019: £4.1m).

Net Debt at 30 September 2019 was £291.1m (2017: £147.0m), the increase reflecting the cash consideration of £160.1m and the associated financing necessary for the Cambian acquisition together with the £31m receipt of the ground rent transaction and the other cash flows identified above. 

 

Acquisitions, share issue and bank facilities

 

On 19 October 2018, CareTech Holdings plc acquired the entire share capital of Cambian Group plc, a leading children's specialist education and behavioural health service provider. The headline consideration for the acquisition was £359.9m (of which £241.7m was paid in cash), with the net price paid being £278.5m reflecting £81.5m of net cash held by Cambian on the date of acquisition. The acquisition was funded by the issue of 33.2m shares and new bank facilities.

 

The Group entered into new Banking facilities of £322m and a revolving credit facility of £25m to a group of banks comprising Barclays Bank PLC, HSBC UK Banks plc, Santander UK plc, AIB Group (UK) plc, Clydesdale Bank PLC, Credit Suisse AG, Lloyds Bank plc and National Westminster Bank plc.

 

As part of the Acquisition, in September 2018 the Group's property portfolio was revalued by Cushman and Wakefield and the market value was £424m and the Cambian Group plc property portfolio was revalued by Knight Frank and the market value was £350m, a total of £774m.

CareTech's three key covenant ratios are leverage (ratio of net debt to covenant EBITDA to be no more than 4.9x), interest cover (ratio of covenant EBITDA to net finance costs to be no less than 4x) and LTV (ratio of property value to net debt to be no more than 62.5%). As at 30 September 2019, we were operating comfortably within these ratios at 3.9x, 6.45 and 42% respectively. The Board are committed to reducing Net Debt to under 3.0x in the medium term. 

 

Ground rent transaction

 

In January 2019, the Group announced that it had completed a ground rent transaction with funds managed by Alpha Real Capital LLP ('Alpha') at a net initial yield of 2.85%. This transaction builds on the previous transaction with Alpha in February 2016.

 

Under the terms of the agreement, the freehold interest in 24 CareTech properties ("the Properties") were transferred to Alpha in exchange for a net cash sum of £31m and security of tenure with a 150-year lease term returning to CareTech a virtual freehold interest in each property. The commencing rent was £1.0m per annum which will rise with the Retail Price Index on a yearly basis between 0% and 5% per annum. The properties are located across England and Scotland, representing less than 8% of the aggregate number of freehold properties owned by the Group.

 

There is ongoing discussion with the Company's auditors regarding the accounting treatment of this transaction as set out in Note 1 of the accounts below.
 

 

New accounting standards

 

IFRS 9

 

IFRS 9 'Financial instruments' became effective for the Group starting 1 October 2018 and replaced the requirements of IAS 39 'Financial Instruments: recognition and measurement'. The main changes introduced by the new standard are a new classification and measurement requirements for certain financial assets, and a new Expected Credit Loss (ECL) model for the impairment of financials assets.

 

The Group has determined that the transition to IFRS 9 resulted in an additional charge of £0.5m.  The chosen transition method is to make an adjustment against opening reserves and not to restate 2018 comparative information. There has been no other impact on the classification of assets and liabilities as a result of adopting this standard.

 

IFRS 15

 

IFRS 15 'Revenue from contracts with Customers' became effective for the Group starting from 1 October 2018 and provides a single, principles-based approach to the recognition of revenue from all contracts with customers. It focuses on the identification of performance obligations in a contract and requires revenue to be recognised when or as those performance obligations are satisfied.

 

The Group has determined that the transition to IFRS 15 has not resulted in any significant adjustments to the Group's reported revenue.

