CARETECH HOLDINGS PLC For immediate release | 6 December 2018 |
CareTech Holdings PLC
('CareTech' or 'the Group')
Preliminary Results for the year ended 30 September 2018
CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care services in the UK, is pleased to announce its unaudited preliminary results for the year ended 30 September 2018.
Highlights
· | Revenue increased by 11.9% to £185.7m(2017: £166.0m) |
· | Underlying EBITDA(i) increased by 10.0% to £43.9m(2017: £39.9m) |
· | Underlying profit before tax(ii) increased by 11.9% to £32.9m(2017: £29.4m) |
· | Underlying basic EPS at 35.07p per share(ii) (2017: 38.03p). |
· | Cash inflows from operating activities of £30.9m (2017: £22.1m) with net debt (iii) of £147.0m (2017: £147.1m) |
· | Overall capacity increased by 88 places(v) to 2,622 (2017: 2,534) |
· | Proposed full year dividend increase by 11.1% to 11p (2017: 9.90p) |
· | Independent property portfolio valued at £424m |
· | Acquisition of Cambian Group plc in October 2018 |
Statutory Financial Highlights
· | EBITDA(iv) increased by 10.4% to £40.2m (2017: £36.4m) | |
· | Operating profit decreased by 11.0% to £20.2m (2017: £22.7m) |
(i) Underlying EBITDA is operating profit stated before depreciation, share-based payments charge and non-underlying items
(ii) Underlying profit before tax and underlying basic earnings per share are stated before non-underlying items
(iii) Net Debt as defined by the Group's Banking facilities and comprises cash and cash equivalents net of all Loans and Borrowings due to the Group's Bankers
(iv) EBITDA is operating profit stated before depreciation, share-based payments charge and amortisation of intangible assets
(v) Overall capacity has increased by 88 with 69 additional beds in reconfigured services and new services, 69 new beds in Children's and 50 beds were withdrawn for reconfiguration.
(vi) In 2018 the Selborne Care Limited Acquired Intangibles were independently valued and are currently being verified by the Group's Auditors. A bargain purchase credit will only be recognised when the verification is complete, and will, if material, be booked in the audited 2018 statutory accounts in due course.
Commenting on the results, Farouq Sheikh, Executive Chairman, said:
'I am truly privileged to present our results for the period ended 30 September 2018 being our 25th year in business. This is a real milestone for CareTech and has proven to be another exceptionally busy and successful year with one of the highlights being the purchase of Cambian Group plc in the early weeks of October 2018.
'Cambian is a leading Children's specialist education and behavioural health service provider. The Cambian Group's services have a specific focus on Children who present high severity needs with challenging behavioursand complex care requirements. Cambian currently looks after over 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. On 19 October 2018 the recommended acquisition of Cambian by the Group was completed. I welcome both Anne Marie Carrie as Chief Operating Officer of the Cambian operations, and the whole Cambian team, as well as the 2,000 children who use their services, to the CareTech Group. I strongly believe that the CareTech offerings in learning difficulties and specialist services for adults and residential services and fostering for young people, is highly complementary to Cambian's services in Children's residential care, specialist education and therapeutic fostering. Furthermore the geographic reach of the services has been broadened, now providing a nationwide network.
'This is a special year for CareTech in achieving a memorable milestone of 25 years in business and also celebrating the 13th year in the public markets. During this time, the business has transformed from being very focused on supporting adults with a learning disability through residential and day care settings to one where today we also cater for young people and children with complex needs across a range of settings, be it residential, supported living or community support. We focus on the most complex and vulnerable young people and the market for this client group stands at over £10bn. There is currently an undersupply of specialist beds in this niche area and the market is growing by almost 3% per annum.
'On joining AIM, the Group had a capacity of 435 places, an underlying EBITDA of £2.4m with an underlying diluted EPS of 4.1p. Today our capacity has increased over six fold to 2,622, our underlying EBITDA has grown significantly to £43.9m today whilst underlying diluted EPS is 35.06 pence per share. Underlying EBITDA and diluted EPS have grown by an impressive compound annual growth rate of 26% and 20% respectively since IPO.
'Having just completed the Cambian acquisition post year end, we now have a national presence with over 450 homes and schools in the UK with around 10,000 staff supporting some 4,500 vulnerable young people and adults. This has been an incredible journey that has only been possible due to the hard work and dedication of each and everyone one of our staff that make up the CareTech family!
'When we set up CareTech all those years ago our underlying vision was very simple.
'We wanted to build the very best designed homes, furnish them to the highest of standards and match this with an innovative person centric care and support package. We wanted to be different and create a feeling that parents, carers, care managers felt so overwhelmed with our unique offering that they instantly wanted to move in themselves! We saw this reaction over many of the homes we opened and this created a buzz in the sector!
'We have major investment plans for 2019 and beyond with key new organic developments and bolt-on acquisitions. Importantly we also continue to see how we can enhance further, the use of technology as a validation of our work as well as for diagnostic and assessment purposes whilst exploring opportunities abroad in the international market particularly the GCC. We will 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 and care excellence which will help deliver our target of double digit growth in underlying EPS.'
For further information, please contact:
CareTech Holdings PLC | 01707 601 800 |
Farouq Sheikh, Executive Chairman | |
Michael Hill, 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 Alex Bond |
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 services, supporting adults and children with a wide range of complex needs in more than 330 specialist services around the UK.
Committed to the highest standards of care and care governance, CareTech provides its innovative care pathways through five divisions covering adult learning disabilities, specialist services, young people residential services, foster care and learning services which come under the two outcome-based sectors of Adult Services and Young People Services.
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. Its property portfolio comprises more than 200 properties.
For further information, please visit: www.caretech-uk.com
Group Chairman's Statement
Celebrating 25 years in business
Another successful year creating a transformational platform for further expansion
I am privileged to present our results for the period ended 30 September 2018 being our 25th year in business. This is a real milestone for CareTech and has proven to be another exceptionally busy and successful year, with the key highlights being:
· Accelerated organic initiatives including property purchases and reconfigurations
· Further strengthening of our management team and investment in IT systems
· Strengthening of our Care Pathways and outcomes for our service users
· Improvement on CQC and OFSTED Quality Ratings across the Group
· Exciting initiatives and partnerships launched by the CareTech Charitable Foundation
· Agreed highly complementary and significantly accretive acquisition of Cambian Group plc
It is really pleasing to note that, over these years, we continue to maintain our position as a leading care provider with our improved quality ratings across the Group.
I am personally reminded of our very humble beginnings all the way back in 1993, from our very first home in 44 The Avenue, Watford. Having just completed the Cambian acquisition post year end, we now have a national presence with over 450 homes and schools in the UK with around 10,000 staff supporting some 4,500 vulnerable young people and adults. This has been an incredible journey that has only been possible due to the hard work and dedication of each and everyone one of our staff that make up the CareTech family!
As we celebrated our 4th year of our National Care Awards on the 23rd of November many of our staff were there and received acknowledgement and thanks for their hard work. Personally it was so touching to have one of the parents, whose son was placed in our second home known as Morven Park back in 1994, pay tribute to the company for the care and support provided to her son for the 17 years he was with us. We are pleased that we still have an active engagement with her after her son sadly passed away. It is a testament to the relationship we build with the nearest and dearest of those we support.
When we set up CareTech all those years ago our underlying vision was very simple.
We wanted to build the very best designed homes, furnish them to the highest of standards and match this with an innovative person centric care and support package. We wanted to be different and create a feeling that parents, carers, care managers felt so overwhelmed with our unique offering that they instantly wanted to move in themselves! We saw this reaction over many of the homes we opened and this created a buzz in the sector!