 

Future accounting standards - IFRS 16

 

IFRS 16 'Leases' became effective for the Group from 1 October 2019 and replaces the requirement of IAS 17 'Leases'. An asset representing the Group's right as a lessee to use a leased item, and a liability for future lease payments will be recognised for all leases, subject to limited exemptions for short term leases and low-value lease assets. The costs of leases will be recognised in the consolidated income statement split between depreciation of the lease asset and a finance charge on the lease liability. This is similar to the accounting for finance leases under IAS 17, but substantially different to the accounting of operating leases (under which no lease asset or liability was recognised, and rentals payable were charged to the consolidated income statement on a straight-line basis).

 

As a result of adopting the new rules, for the year ended 30 September 2020, the Group anticipate recognising an additional right of use asset of £72m and corresponding lease liability of £72m. The Group expects net profit before tax to decrease by £0.5m. EBITDA is estimated to increase by £8.0m as the operating lease rentals which were previously included in operating profit are excluded, with this increase being offset by additional estimated depreciation of £6.3m as the right-of-use assets are depreciated and estimated £2.3m of finance charge relating to the lease liability.

 

IFRS 16 will not have any impact on the underlying commercial terms of each lease, our banking covenants and will not have any impact on the commercial performance of the Group, nor the cash flow generated in the year.

 

 

 

 

 

 

Gareth Dufton

Interim Group Finance Director

12 December 2019

 

 

Unaudited Consolidated Income Statement       

for the year ended 30 September 2019

 

 

2019

2018

 

 

Underlying

Non- underlying (ii)

Total

Underlying

Non- underlying (ii)

Total

 

Note

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Revenue     

2

394,994

-

394,994

185,689

-

185,689

Cost of sales

 

(262,018)

-

(262,018)

(120,387)

-

(120,387)

 

 

              

              

              

              

              

              

Gross profit

 

132,976

-

132,976

65,302

-

65,302

 

 

 

 

 

 

 

 

Administrative expenses

4

(70,121)

(23,379)

(93,500)

(27,543)

(17,573)

(45,116)

 

 

              

              

              

              

              

              

Operating profit

 

62,855

(23,379)

39,476

37,759

(17,573)

20,186

 

 

 

 

 

 

 

 

EBITDA (i)

 

73,546

-

73,546

43,862

-

43,862

Depreciation

 

(10,631)

-

(10,631)

(5,906)

-

(5,906)

Amortisation of intangible assets

4

-

(10,188)

(10,188)

-

(7,428)

(7,428)

Acquisition expenses

3,4

-

(10,331)

(10,331)

-

(4,525)

(4,525)

Profit on ground rent transaction

4

-

4,565

4,565

 

 

 

Other non-underlying items

4

-

(7,425)

(7,425)

-

(5,620)

(5,620)

Share-based payments charge

 

(60)

-

(60)

(197)

-

(197)

 

 

              

              

              

              

              

              

Operating profit

 

62,855

(23,379)

39,476

37,759

 (17,573)

20,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance expenses

 

(12,690)

(2,446)

(15,136)

(4,867)

51

(4,816)

 

 

 

 

 

 

 

 

 

 

              

              

              

              

              

              

Profit before tax

 

50,165

(25,825)

24,340

32,892

(17,522)

15,370

 

 

 

 

 

 

 

 

Taxation

4,5

(9,423)

5,209

(4,214)

(5,751)

1,625

(4,126)

 

 

              

              

              

              

              

              

Profit for the year

 

 40,742

(20,616)

 20,126

27,141

(15,897)

11,244

 

 

 

 

 

 

 

 

Non-controlling interest

 

(422)

-

(422)

(596)

-

(596)

 

 

              

              

              

              

              

              

Profit for the year attributable to owners of the parent

 

40,320

(20,616)

19,704

26,545

(15,897)

10,648

 

 

              

              

              

              

              

              

Earnings per share

 

 

 

 

 

 

 

Basic

Diluted

6,7

 

37.60p

37.48p

 

18.38p

18.31p

35.07p

35.06p

 

14.07p

14.06p

 

There was no comprehensive income other than that passing through the Consolidated Income Statement and accordingly no separate statement of comprehensive income has been prepared.

 

(i)     EBITDA is operating profit stated before depreciation, share-based payments charge and non-underlying items.

(ii)    Non-underlying items comprise: amortisation, acquisition expenses, integration, reorganisation and redundancy costs and profit associated with the ground rent transaction and are explained in note 4.

 

 

Unaudited Consolidated Balance Sheet    

as at 30 September 2019

 

 

 

2019

2018

 

 

£000

£000

Non-current assets

 

 

 

Property, plant and equipment

 

609,658

301,109

Other intangible assets

 

80,348

40,128

Goodwill

 

79,456

43,689

 

 

769,462

384,926

Current assets

 

 

 

Inventories

 

998

898

Trade and other receivables

 

53,011

31,747

Cash and cash equivalents

 

29,238

9,421

 

 

83,247

42,066

 

 

 

 

Total assets

 

852,709

426,992

 

 

 

 

Current liabilities

 

 

 

Loans and borrowings

 

1,663

153,830

Trade and other payables

 

58,937

24,875

Ground rent liabilities arising under IAS17

 

100

50

Deferred and contingent consideration payable

 

-

966

Deferred income

 

28,710

3,372

Corporation tax

 

13,777

6,836

Derivative financial instruments

 

-

152

 

 

103,187

190,081

 

 

 

 

Non-current liabilities

 

 

 

Loans and borrowings

 

318,652

2,580

Ground rent liabilities arising under IAS17

 

15,031

7,244

Deferred tax liabilities

 

63,951

18,854

Provisions

 

14,884

-

Derivative financial instruments

 

1,640

-

 

 

414,158

28,678

 

 

 

 

Total liabilities

 

517,345

218,759

 

 

 

 

Net assets

 

335,364

208,233

 

 

 

 

Equity

 

 

 

Share capital

 

545

379

Share premium

 

121,304

120,820

Shares held by Executive Shared Ownership Plan

 

(3,537)

(4,750)

Merger reserve

 

125,536

9,023

Non-controlling interest

 

957

639

Retained earnings

 

90,559

82,122

Total equity attributable to equity shareholders of the parent

 

335,364

208,233

 

 

 

 

 

 

 

Unaudited Consolidated Statement of Changes in Equity

as at 30 September 2019

 

 

Share

capital

Share

premium

Shares held by Executive Shared Ownership Plan

Retained

earnings

Merger

reserve

Total Attributable to owners of the parent

Non-controlling Interest

Total

Equity

 

£000

£000

£000

£000

£000

£000

£000

£000

At 1 October 2017

379

120,778

                 (4,750)

78,771

9,023

204,201

-

204,201

 

 

 

 

 

 

 

 

 

Profit for the year and total comprehensive income

-

-

-

10,648

-

10,648

-

10,648

 

 

 

 

 

 

 

 

 

Issue of ordinary shares

-

42

-

-

-

42

-

42

Equity-settled share- based payments charge

-

-

-

197

-

197

-

197

Dividends

-

-

-

(7,494)

-

(7,494)

-

(7,494)

Minority interest

-

-

-

-

-

-

639

       639

Transactions with owners recorded directly in equity

42

-

(7,297)

(7,255)

639

(6,616)

 

 

 

 

 

 

 

 

 

At 30 September 2018

379

120,820

(4,750)

82,122

9,023

207,594

639

208,233

 

 

 

 

 

 

 

Adoption of IFRS 9

-

-

-

(525)

-

(525)

-

(525)

 

 

 

 

 

 

 

 

 

Restated at 1 October 2018

379

120,820

(4,750)

81,597

9,023

207,069

639

207,708

 

 

 

 

 

 

 

 

 

Profit for the year and total comprehensive income

-

-

-

19,704

-

19,704

-

19,704

 

 

 

 

 

 

 

 

 

Issue of ordinary shares

166

484

-

-

116,513

117,163

-

117,163

Equity-settled share-based payments charge

-

-

-

60

-

60

-

60

Redemption of share options

-

-

1,213

-

-

1,213

-

1,213

Dividends

-

-

-

(10,802)