And so 25 years on, our underlying vision remains the same. We will endeavor to develop the best designed and furnished homes - ones that we would be happy to live in ourselves. Coupled with this we will provide the bespoke support for our service users as we would want to provide for our nearest and dearest. If we sincerely stick to these simple principles we will always be at the forefront of our industry and, as a result, the financial metrics will take care of themselves.
Accordingly below is a summary of our financial results for this year are where:-
· Revenue has increased by 11.9% to £185.7m
· Underlying EBITDA has increased by 10.0% to £43.9m
· Underlying profit before tax has increased by 11.9% to £32.9m
· Underlying basic EPS at 35.07p per share
· Net Assets increased by 2.0% to £208.2m (2017: £204.2m)
· Cash inflows from operating activities before non-underlying items of £39.1m (2017: £32.7m) with net debt (iii) of £147.0m (2017: £147.1m)
· Full year dividend increased by 13.6% to 7.5p
All of the above mentioned initiatives demonstrate a solid performance on delivery of both the key financial and non-financial metrics and put the Group in a strong position to target further underlying EPS growth going forward.
The results are especially pleasing as management have had an extremely busy year producing solid financial year on year metrics whilst
· continuing with a significant number of organic and reconfiguration initiatives
· improving care quality ratings across all service segments
· maintaining strong occupancy across the portfolio of homes
· achieving industry leading staff retention rates
· completing post year end, the transformational and highly complementary and accretive acquisition of Cambian Group plc
· enlarged Group property portfolio valuation updated as part of the transaction at £774m
Management have done extremely well to manage these various work streams whilst ensuring the core 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.
Continuing with our strong organic growth, once again the Group has purchased a number of properties including Red Rock, Thorngarth, and Oaklea. Further investment has also been made during the year on previous purchases with over £1.2m invested in Beacon Reach, a school run by ROC Northwest, and £1.1m on Hidelow school in Shropshire. All of these projects will deliver incremental earnings are they reach mature occupancy. Pleasingly, ROC Northwest has won the coveted Laing and Buisson Award in Social Care for Children's Services.
During 2018, we again closed several services for reconfiguration which impacted the growth in revenue. Offsetting this, there are improved fees following reconfiguration plus the impact of cost saving initiatives and the time and attendance system has further improved underlying EBITDA. The Group's organic development programme will continue with further reconfigurations and, for 2019 we have a strong pipeline of development opportunities with one property purchased soon after the year end.
The Group continue to look at a number of other acquisition opportunities and are confident that there will be further opportunities in the coming year.
In the 13 years since joining AIM, the business has transformed from being very focused on supporting adults with a learning disability through residential and day care settings to one where today we cater for young people and children with complex needs across a range of settings, be it residential, supported living or community support. We focus on the most complex and vulnerable young people and the market for this client group stands at over £10bn. There is currently an undersupply of specialist beds in this niche area and the market is growing by almost 3% per annum.
Over the years we have developed a range of care pathways and helped many that we support to live more independently. This is a fantastic outcome for both us and the individuals that we support and it also helps local authorities meet the ever increasing cost of social care provision.
Shortly after the year end the Acquisition of Cambian Group plc was completed.
Cambian is a leading Children's specialist education and behavioural health service provider. The Cambian Group's services have a specific focus on Children who present high severity needs with challenging behaviours and complex care requirements. Cambian currently looks after over 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.
Even with the significant growth we have achieved to date, and also with the Cambian acquisition post year end, we still have less than 5% of this very large and fragmented market. With the increasing regulatory burden, the opportunity for further consolidation is even more attractive.
Dividend
The Group policy has been to increase the total dividend per year broadly in line with the movement in underlying diluted earnings per share.
In 2018 there was a slight reduction in underlying diluted earnings per share of (2.96p) mainly due to the share placement in March 2017, which increased the number of shares in issue. The Board has proposed a final dividend of 7.5p (2017: 6.60p) per share bringing the total dividend for the year to 11.0p (2017: 9.90p) per share. This represents a full year increase of 11.1% year on year. The final dividend will be paid, subject to shareholder approval, on 8 May 2019, with an ex-dividend date of 7 March 2019 and an associated record date of 8 March 2019.
Our Board
There have been no changes to the Board during the year. Providing the foundation for further growth, the Senior Executive Team at CareTech has been strengthened by a number of senior appointments during the year.
During the year the Remuneration Committee, the Audit Committee and the Care Governance and Safeguarding Committee were unchanged.
As stated in the prospectus accompanying the Cambian acquisition it is our intention to add two additional independent non-executive directors to the Board within three months of Completion of this acquisition. Alongside additional non-executive appointments it is expected that, following our acquisition of Purple Zest, Mike Adams will become an executive director of the Group.
Our people
We have completed our planned evolution into two well defined operating divisions, Children Services and Adult Services, and this has generated organisational efficiencies. Simplifying the structure has also supported planning and service delivery with a more powerful approach to development.
Our continuing growth, measurable success and forward-looking approach are a reflection of the hard work and dedication of 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 our Company and the care we provide.
In March 2016, the Company announced the creation of the CareTech Sharesave Scheme, a Government supported method for any of our staff to have the opportunity to participate in the Company's equity. In October 2017, we announced a second CareTech Sharesave Scheme and 259 members of staff chose to join this new saving scheme. We plan to introduce another CareTech Sharesave Scheme early in 2019 as this is one part of our staff retention strategy.
With the launch of the CareTech Charitable Foundation in May 2017 I am pleased that we were able to support members of the CareTech family even more. The Foundation has ambitious and clear sighted objectives to deliver meaningful impact to communities in the UK and overseas about which the staff of the Group and its service users feel proud and strongly-engaged, providing a unique contribution to the charitable marketplace consistent with the Group's values and approach.
Post Balance Sheet Events - Acquisition of Cambian Group plc and new Banking facilities
As mentioned in my report above, I am extremely pleased to report that we completed the Acquisition of Cambian Group plc on 19 October 2018 following the Rule 2.7 Offer on 16 August 2018 and the Prospectus on 19 September 2018.
Work began on this Project at the beginning of the year and after several approaches and considerable due diligence it was pleasing to issue the Rule 2.7 Offer in August.
This offer could only be made with Shareholder Support, Banking Support and the agreement of the Cambian Board of Directors.
Shareholder support through Rule 2.4 Irrevocable Undertakings in July to the revised possible offer was important to being able to make a Recommended Offer for Cambian Group plc in August. The Rule 2.7 Offer was made with 9 Irrevocable Undertakings from Cambian plc Shareholders plus the Directors and 2 CareTech Holdings PLC Shareholders plus the Directors. I am very grateful for the support of our shareholders during this acquisition. I also welcome to the enlarged Group the new CareTech Shareholders who were Cambian Shareholders that took the Headline Offer.
Financing support was provided by Lloyds Bank PLC and National Westminster Bank PLC as Mandated Lead Arrangers who provided a Term and Revolving Facilities Agreement with total commitments of £438.7m in support to the Rule 2.7 Offer. Subsequently this was successfully syndicated and the final Bank draw down was £427.1m. I am grateful to the Banks for their backing.
The Board of Cambian Group plc played a key role in professionally dealing with our approaches and working well with the CareTech team during the due diligence process.
Now that the acquisition has completed we are working with the Competition and Markets Authority and planning I.T. integration. This is an exciting phase post acquisition and in the coming months I look forward to meeting more members of the Cambian team when I visit services.