-

(10,802)

-

(10,802)

Minority interest

-

-

-

-

-

-

318

318

Transactions with owners recorded directly in equity

484

1,213

(10,742)

107,634

318

107,952

 

 

 

 

 

 

 

 

 

At 30 September 2019

545

121,304

(3,537)

90,559

125,536

334,407

957

335,364

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statement of Cash Flow

for the year ended 30 September 2019

 

 

2019

2018

 

 

£000

£000

Cash flows from operating activities

 

 

 

Profit before tax

 

24,340

15,370

Adjustments for:

 

 

 

Finance expenses

 

15,136

4,816

Depreciation

 

10,631

5,906

Amortisation

 

10,188

7,428

Acquisition expenses

 

10,331

4,062

Profit arising from the ground rent transaction

 

(4,565)

-

Other non-underlying items

 

7,425

4,525

Share-based payments charge

 

60

197

Operating cash flows before movement in working capital

 

73,546

43,862

 

 

 

 

Increase in inventory

 

(100)

 (63)

Increase in trade and other receivables

 

(6,518)

(8,228)

(Decrease)/increase in trade and other payables

 

(604)

3,875

Operating cash flows before adjustment items

 

66,324

39,446

 

 

 

 

Integration and restructuring costs

 

(5,597)

(3,652)

Payment of charitable donations

 

(736)

(380)

Payments made under onerous contracts

 

(151)

(377)

Payment of acquisition costs

 

(14,393)

(839)

Cash inflows from operating activities

 

45,447

34,198

 

 

 

 

Tax paid

 

(5,889)

(4,135)

Net cash from operating activities

 

39,558

30,063

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

 

31,782

1,201

Payments for business combinations

 

(160,271)

(72)

Acquisition of property, plant and equipment

 

(27,810)

(14,519)

Acquisition of software

 

(2,699)

(2,538)

Payment of deferred consideration

 

(966)

-

 

 

 

 

Net cash used in investing activities

 

(159,964)

(15,928)

 

 

 

 

 

 

 

 

Unaudited Consolidated Statement of Cash Flow (continued)

for the year ended 30 September 2019

 

 

 

 

2019

2018

 

 

£000

£000

Cash flows from financing activities

 

 

 

Proceeds from share capital

 

1,697

42

Interest paid

 

(10,945)

(4,650)

Cash outflow arising from derivative financial instruments

 

(308)

(649)

Bank loans drawdown

 

431,910

11,035

Loan arrangement fees paid

 

(4,696)

(1,436)

Repayment of borrowings

 

(263,576)

(5,775)

Payment of finance lease liabilities

 

(3,057)

(2,189)

Dividends paid

 

(10,802)

(7,494)

 

 

 

 

Net cash arising from/(used in) from financing activities

 

140,223

(11,116)

 

 

 

 

Net increase in cash and cash equivalents

 

19,817

3,019

Cash and cash equivalents at 1 October

 

9,421

6,402

 

 

 

 

Cash and cash equivalents at 30 September

 

29,238

9,421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements

 

1              Background and basis of preparation

CareTech Holdings PLC (the 'Company') is a company registered and domiciled in England and Wales. The consolidated financial statements of the Company for the year ended 30 September 2019 comprise the Company and its subsidiaries (together referred to as the 'Group').

The unaudited summary financial information set out in this announcement does not constitute the Company's consolidated statutory accounts for the years ended 30 September 2019 or 30 September 2018. The results for the year ended 30 September 2019 are unaudited. The statutory accounts for the year ended 30 September 2019 are expected to be finalised on the basis of the financial information presented by the Directors in this preliminary announcement, and will be delivered to the Registrar of Companies in due course. The statutory accounts are subject to completion of the audit and may change.  There is ongoing discussion with our auditors regarding the accounting treatment of the ground rent transaction.  This has resulted in a profit of £4.5m being reported in Non-underlying items. The Group have accounted for the ground rent transaction on a consistent basis with the previous transaction in 2016. Any potential change in the accounting treatment will not have an impact on the commercial terms of the lease, cash flows derived from it, banking covenants nor the commercial performance of the Group.  Any potential adjustment is also not expected to have a material impact on underlying earnings and may reverse on the adoption of IFRS16 in the accounting period to 30 September 2020.