Outlook and Prospects
We operate in a growing social care market worth over £10 billion per annum and we are well positioned to meet market demand. We have developed outcome based care pathways which deliver value based services for our Local Authority partners.
With the new long term Banking facilities and solid free cash flow generated from the enlarged Group, we look forward to the integration of Cambian during 2019.
Their focus on children who present high severity needs with challenging behaviours and complex care requirements is an excellent fit alongside the CareTech Children's services, and this extension of current care pathways and geographic presence is a major opportunity to the enlarged Group.
We have major investment plans for 2019 and beyond with key new organic developments and bolt-on acquisitions. Importantly, we also continue to see how we can enhance further, the use of technology as a validation of our work as well as for diagnostic and assessment purposes, whilst exploring international market opportunities and in particular the GCC. We will 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 and care excellence which will help deliver our target of double digit growth in underlying EPS.
Farouq Sheikh
Group Executive Chairman
6 December 2018
Group Chief Executive's Statement and Performance Review
A strong foundation built over 25 years
Overview
I am pleased to report again on a successful year that reflects the hard work of our management team, the enthusiasm of our staff and the support of our Board.
The Group has continued to build upon its solid foundations and remains in a strong position to continue as a leading provider of high quality specialist social care services in a large and growing UK market which remains fragmented.
The Group has also continued to develop through organic growth and reconfigurations and has further strengthened an experienced management team with skilled leaders.
In 2017, I was extremely proud with the establishment of the CareTech Charitable Foundation which is devoted to supporting the social care sector. There have been a number of key long term projects started in the year both in the UK and abroad. This is further discussed in the Corporate Social Responsibility section of the report.
There have been a number of staff initiatives to aid retention including the second Sharesave Scheme and a Level 5 in Care Management training scheme for Managers.
On 19 October 2018 the recommended acquisition of Cambian by the Group was completed. I would like to take this opportunity to welcome Anne Marie Carrie as Chief Operating Officer, and the whole Cambian staff team, as well as the 2,000 children who use their services, to the CareTech Group.
I strongly believe that the CareTech offerings in learning difficulties and specialist services for adults including residential services and fostering for young people, is highly complementary to Cambian's positions in children's residential care, specialist education and therapeutic fostering. Furthermore the geographic reach of the services has been broadened, now providing a nationwide network.
We are now ideally positioned to better serve local authority partners and communities with an integrated care offering, to provide best value to purchasers and successful outcomes for our service users.
Consolidation and creating new opportunities
CareTech remains at the forefront of social care outsourcing in the UK across both Children and Adult services and, in the year, there has been a further increase in working closely with commissioners and regulators.
National public policy continues to be a significant driver of local authority commissioning intentions and behaviour. For a number of years, public policy has encouraged greater personalisation of health and social care for adults. Commissioners and leading providers are driving change that will mean offering people more choice and control over the care, treatment and support they receive while at the same time maintaining the quality and safety of those services.
Our care priorities drive successful outcomes for our service users and follow closely the guidance from central Government.
Our key focus for delivering quality services and positive outcomes is supported by the following key factors:
Communication
· We have open and frank dialogue with our service users, their families and social workers, as well as the Regulators.
Independence
· In our social care and health contracts we aim to help our service users to return to an ordinary independent life. It may be children who can return to their birth families or live independently. It may be adults who we can help on the pathway to recovery following a specialist services breakdown, or acquired brain injury or people with learning disability who we can support towards independent living.
Housing care and support
· We know that most people aspire to have a place of their own, employment and ongoing support. We have structured our services, developing new provision and creative partnerships with housing providers to enable these aspirations to be achieved whenever possible and we are tailoring training to assist young people and adults leaving our services to gain employment.
Self-directed support
· It is pivotal to government policy that adults and children receiving social care are fully engaged in the support that they require. With some adults this extends to the provision of a cash sum enabling them to purchase their care and support directly. CareTech managers have been further reviewing our systems and delivering training throughout the organisation to ensure that we are able to deliver the requirements of self-directed support.
Quality and dignity
· CareTech has always delivered high quality care in well maintained premises. However, we have never been complacent about this and have undertaken reviews to ensure that we deliver the right quality at a reasonable price. We have also learned a great deal from the experience of our NHS colleagues and developed a Dignity Test to ensure that our front line and administrative staff treat all our clients in ways that promote dignity.
Progress in the year
The year has seen continued progress as the Group concentrates on the introduction of innovative new services developed in partnership with local authority commissioners reconfigured from within our existing portfolio of properties or through new properties either purchased or rented for service users for supported living.
Adult Services have added a net 43 beds in additional capacity, being 7 in Supported Living and 36 in Residential.
Children Services have added 69 beds in the year principally in 9 services.
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 with further senior appointments planned and to improve the efficiency of our processes following further investment in new systems which have gone live or we are working on now. We are seeing the benefits of new executive appointments which continue to have a positive impact across the services.
New systems were procured during the year for the Group's recruitment and training solutions including e-learning with standard automated reports as well as for maintenance, hosting, data analytics and e-compliance in order to benefit from cutting edge technology.
These improvements have put us in a strong position to benefit from a number of the commissioning opportunities by working in partnership with the NHS and Local Authorities.
Care Pathway Range and Services
The Group's focus remains the provision of specialist social care through its five divisions. This is underpinned by a well-defined range of provisions which meet the commissioner requirements. These services are now even more extensive and focused on providing high quality care and positive outcomes for all of our service users.
The Group has continued to develop and grow its existing five operating divisions, which come under the two outcome-based sectors of Adult Services and Children Services. We continue to extend both our geographic coverage and our outcome-based Care Pathway range of services organically through the purchase of properties to meet the needs of our marketplace, specifically the requirement for greater acuity service provision for both Children and Young People and Adults. This ensures that CareTech is in a very strong position to address the demands of our evolving marketplace.
We remain committed to the growth of residential care solutions for adults and children with the most complex needs and the Group has embraced the development of home based solutions including foster care where demand for more specialist services remains strong. Our residential care services for children cater for young people with particularly difficult issues and offer a national service; with strong growth seen in the North of England with ROC Northwest which has expanded both in care and educational services. In the year we have purchased properties in Scotland and North West England for both Spark of Genius and ROC Northwest to develop into new services. Our adult services offer a solid and reliable provision across the whole spectrum of service offerings which now includes acquired brain injuries and we see a particular volume demand in the area of supported living, balanced by renewed demand for more specialised residential care solutions.
Our strategy is to offer a bespoke range of options so that we can maintain the Care Pathways that distinguish us from other providers.
Overview of progress
Our focus during the past year has continued to be further building on the businesses which established the Care Pathways whilst introducing innovative new solutions to meet the challenges faced by care commissioners and then adding newly acquired businesses with complementary offerings.
Capacity has increased by 88 places principally because we have continued to reconfigure services and added new beds through acquiring properties. Occupancy levels within our mature services remain at a creditable 93%, or 86% when taking into account our services under development and transition.
Much has been written about personalisation and I felt it would be useful to set out our own understanding and commitment to personalisation.
Personalisation to us means recognising people as individuals who have strengths and preferences and putting them at the centre of their own care and support.
The traditional service-led approach has often meant that people have not been able to procure the kind of support they need, or receive tailored care assistance. Personalised approaches such as self-directed support and personal budgets involve enabling people to identify their own needs and make choices about how and when they are supported to live their lives.
Our two business divisions of Adult Services and Children Services comprise the following four Care Pathways and our Learning Services division.