The statutory accounts for the year ended 30 September 2018 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not include references to any matter which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The preliminary announcement for the year ended 30 September 2019 was approved by the Board for release on 12 December 2019.

 

2          Segmental information

 

IFRS 8 requires operating segments to be determined based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Chief Executive Officer as he is primarily responsible for the allocation of resources to segments and the assessment of the performance of each of the segments.

The CODM uses EBITDA as reviewed at monthly Executive Committee meetings as the key measure of the segments' results as it reflects the segments' underlying trading performance for the period under evaluation. EBITDA is a consistent measure within the Group.

Inter-segment turnover between the operating segments is not material.

The results as at the balance sheet date report segmental information on the Group's three operating divisions (and the comparative information has been represented on this basis):

·      Adults Services, comprising the core CareTech Adult Learning Disabilities business (ALD) as well as the Specialist Services business (SS) and Learning Services;

·      Children's Services, comprising CareTech's and Cambian's children's services; and

·      Foster Care, comprising CareTech's and Cambian's fostering services.  

For the current financial year ending 30 September 2019, the Group will also provide the segmental data for the historic CareTech and Cambian businesses to enable a like for like analysis in the first year following the acquisition.  For subsequent financial years, the results of the Group will be combined on the basis of the operating segments described above.

 

 

 

 

Year to 30 September 2019

Year to 30 September 2018

 

CareTech

Cambian

Total

CareTech

Cambian*

Total

Adults Services

 

 

 

 

 

 

Client capacity

1,968

-

1,968

1,968

-

1,968

Revenue £000

123,635

-

123,635

118,736

-

118,736

EBITDA  £000

32,726

-

32,726

31,885

-

31,885

 

 

 

 

 

 

 

Children's Services

 

 

 

 

 

 

Client capacity

351

1,582

1,933

353

-

353

Revenue £000

 64,848

 165,727

 230,575

58,707

-

58,707

EBITDA  £000

 18,227

 37,405

 55,632

17,024

-

17,024

 

 

 

 

 

 

 

Foster Care

 

 

 

 

 

 

Client capacity

301

877

1,178

301

-

301

Revenue £000

 8,031

 32,753

 40,784

8,246

-

8,246

EBITDA  £000

 1,508

 6,043

 7,551

1,898

-

1,898

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

Client capacity

2,620

2,459

5,079

2,622

-

2,622

Revenue £000

 196,514

 198,480

 394,994

185,689

-

185,689

EBITDA  £000

 52,461

 43,448

 95,909

50,807

-

50,807

 

*The figures for Cambian for 2018 have not been included in this table because Cambian was not controlled by CareTech during the year ending 30 September 2018.

Reconciliation of EBITDA to profit after tax;

 

Year ended

Year ended

30 September 2019

30 September 2018

£000

£000

EBITDA before unallocated costs

95,909

50,807

Unallocated corporate overheads

(22,363)

(6,945)

EBITDA

73,546

43,862

Depreciation

(10,631)

(5,906)

Share-based payments charge

(60)

(197)

Non-underlying items

(23,379)

(17,573)

Operating profit

39,476

20,186

Finance expenses

(15,136)

(4,816)

Profit before tax

24,340

15,370

Taxation

(4,214)

(4,126)

Non-controlling interest

(422)

(596)

Profit after tax

19,704

10,648

 

All operations of the Group are carried out in the UK, the Company's country of domicile. All revenues therefore arise within the UK and all non-current assets are likewise located in the UK. No single external customer amounts to 10% or more of the Group's revenues.