1. Adult Learning Disabilities
Year to 30 September 2018
Revenue Contribution to Group Revenue | £101.0m (2017: £87.7m) 54.4% (2017: 52.9%) |
Underlying EBITDA before unallocated costs | £27.0m (2017: £26.3m) |
Capacity | 1,754 (2017: 1,735) |
Adult Learning Disabilities provides individually tailor-made solutions for people living in their own homes, residential care or independent supported living schemes. We can work with clients to deliver self-directed support packages.
For some people residential care will continue as the preferred option and we increasingly offer several types of supported living and packages of individualised self-directed support to people in their own homes.
This includes adult residential care homes, independent supported living and community support services.
We have continued to work closely with Local Authority and NHS commissioners and this has helped us to achieve our growth through the past year. We take a long-term view, recognising that change will continue and with this in mind I am pleased to report that redevelopment of some of our long stay residential provision has been a great success over the past year and will continue to meet the changing requirements of commissioners and families.
The market for high acuity care and the support of people with learning disability is growing year on year. 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.
During the past year we have withdrawn 50 places in services for reconfiguration into new care models and have developed 26 beds through reconfiguration plus an additional 43 beds have been brought into service.
2. Specialist Services
Year to 30 September 2018
Revenue Contribution to Group Revenue | £15.3m (2017: £15.5m) 8.2% (2017: 9.3%) |
Underlying EBITDA before unallocated costs | £4.4m (2017: £3.9m) |
Capacity | 214 (2017: 214) |
Specialist Services comprise the Adult Mental Health Services and Oakleaf Care (Hartwell).
Capacity is unchanged in Specialist Services during the year.
The principal reason for the increase in underlying EBITDA is an improved Margin.
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 adult services for this Care Pathway include a community based hospital, adult residential care homes, independent supported living and community outreach with some transitional services transferred within the Group.
Community Specialist Serviceshas always been a critical but relatively neglected area of social care. However, this is changing as the NHS drives to lower bed capacity and accelerated early discharge from acute psychiatric hospital care.
The growth of social care is certain and the response by Government to one of the key difficulties is progressing. There has been some progress in the removal of large numbers of learning disabled people from the controversial 'Treatment and Assessment Centres' operating at various locations throughout the UK. CareTech has never operated any centres of this type but we understand that the CEO of NHS England has been tasked with ensuring that these centres are re-provided as a matter of urgency. CareTech is seeking opportunities to support the project and to offer a comprehensive solution within its community homes.
We are well positioned for expansion in Specialist Servicesand have a sustainable infrastructure to deliver growth including plans to provide care for women with acquired brain injury in 2019.
3. Foster Care
Year to 30 September 2018
Revenue Contribution to Group Revenue | £8.2m (2017: £8.6m) 4.4% (2017: 5.2%) |
Underlying EBITDA before unallocated costs | £1.9m (2017: £1.9m) |
Capacity | 301 (2017: 301) |
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.
The unchanged capacity, and fall in revenue but stable underlying EBITDA in Foster Care is due to the competitive nature of the market as well the change to family assessments in the home. It is also due to capacity being reported on the basis of the children that carers are able to look after rather than the number that they are approved for.
This trend is driven by cost considerations, where fostering is considerably less expensive than residential care and by perceived quality care factors. 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.
In March 2016, 63,718 were looked after in foster care in the UK. Over time independent agencies have absorbed a larger proportion of fostering activity, as local authorities have seen their volumes remain static and their share fall. (LaingBuisson Children's Services Market Report Third Edition 2017).
Our Foster Care teams and Young People Residential teams are working closely alongside each other to offer the best outcomes for Young People.
Our market intelligence suggests that most, if not all, independent sector fostering agencies are still experiencing some degree of 'hold back' at present. However, the consensus view is that this will not last long and local authorities will inevitably return to progressive outsourcing of foster care provision.
Outsourcing is well established in the culture of most local authorities, but the current austerity measures have led a small number of authorities to reflect on the 50% fee premium paid for independent fostering. This disparity of cost can be attributed in part to the fact that the most complex and therefore high cost cases are placed in the care of independent providers. However, it is also clear that local authorities fail to undertake a full cost analysis of their in-house provision. Wherever this has been done, outsourcing is demonstrably much better value.
Demand for foster care has increased overall but we have noted an increasing trend among some local authorities to make provision in-house for all but the most complex children. In our view this is an expensive and unsustainable approach that exposes local authority commissioners to risk. Our own services are being maintained at an acceptable level.
In October 2017 the All Wales Framework for the provision of foster care services outcome was that TLC (Wales) was ranked 1 and was placed in the New Tier 1. Unfortunately, the benefits of this change are taking longer to come through and turnover last year was lower than anticipated, although the margin improved by over 1% due to tight cost controls.
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.
4. Young People Residential Services
Year to 30 September 2018
Revenue Contribution to Group Revenue | £58.7m (2017: £43.8m) 31.6% (2017: 26.4%) |
Underlying EBITDA before unallocated costs | £17.0m (2017: £13.2m) |
Capacity | 353 (2017: 284) |
A number of children and young people need to live in specialised residential services and receive education. As far as practicable we aim to help these children move into a more normalised family style environment.
This segment contains children residential care homes, which includes facilities for children with learning difficulties and emotional behavioural disorders ('EBD'), and small specialist schools.
In December 2015 ROC Northwest was added and gave a further geographic spread to fit between the current Children residential services in Scotland (Spark of Genius and ACAD). North Wales (Branas Isaf) and South Wales (Greenfield) and services in Staffordshire and Yorkshire. It also strengthened the residential care and education services for young people with complex needs, especially EBD.
In the year this segment benefited from new services which have added 69 beds to capacity with additions to Spark of Genius, ROC Northwest and the original Childrens services.
Spark of Genius which provides significant benefits across the division due to their well-established education facilities across Scotland and North East England which complement the ROC Northwest and Welsh education facilities. In the year the Education capacity increased by 69 to close at 353 Young People.
At the Laing Buisson Awards in November 2017 the winners in Social Care for Children's Services was ROC Northwest.
Children residential services have been growing as our reputation for quality care and support spreads. We are currently developing new beds and places that have been commissioned during the past year.
5. Learning Services
Year to 30 September 2018
Revenue Contribution to Group Revenue | £2.5m (2017: £10.4m) 1.4% (2017: 6.2%) |
Underlying EBITDA before unallocated costs | £0.5m (2017: £0.9m) |
Learning Services comprises Dawn Hodge Associates that is a regional provider specialising in the social care sector and was acquired in 2017. This division has been reconfigured and as a result turnover has reduced and there has been an impairment to goodwill of £2m. However, it is anticipated that the current year will show an improved performance once the changes made have taken affect.
Their intensive pre-employment, development and apprenticeship programmes use public funds from the Skills Funding Agency to lay the foundations for individuals to achieve their career goals while helping to provide businesses with the vital skills they need in their workforce.
As well as supporting the workforce, Learning Services has also developed programmes for service users by enhancing the pathways to independent living and employment. Young People leaving care, for example, often do not know where to find the right job opportunities or have the opportunity to access employer-focused training. We can now bridge that gap by supporting young people as they make the transition to adult life. We are also exploring how best to help individuals return to employment after mental illness and to give people with learning disabilities the skills and confidence to gain employment so that they are able to live more independently.
Progress has been made in identifying the potential for Learning Services to add value to CareTech's attraction and recruitment of staff and their retention, helping new employees gain the skills and qualifications to grow a successful career in care through an Apprenticeship.
The Aspire programme developed as a unique and innovative scheme that will ensure all CareTech's support workers receive mandatory and statutory training to the highest standard whilst also being offered the opportunity to complete a Level 2 or Level 3 Apprenticeship which has been carefully tailored to suit their role and 140 completed this apprenticeship in the last academic year.
CareTech apprentices continue their training with 266 CareTech support workers undertaking the apprenticeship programme.
The Team Leader programme has 22 staff members on Level 5 programmes.
In early 2016 Dawn Hodge Associates retained its Ofsted 'Outstanding' which is an achievement that we are very pleased to have attained and provides an excellent base to build upon.
During 2017 with the introduction of the Apprenticeship Levy there have been significant changes to the Learning sector, but we believe that we are well placed to take advantage of the new market conditions.
However, the Learning Service Division faced a challenging start to the new Learning sector year. A reorganisation of the management of the division was undertaken and the budget for the rest of 2019 is expected to show an improvement on last year.
Acquisition of Cambian
As we have outlined in the prospectus the two businesses will be run with the CareTech and Cambian brands retained and with no material change to CareTech's or Cambian's current operational sites. Over the coming months a dedicated plan to review the two businesses will be undertaken with limited disruption to the underlying operations of each business.
Within the enlarged Group the CareTech operations come under John Ivers, Chief Operating Officer of CareTech. Anne Marie Carrie leads the Cambian operations as Chief Operating Officer of Cambian and both John and Anne Marie report to me as Group Chief Executive Officer.
I am looking forward to utilising fully the operational expertise across the enlarged Group which will enable the creation of a robust and sustainable operating model to better serve local authority partners and service users. The combined operational expertise will be able to deliver strong service user outcomes, implement positive staff engagement and improve care quality. In particular, through the combination, Cambian should be able to leverage CareTech's highly developed recruitment and retention functions, which have contributed to CareTech achieving staff turnover rates of 22.5% which I believe is substantially better than the sector average.
There is also the opportunity for CareTech's Learning Services division, which assists young people in obtaining employment opportunities and apprenticeships, to augment Cambian's service and care pathway.
Outlook
The coming year shows every sign of being good for health and social care providers and especially for those with an established reputation for quality and innovation.
This year there has been significant policy development and we see some indicators that local authorities have recognised the need to maintain, or grow, their social care budgets.
May I also take this opportunity to welcome all staff who have joined the CareTech family and also would like to thank all of the staff teams across the Group for their hard work and commitment during the past year.
Haroon Sheikh
Group Chief Executive Officer
6 December 2018
Group Financial Review
I am delighted that this year marks CareTech's 25th year in business looking after service users.
The Group has continued to make good progress in 2018.
In October 2018 after the year end, the Group completed the acquisition of Cambian and also has put in place new Banking facilities to provide stability for the coming years.
These results reported are for the CareTech operations only and in 2019 the results will reflect the Enlarged Group including the Cambian operations.
Results
Underlying operating profit improved by 10.5% at £37.8m compared with £34.2m last year. Until 2013 the Group had been making strategic acquisitions to gain market share and extend the care pathway range of services. Since 2013 the focus had been on both organic development and cost efficiencies as well as acquisitions. With two share placements, improved banking facilities and a Ground Rent fund transaction the Group has raised £87m which has been used for acquisitions with five completed in the last four years.
Underlying basic earnings per share are 35.07p (2017: 38.03p). In the year underlying profit before taxation increased by 11.9% to £32.9m and underlying profit after tax has risen by 1.9% to £27.1m (2017: £26.6m) due in part to the increase in the effective tax rate. The weighted average number of diluted shares rose to 75.7m (2017: 70.1m) being an increase of 8.0%. Basic earnings per share decreased by 44.8% to 14.07p (2017: 25.48p) and profit after tax attributable to the owners of the parent reduced by 40.3% to £10.6m (2017: £17.8m).
Cash inflows from operating activities before tax and non-underlying items paid were £39.1m (2017: £32.7m), an increase of 19.6%. Net debt to the Group's bankers at the year end of £147.0m has reduced by £0.1m for the year (2017: £147.1m).
The Condensed Income Statement before non-underlying items for the year is summarised in table 1 below.
Table 1 - Condensed Income Statement before non-underlying items
2018 | 2017 | ||
£m | £m | Growth | |
Revenue | 185.7 | 166.0 | 11.9% |
Gross profit | 65.3 | 59.9 | |
Administrative expenses excluding depreciation and share based payments | (21.4) | (20.0) | |
Underlying EBITDA | 43.9 | 39.9 | 10.0% |
Underlying EBITDA margin | 23.6% | 24.0% | |
Depreciation | (5.9) | (5.5) | |
Share-based payments charge | (0.2) | (0.2) | |
Underlying operating profit | 37.8 | 34.2 | 10.5% |
Net financial expenses | (4.9) | (4.8) | |
Underlying profit before tax | 32.9 | 29.4 | 11.9% |
Underlying taxation | (5.8) | (2.8) | |
Underlying effective tax rate | 17.5% | 9.3% | |
Underlying profit for the year | 27.1 | 26.6 | |
Non-controlling interest | (0.6) | - | |
Weighted average number of diluted shares (millions) | 75.7 | 70.1 | |
Underlying basic earnings per share | 35.07p | 38.03p | |
Full year dividend per share | 11.00p | 9.90p |
Revenue
Revenue of £185.7m (2017: £166.0m) was 11.9% higher than in 2017.
In the established Adult Learning Disabilities segment we continued to experience high levels of occupancy and reported 86% occupancy at 30 September 2018. When this is blended with the facilities that are being reconfigured and so are under development, the overall occupancy level during the second half of the year and at 30 September 2018 was 86% of capacity (September 2017: 86%). As in recent years the demand for residential services continues to be encouraging for high acuity users.
As set out in the Chief Executive's statement and note 2 to the Preliminary Announcement, we are again reporting segmental information for the financial year and last year, which includes information on client capacity and revenue for each segment.
The continued development of our care pathways and a growing range of service options has led to the proportion of Adult services revenue rising from 62.2% in 2017 to 62.6% in 2018 and underlying EBITDA before Group Costs moving from 65.3% in 2017 to 61.8% in 2018.
The Young People Residential services total revenue has risen by 34% with Specialist Services falling by 1.3%, Foster Care falling by 4.7% and Learning Services by 76%. Their total proportion of the EBITDA before Group costs has moved from 34.6% in 2017 to 38.2% in 2018 due mainly to the new services opening in the Young People Residential services.
Table 2 - Revenue
2018 | 2018 | 2017 | 2017 | |
Revenue | Underlying EBITDA | Revenue | Underlying EBITDA | |
£m | £m | £m | £m | |
Adult Learning Disabilities | 101.0 | 27.0 | 87.7 | 26.3 |
Specialist Services | 15.3 | 4.4 | 15.5 | 3.9 |
Adults Services | 116.3 | 31.4 | 103.2 | 30.2 |
Young People Residential Services Foster Care | 58.7 8.2 | 17.0 1.9 | 43.8 8.6 | 13.2 1.9 |
Learning Services | 2.5 | 0.5 | 10.4 | 0.9 |
Childrens Services | 69.4 | 19.4 | 62.8 | 16.0 |
Less unallocated Group costs | - | (6.9) | - | (6.3) |
185.7 | 43.9 | 166.0 | 39.9 | |
Underlying EBITDA and total EBITDA
Underlying EBITDA has grown by 10% from £39.9m in 2017 to £43.9m in 2018. Underlying EBITDA margin has decreased from 24% to 23.6% mainly due to the margin in the total of the acquired businesses being at a lower rate than the other businesses, and the growth in services businesses that require little capital expenditure like Foster Care and the Learning Division.