 

No asset and liability information is presented above as this information is not allocated to operating segments in the regular reporting to the Group's Chief Operating Decision Maker and are not measures used by the CODM to assess performance and to make resource allocation decisions.

 

 

 

 

3          Business Combinations

 

Acquisition of Cambian Group plc 

 

On the 19 October 2018 Caretech Holdings plc acquired the entire share capital of Cambian Holdings plc for £359.9m.

 

Cambian is a leading Children's specialist education and behavioural health service provider looking after around 2,000 children across a portfolio of 222 residential facilities, specialist schools and fostering offices. It employs over 4,500 people.  The rationale for the acquisition was:

 

-       The acquisition of Cambian is a unique opportunity for investors to enhance exposure to the growing UK market for social care services for children and adults.

-       Highly complementary service offering and geographical coverage providing a nationwide integrated care pathway focused on higher acuity social care.

-       Combined operational expertise to better service local authority partners, deliver strong user outcomes, implement positive staff engagement and improve care quality.

-       Opportunity to unlock significant value through a compelling strategic fit, tangible near-term synergies and enhanced trading liquidity.

 

The book values attributable to the acquisition were £201.9m net assets and fair value adjustments were £122.6m.

 

The acquisition table is as follows:-

 

Book values

£000s

Fair value

adjustments

£000s

Total

£000s

Intangible assets

38,496

8,859

47,355

Property, plant & equipment

165,096

142,474

307,570

Trade and other receivables

11,366

(2,000)

9,366

Prepayments

2,532

-

2,532

Cash

81,467

-

81,467

Trade and other payables

(46,570)

(1,000)

(47,570)

Deferred income

(21,965)

-

(21,965)

Corporation tax

(5,073)

-

(5,073)

Finance leases

(515)

-

(515)

Deferred Tax

(22,912)

(25,727)

(48,639)

Net Assets on acquisition

201,922

122,606

324,528

Consideration paid

 

 

359,920

Goodwill

 

 

35,392

 

 

 

 

Consideration paid:

 

 

£000

Cash

 

 

241,738

Settled in shares

 

 

118,182

Total consideration

 

 

359,920

 

 

 

 

Reconciliation to the cash flow statement

 

 

£000

Cash paid

 

 

241,738

Cash acquired

 

 

(81,467)

Payments for business combination net of cash acquired

160,271


Goodwill arises as a result the surplus of consideration over the fair value of the separately identifiable assets acquired.

 

Costs relating to this acquisition are expensed in the Income Statement in accordance with IFRS3 and are identified in note 4, non-underlying items.

 

The book values of the assets and liabilities were extracted from the underlying accounting records of the acquired entities on the date of acquisition.  The book value of receivables represent the gross contractual amounts receivable, all of which are considered recoverable.  The fair value adjustments to property, plant and equipment, intangible assets, trade and other payables and trade and other receivables are to reflect their value on a going concern market basis.  The property, plant and equipment and the intangible assets were both externally valued.  The remaining goodwill is attributable to the future economic benefits arising from assets which are not capable of being individually identified and separately recognised, these include the value of the assembled workforce within the business acquired.

 

The consideration paid in shares was measured at the market price on the day of the acquisition.

 

4          Non-underlying items

Non-underlying items are those items of financial performance which, in the opinion of the Directors, should be disclosed separately in order to improve the readers understanding of the trading performance of the Group. Non-underlying items comprise the following:

 

 

 

2019

2018

 

Note

£000

£000

 

 

 

 

Amortisation of intangible assets

 

10,188

7,428

 

 

 

 

Acquisition expenses

(i)

10,331

4,525

 

 

 

 

Profit arising from the ground rent transaction

(ii)

(4,565)

-

 

 

 

 

Integration and restructuring costs

(iii)

5,597

2,863

Onerous leases

(iv)

1,092

377

Charitable donations

(v)

736

380

Impairment of goodwill

 

-

2,000

Other non-underlying expenses

 

7,425

5,620

 

 

 

 

Included in administrative expenses

 

23,379

17,573

 

 

 

 

Finance expenses

 

 

 

Fair value movements relating to derivative financial instruments

(vi)

1,487

(787)

Charges relating to derivative financial instruments

(vi)

217

513

IAS 17 lease imputed interest

 

345

223

Termination of old banking arrangements

(vii)

397

-

 

 

 

 

Included in finance expenses

 

2,446

(51)

 

 

 

 

Tax on non-underlying items

 

 

 

Current tax

(viii)

(1,090)

(1,004)

Deferred tax

(ix)

(4,119)

(621)

 

 

 

 

Included in taxation

 

(5,209)

(1,625)

 

 

 

 

Total non-underlying items

 

20,616

15,897

 

 

 

 

 

 

 

 

 

(i)    In accordance with IFRS 3 (as revised) items associated with business combinations have been taken to the income statement as incurred and includes costs relating to the review by the Competition and Markets Authority ("CMA").

(ii)   Profit arises from a ground rent transaction with Alpha Real Capital LLP at a net yield of 2.85% which raised £31.0m in cash to further support its growth strategy. The £31.0m proceeds are categorised as £23.1m relating to the operating lease element and £7.9m relating to IAS 17 ground rent liabilities.   Also see Note 1.

(iii)  During the year, the Group implemented a reorganisation of its internal operating, finance, IT and management structures with a view to achieving the integration of the Cambian business combination into the Group, achieving greater flexibility, accountability and performance of a number of its back office divisions.  Costs incurred in the year include redundancy costs, post termination payments and transformation project delivery costs which comprise the costs of staff teams incurred in respect of the reorganisation, costs related to the dual running and knowledge transfer of the back office division as part of the integration project and professional fees incurred in respect of advice and consultancy activities associated with the integration and restructuring.

(iv)   The present value of the future cash flows receivable from the operation of certain leased assets has been assessed as being lower than the present value of the rental payments to which the Group is committed.  Therefore, the Group has provided for £1,092,000 (2018: £377,000) being the present value of any onerous element of the remaining lease life. 

(v)    These charges represent charitable donations made to the Caretech Charitable Foundation, an independent grant- making corporate foundation registered with the Charity Commission. Funded and founded by CareTech Holdings plc, the Foundation has a number of independent Trustees responsible for delivering its Charitable Objects. The Trustees also include Haroon and Farouq Sheikh, Christopher Dickinson and Mike Adams, Directors of the Group.

(vi)   Non-underlying items relating to the derivative financial instruments include the movements during the year in the fair value of the Group's interest rate swaps which are not designated as hedging instruments and therefore do not qualify for hedge accounting, together with the quarterly cash settlements and accrual thereof.

(vii)  As part of the Cambian business combination, the Group entered into new banking arrangements, extinguishing the previous arrangements and in accordance with IFRS 9, the costs of the extinguished bank facilities were written off.

(viii) Represents the current tax on items (i), (iii), (iv) and (v) above.

(ix)   Deferred tax arises in respect of the following:

 

 

2019

2018

 

£000

£000

Derivative financial instruments

219

(134)

Full provision for deferred tax under IAS 12

-

846

Intangible assets

2,357

(124)

Roll over relief

(776)

-

Other adjustments

2,319

33

 

4,119

621

 

 

 

 

 

 

5          Taxation

(a) Recognised in the consolidated income statement  

 

 

2019

2018

 

£000

£000

Current tax expense

 

 

Current year

(8,842)

(4,622)

Current tax on non-underlying items (note 4)

1,090

1,004

Corporation tax overprovided in previous periods

-

(359)

 

              

              

Total current tax

(7,752)

(3,977)

 

              

              

 

 

 

Deferred tax expense

 

 

Current year

(581)

(770)

Deferred tax on non-underlying items (note 4)

4,119

621

 

              

              

Total deferred tax

3,538

(149)

 

              

              