The Adult Learning Disabilities, Specialist Services and Young People Residential Services segments have higher margins but normally require considerable capital expenditure to increase capacity, whilst Supported Living, Foster Care and Learning Services operate at a lower margin in part because they do not require capital expenditure to increase capacity and are not reliant on the Group's properties.
Administrative expenses, before depreciation and share-based payments charges were £21.4m (2017: £20.0m) and increased by £1.4m during the year. In 2017 they represented 12.0% of Group revenue and in 2018 this reduced to 11.5% of Group revenue.
There has been a further considerable effort in the year to tighten administrative expenses with further back office systems centralisation and procurement successes for the Group.
The reconfiguration of services is a central part of the Board's strategy to grow organically. It enhances average fee rates and maintains the Group's reputation as a provider of highest quality of care.
In the year there has also been a continued focus on purchasing properties which are then converted to new services.
The number of employees in management and administration has reduced by 40. The Time and Attendance system has been implemented across all of the residential services in the year which will further our back office centralisation and ensure that staff are paid more accurately and quickly, as well as giving reliable data on staff rotas and attendance in each service. A new integrated Recruitment system has been implemented in the year.
Total EBITDA has increased from £36.4m in 2017 to £40.2m in 2018.
Operating profit and profit before tax
The depreciation charge is £5.9m (2017: £5.5m) and reflects the investment in land and buildings, motor vehicles and fixtures, fittings and equipment.
After this charge and the share-based payments, underlying operating profit grew 10.5% to £37.8m (2017: £34.2m).
Total operating profit reduced by £2.5m to £20.2m (2017: £22.7m).
Net underlying financial expenses increased to £4.9m (2017: £4.8m) due to additional finance leases taken out on new home vehicles during the year.
Underlying profit for the year improved to £27.1m (2017: £26.6m).
Total profit before tax decreased by 8.4% to £15.4m (2017: £16.8m).
Taxation and diluted earnings per share
The effective underlying tax rate was 17.5% (2017: 9.3%) 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, whilst last year also had the release of a provision for tax no longer required.
The weighted average number of shares in issue rose by 8.1% mainly due to the share placement in March 2017. The underlying basic earnings per share fell to 35.07p in 2018 from 38.03p in 2017.
Basic earnings per share reduced by 44.8% to 14.07p (2017: 25.48p)
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 in line with the increase in underlying operating profit and increase to 7.5p per share (2017: 6.60p), bringing the total dividend for the year to 11.00p (2017: 9.90p), a growth of 11.1%. Dividend cover for 2018, based upon diluted earnings per share before non-underlying items is 3.19 times (2017: 3.84 times).
Non-underlying items
As fully explained on the face of the Consolidated Statement of Comprehensive Income and in note 3 to the Preliminary Announcement, the Directors have separately disclosed a number of non-underlying items in order to improve understanding of the underlying trading performance achieved by the Group. Total non-underlying items represent a net charge of £17.6m at operating level (2017: £11.5m) and the principal items are the amortisation of intangible assets and integration and reorganisation costs plus costs of the acquisition. In 2018 the Selborne Care Limited Acquired Intangibles were independently valued and are currently being verified by the Group's Auditors. A bargain purchase credit will only be recognised when the verification is complete, and will, if material, be booked in the audited 2018 statutory accounts in due course.
Cash flow and net debt
The cash flow statement and movement in net debt to the Group's bankers for the year is summarised below:
2018 | 2017 | ||
£m | £m | ||
Underlying EBITDA | 43.9 | 39.9 | |
(Increase) in working capital | (4.8) | (7.2) | |
Cash inflows from operating activities before non-underlying items | 39.1 | 32.7 | |
Tax paid | (4.1) | (6.3) | |
Interest paid | (4.7) | (5.0) | |
Dividends paid | (7.5) | (5.9) | |
Acquisitions and capital expenditure | (17.1) | (36.4) | |
Share Placement | - | 37.4 | |
Cash flow before adjustments | 5.7 | 16.5 | |
Non-underlying cashflows including derivative financial instruments | (5.6) | (7.2) | |
Movement in net debt to the Group's bankers | 0.1 | 9.3 | |
Opening net debt to the Group's bankers | (147.1) | (156.4) | |
Closing net debt to the Group's bankers | (147.0) | (147.1) | |
Net debt to the Group's bankers at 30 September 2018 of £147.0m (2017: £147.1m) has decreased by £0.1m during the financial year, with an investment of £17.1m in acquisitions and capital improvements during the year.
Operating cash flows before non-underlying items
The £39.1m (2017: £32.7m) cash inflow from operating activities, before non-underlying items, represents 89% (2017: 82%) underlying EBITDA cash conversion ratio.
Interest and dividend cash flows
Interest paid of £4.7m (2017: £5.0m) is reflective of the financial expenses per the Consolidated Statement of Comprehensive Income, whilst dividends paid are consistent with the relevant section earlier in the review.
Acquisitions and capital expenditure
During the year we invested total funds of £17.1m (2017: £36.4m) on capital expenditure. The Group acquired Purple Zest Limited in July 2018 for a total consideration of £0.1m in cash.
Further details of the acquisitions are explained in the Group Chief Executive's Statement and Performance Review as well as in the notes to the financial statements.
Capital expenditure of £15.9m (2017: £19.8m) includes £10.9m to update our portfolio of assets.
Banking arrangements for the Group for the year
The Group had entered into new Banking facilities with Lloyds Bank plc and National Westminster Bank plc for committed financing by way of term loans of between 3.5 to 5 years up to £334m and a short term bridge loan of approx. £80m. The short bridge loan was repaid in November 2018 following completion using principally Cambian's significant cash position.
In addition to the Term Loans and Bridge Loan, a £25m revolving credit facility is available to provide working capital for the Enlarged Group and an uncommitted accordion facility of up to £30m for general Corporate and Working Capital purposes (including acquisitions).
The new facilities of the Term Loans and Bridge Loan with an aggregate size up to £414m have been utilised for the cash consideration of the acquisition, following the repayment of the Group's existing bank debt facilities of approx. £150m and the payment of debt financing fees of up to approx. £6m. The amount available for the draw down under the Term Loans was reduced in the event that the actual cash consideration payable under the transaction was less than £253m.
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. The Cambian Group plc property portfolio was revalued by Knight Frank and the market value was £350m.
Following completion of the Acquisition, Lloyds Bank plc and Nat West Markets plc, who had underwritten the funding, completed the syndication of the Term Loans and revolving credit facility successfully. The syndication was significantly oversubscribed showing strong support for both the Group and the acquisition.
The final facility is a term loan of £322m and 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 and Credit Suisse AG, in addition to Lloyds Bank plc and National Westminster Bank plc.
The Enlarged Group loan to value based only on the property valuations is c42% whilst the proforma net debt to EBITDA of the Enlarged Group is 4.3x which is expected to reduce to under 4x in the short term.
Post Balance Sheet Events
In October 2018 there were a group of related Post Balance Sheet Events.
There was the Acquisition effected by way of a Court Sanctioned Scheme under Part 26 of the Companies Act whereby the Group became the holder of the entire issued and to be issued share capital of Cambian Group plc. The Acquisition completed following the Admission of the Enlarged Share Capital to trading on AIM on 19 October 2018. The Headline Offer for each Cambian share was 100p in cash and 0.267 of a new CareTech Share; alternatively the Full Cash Alternative for each Cambian share was 190p in cash.
The majority of the Cambian Shareholders took the Headline Offer and so became shareholders in the Enlarged Group with 33.2m new shares in the Group being issued. There was also the financing of the acquisition which is discussed above.
Outlook
The Group is now in a better position than ever before to continue its growth as a pioneering provider of specialist social care services in a UK market which is continuing to grow yet remains fragmented.
Michael Hill
Group Finance Director
6 December 2018
Unaudited Consolidated Statement of Comprehensive Income
for the year ended 30 September 2018
2018 | 2017 | ||||||
Underlying | Non- underlying (i) | Total | Underlying | Non- underlying (i) | Total | ||
Note | £000 | £000 | £000 | £000 | £000 | £000 | |
Revenue | 2 | 185,689 | - | 185,689 | 166,018 | - | 166,018 |
Cost of sales | (120,387) | - | (120,387) | (106,110) | - | (106,110) | |
Gross profit | 65,302 | - | 65,302 | 59,908 | - | 59,908 | |
Administrative expenses | 3 | (27,543) | (17,573) | (45,116) | (25,758) | (11,483) | (37,241) |
Operating profit | 37,759 | (17,573) | 20,186 | 34,150 | (11,483) | 22,667 | |
EBITDA (ii) | 43,862 | (3,620) | 40,242 | 39,885 | (3,487) | 36,398 | |
Depreciation | (5,906) | - | (5,906) | (5,525) | - | (5,525) | |
Amortisation of intangible assets | 3 | - | (7,428) | (7,428) | - | (7,190) | (7,190) |
Acquisition cost | - | (4,062) | (4,062) | - | (806) | (806) | |
Acquisition adjustments | - | (2,463) | (2,463) | - | - | - | |
Share-based payments charge | (197) | - | (197) | (210) | - | (210) | |
Operating profit | 37,759 | (17,573) | 20,186 | 34,150 | (11,483) | 22,667 | |
Financial expenses | (4,867) | 51 | (4,816) | (4,770) | (1,118) | (5,888) | |
Profit before tax | 32,892 | (17,522) | 15,370 | 29,380 | (12,601) | 16,779 | |
Taxation | 3,4 | (5,751) | 1,625 | (4,126) | (2,744) | 3,814 | 1,070 |
Profit for the year | 27,141 | (15,897) | 11,244 | 26,636 | (8,787) | 17,849 | |
Non-controlling interest | (596) | - | (596) | - | - | - | |
Profit and comprehensive income for the year attributable to owners of the parent | 26,545 | (15,897) | 10,648 | 26,636 | (8,787) | 17,849 | |
Earnings per share | |||||||
Basic Diluted | 6 6 | 35.07p 35.06p | 14.07p 14.06p | 38.03p 38.02p | 25.48p 25.48p | ||
(i) Non-underlying items comprise: amortisation of intangibles, acquisition expenses, fair value adjustments on acquisitions, changes in value and additional finance payments in respect of derivative financial instruments, integration, reorganisation and redundancy costs and provision for onerous leases. See note 3.
(ii) EBITDA is operating profit stated before depreciation and share-based payments charge.
.
Unaudited Consolidated Statement of Financial Position
as at 30 September 2018
Note | 2018 | 2017 | |
£000 | £000 | ||
Non-current assets | |||
Property, plant and equipment | 301,109 | 297,170 | |
Other intangible assets | 41,475 | 40,954 | |
Goodwill | 42,342 | 43,098 | |
384,926 | 381,222 | ||
Current assets | |||
Inventories | 898 | 835 | |
Trade and other receivables | 31,747 | 23,519 | |
Cash and cash equivalents | 9,421 | 6,402 | |
42,066 | 30,756 | ||
Total assets | 426,992 | 411,978 | |
Equity | |||
Share capital | 379 | 379 | |
Share premium | 120,820 | 120,778 | |
Shares held by Executive Shared Ownership Plan | (4,750) | (4,750) | |
Merger reserve | 9,023 | 9,023 | |
Non-controlling interest | 639 | - | |
Retained earnings | 82,122 | 78,771 | |
Total equity | 208,233 | 204,201 | |
Liabilities Non-current liabilities | |||
Loans and borrowings | 2,580 | 145,872 | |
Ground rent liabilities arising under IAS17 | 7,244 | 7,294 | |
Deferred tax liabilities | 18,854 | 17,843 | |
Deferred and contingent consideration payable | - | 1,133 | |
Derivative financial instruments | - | 172 | |
28,678 | 172,314 | ||
Current liabilities | |||
Loans and borrowings | 153,830 | 7,662 | |
Trade and other payables | 24,875 | 15,709 | |
Ground rent liabilities arising under IAS17 | 50 | 50 | |
Deferred and contingent consideration payable | 966 | 2,420 | |
Deferred income | 3,372 | 1,762 | |
Corporation tax | 6,836 | 7,092 | |
Derivative financial instruments | 152 | 768 | |
190,081 | 35,463 | ||
Total liabilities | 218,759 | 207,777 | |
Total equity and liabilities | 426,992 | 411,978 | |
Unaudited Consolidated Statement of Changes in Equity
as at 30 September 2018
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 2016 | 321 | 81,750 | (6,072) | 66,645 | 9,023 | 151,667 | - | 151,667 |
Profit for the year | - | - | - | 17,849 | - | 17,849 | - | 17,849 |
Total comprehensive income | - | - | - | 17,849 | - | 17,849 | - | 17,849 |
Issue of ordinary shares | 58 | 39,028 | 1,322 | - | - | 40,408 | - | 40,408 |
Equity settled share based payments charge | - | - | - | 210 | - | 210 | - | 210 |
Dividends | - | - | - | (5,933) | - | (5,933) | - | (5,933) |
Transactions with owners recorded directly in equity | 58 | 39,028 | 1,322 | (5,723) | - | 34,685 | - | 34,685 |
At 30 September 2017 | 379 | 120,778 | (4,750) | 78,771 | 9,023 | 204,201 | - | 204,201 |
At 1 October 2017 | 379 | 120,778 | (4,750) | 78,771 | 9,023 | 204,201 | - | 204,201 |
Profit for the year | - | - | - | 10,648 | - | 10,648 | - | 10,648 |
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 |
Unaudited Consolidated Statement of Cash Flow
for the year ended 30 September 2018
Note | 2018 | 2017 | |
£000 | £000 | ||
Cash flows from operating activities | |||
Profit before tax | 15,370 | 16,779 | |
Adjustments for: | |||
Financial expenses | 4,816 | 5,888 | |
Onerous lease provision charge | - | 287 | |
Depreciation | 5,906 | 5,525 | |
Amortisation | 7,428 | 7,190 | |
Charitable foundation donation | 380 | - | |
Share-based payments charge | 197 | 210 | |
Acquisition transaction cost | 4,062 | 806 | |
Costs arising from placement of shares | - | 348 | |
Integration and restructuring costs | 2,863 | 2,852 | |
Release of deferred consideration | (1,095) | - | |
Termination of onerous contracts | 378 | - | |
Impairment of goodwill | 2,000 | - | |
Adjustments relating to prior acquisitions | 1,557 | - | |
Operating cash flows before movement in working capital Increase in Inventory | 43,862 (63) | 39,885 (20) | |
Increase in trade and other receivables | (8,228) | (2,641) | |
Increase/ (decrease) in trade and other payables | 3,498 | (4,519) | |
Operating cash flows before adjustment items | 39,069 | 32,705 | |
Integration and restructuring costs | (3,652) | (4,006) | |
Payment of Charitable donations | (380) | (287) | |
Cash inflows from operating activities | 35,037 | 28,412 | |
Tax paid | (4,135) | (6,295) | |
Net cash from operating activities | 30,902 | 22,117 | |
Cash flows from investing activities | |||
Proceeds from sale of property, plant and equipment | 1,200 | 200 | |
Payments for business combinations | (72) | (16,586) | |
Acquisition of property, plant and equipment | (14,519) | (15,888) | |
Acquisition of software | (2,537) | (3,867) | |
Payment of acquisition costs | (839) | (1,419) | |
Net cash used in investing activities | |||
Unaudited Consolidated Statement of Cash Flow (continued) for the year ended 30 September 2018 Cash flows from financing activities | |||
Note | 2018 | 2017 | |
£000 | £000 | ||
Proceeds from the issue of share capital | 42 | 37,829 | |
Interest paid | (4,650) | (4,955) | |
Cash outflow arising from derivative financial instruments | (649) | (776) | |
Bank Loans drawdown | 11,035 | 30,911 | |
Loan arrangement fees | (1,436) | - | |
Repayment of borrowings | (5,775) | (37,400) | |
Payment of finance lease liabilities | (2,189) | (2,139) | |
Dividends paid | (7,494) | (5,933) | |
Net cash arising (used in)/ from financing activities | (11,116) | 17,537 | |
Net increase in cash and cash equivalents | 3,019 | 2,094 | |
Cash and cash equivalents at 1 October | 6,402 | 4,308 | |
Cash and cash equivalents at 30 September | 9,421 | 6,402 | |
Notes to the Financial Statements
1 Background and basis of preparation
CareTech Holdings PLC (the 'Company') is a companyregistered and domiciled in Englandand Wales. The consolidated financial statements of the Company for the year ended 30 September 2018 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 September2018 or 30 September 2017. The results for the year ended 30September 2018are unaudited. The statutory accounts for the year ended 30 September 2018 will 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 should a significant adjusting event occur before the approval of the Annual Report.