Total tax in the consolidated income statement

(4,214)

(4,126)

 

               

               

 

(b) Reconciliation of effective tax rate

 

2019

2018

 

£000

£000

 

 

 

Profit before tax for the year

24,340

15,370

 

              

              

Tax using the UK corporation tax rate of 19.0% (2018: 19.0%)

4,625

2,920

Non-deductible expenses including impairment charge

2,438

1,059

Other tax adjustments

(3,625)

27

Gains on which roll-over relief is claimed

776

-

Corporation and deferred tax overprovided in previous periods

-

120

 

              

              

Total tax in the consolidated income statement

4,214

4,126

 

              

              

 

Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2017 (on 7 September 2017).  This includes a reduction to the main rate to 17% from 1 April 2020.  Deferred taxes at the balance sheet date have been measured using this enacted tax rate and reflected in these financial statements.

 

 

 

6        Earnings per share        

 

 

2019

2018

 

£000

£000

 

 

 

Profit attributable to ordinary shareholders

19,704

10,648

 

                  

                  

Weighted number of shares in issue for basic earnings per share

107,231,912

75,690,422

Effects of share options in issue

365,090

25,235

 

                  

                  

Weighted number of shares for diluted earnings per share

107,597,002

75,715,657

 

                  

                  

 

Diluted earnings per share is the basic earnings per share adjusted for the dilutive effect of the conversion into fully paid shares of the weighted average number of share options outstanding during the period.

 

Earnings per share (pence per share)

 

 

  Basic

18.38p

14.07p

  Diluted

18.31p

14.06p

 

              

              

 

7          Underlying earnings per share

A measure of underlying earnings and underlying earnings per share has been presented in order to present the earnings of the Group after adjusting for non-underlying items which are not considered to reflect the underlying trading performance of the Group.

 

 

2019

2018

 

£000

£000

 

 

 

Profit attributable to ordinary shareholders

19,704

10,648

Non-underlying items (note 4)

20,616

15,897

 

              

              

Underlying profit attributable to ordinary shareholders

40,320

26,545

 

              

              

Underlying earnings per share (pence per share)

 

 

  Basic

37.60p

35.07p

  Diluted

37.48p

35.06p

 

              

              

 

 

 

 

8        Dividends

The aggregate amount of dividends comprises:

 

 

2019

2018

 

£000

£000

Interim dividend paid in respect of prior year but not recognised as liabilities in that year (3.50p per share, (2018: 3.30p per share))

2,645

2,498

Final dividend paid in respect of the prior year (7.50p per share, (2018: 6.60p per share))

8,157

4,996

 

              

             

Aggregate amount of dividends paid in the financial year (11.00p per share (2018: 9.90p per share))

10,802

7,494

 

              

             

The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 11.7p per share, £13,000,000 (2018: 11.00p per share, £8,166,018).

 

9          Post balance sheet events

On 8 November 2019, the Group issued 2,504,475 new ordinary shares of 0.5p in the Company (the New Ordinary Shares) under the Executive Shared Ownership Plan (Share Plan) to 30 members of the senior and executive management team. An award under the Share Plan enables the participant to benefit only from the future growth in the value of the New Ordinary Shares above their market value on the award date, in excess of a "carrying cost" of 3% per annum.

The vesting of the Share Plan requires specific performance conditions being satisfied. As with the previous issuance of the Share Plan, the target is an EPS Target which requires the growth in the Company's underlying Diluted EPS over the three-year period beginning on the date of issue of the awards to be at least 15% (being an average 5% annual growth rate, calculated without compounding). Participants may not normally realise any such benefit from the Share Plan awards before 8 November 2022.

 

10         Copies of the Annual Report and Accounts

Copies of the Annual Report and Accounts will be sent to Shareholders in due course and will be available to members of the public from the Company's registered office located at 5th Floor, Metropolitan House, 3 Darkes Lane, Potters Bar, Herts, EN6 1AG and on the Company's website: www.caretech-uk.com.

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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