The statutory accounts for the year ended 30 September 2017 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditors 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 2018 was approved by the Board for release on 6 December 2018.
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 underlying EBITDA as reviewed at monthly Executive Committee and Performance meetings as the key measure of the segments' results as it reflects the segments' underlying trading performance for the period under evaluation. Underlying EBITDA is a consistent measure within the Group.
Inter-segment revenue between the operating segments is not material.
Our two key segments are Adult Services (Adult) and Children Services (Children). Adult Services comprises the Adult Learning Disabilities (ALD) and Specialist Services(SS) divisions and the Children Services comprises Young People Residential Services (YPR), Foster Care (FC) and Learning Services (Learning).
There has been no aggregation of the operating segments in arriving at these reportable segments.
The segment results for the year ended 30 September 2018, for the year ended 30 September 2017 and the reconciliation of the segment measures to the respective statutory items included in the consolidated financial information are as follows:
Year ended 30 September 2018 | ||||||||||||
Continuing Operations | ALD | SS | Adult | YPR | FC | Learning | Children | Total | ||||
Client Capacity | 1,754 | 214 | 1,968 | 353 | 301 | 0 | 654 | 2,622 | ||||
Revenue (£'000) | 100,965 | 15,316 | 116,281 | 58,707 | 8,246 | 2,455 | 69,408 | 185,689 | ||||
Underlying EBITDA | 26,995 | 4,442 | 31,437 | 17,024 | 1,898 | 448 | 19,370 | 50,807 | ||||
before allocated cost (£'000) | ||||||||||||
Year ended 30 September 2017 | ||||||||||||
Continuing Operations | ALD | SS | Adult | YPR | FC | Learning | Children | Total | ||||
Client Capacity | 1,735 | 214 | 1,949 | 284 | 301 | - | 585 | 2,534 | ||||
Revenue £'000) | 87,752 | 15,486 | 103,238 | 43,798 | 8,626 | 10,356 | 62,780 | 166,018 | ||||
Underlying EBITDA | ||||||||||||
before allocated cost (£'000) | 26,331 | 3,862 | 30,193 | 13,205 | 1,870 | 960 | 16,035 | 46,228 | ||||
Reconciliation of EBITDA to profit after tax: | 2018 | 2017 | ||||||||||
£000 | £000 | |||||||||||
Underlying EBITDA before unallocated costs | 50,807 | 46,228 | ||||||||||
Unallocated costs | (6,945) | (6,343) | ||||||||||
Underlying EBITDA | 43,862 | 39,885 | ||||||||||
Depreciation | (5,906) | (5,525) | ||||||||||
Amortisation | (7,428) | (7,190) | ||||||||||
Share based payments charge | (197) | (210) | ||||||||||
Non-underlying items | (10,145) | (4,293) | ||||||||||
Operating profit | 20,186 | 22,667 | ||||||||||
Financial expenses | (4,816) | (5,888) | ||||||||||
Profit before tax | 15,370 | 16,779 | ||||||||||
Taxation | (4,126) | 1,070 | ||||||||||
Non-controlling interest | (596) | - | ||||||||||
Profit after tax | 10,648 | 17,849 | ||||||||||
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 is not a measure used by the CODM to assess performance and to make resource allocation decisions.
3 Non-underlying items
Non-underlying items are those items of financial performance that, in the opinion of the Directors, should be disclosed separately in order to improve a reader's understanding of the underlying trading performance achieved by the Group as these are one off significant costs which are not part of the ordinary course of the business. Non-underlying items comprise the following:
2018 | 2017 | ||||||||
Note | £000 | £000 | |||||||
Integration and restructuring costs | (i) | 2,863 | 2,852 | ||||||
Termination of onerous leases | (ii) | 377 | 287 | ||||||
Share placement | - | 348 | |||||||
Charitable donations | 380 | - | |||||||
EBITDA adjustments | 3,620 | 3,487 | |||||||
Amortisation | 7,428 | 7,190 | |||||||
Acquisition expenses | 4,062 | 806 | |||||||
Impairment of goodwill | 2,000 | - | |||||||
Adjustment to deferred consideration | (1,095) | - | |||||||
Adjustment relating to prior acquisitions | 1,558 | - | |||||||
2,463 | - | ||||||||
Included in Administrative expenses | 17,573 | 11,483 | |||||||
Financial expenses | |||||||||
Fair value movements relating to derivative financial instruments | (iii) | (787) | (1,107) | ||||||
Other financing cost relating to ground rent | - | 1,173 | |||||||
Charges relating to derivative financial instruments IAS 17 lease imputed interest | 513 223 | 829 223 | |||||||
Included in financial expenses | (51) | 1,118 | |||||||
Tax on non-underlying items | |||||||||
Current | (1,004) | (1,138) | |||||||
Deferred tax | (iv) | (621) | (2,676) | ||||||
Included in taxation | (1,625) | (3,814) | |||||||
Total non-underlying items | 15,897 | 8,787 | |||||||
(i) The Group incurred a number of exceptional costs relating to the integration of recent acquisitions and the reorganisation of the internal operating and management structure and redundancy costs totalling £2,863,000 (2017: £2,852,000). Included in the cash flow statement are acquisition expenses of £4,062,000(2017: £806,000) and integration and reorganisation costs of £2,863,000 (2017: £2,852,000), which were paid in the year. In 2018 the Selborne Care Limited Acquired Intangibles were independently valued and are currently being verified by the Group's Auditors. A bargain purchase of credit will only be recognised when the verification is complete, and will, if material, be booked in the audited 2018 statutory accounts in due course.
(ii) 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 £377,000 (2017: £287,000) being the present value of any onerous element of the remaining lease life.
(iii) Non-underlying items relating to 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 settlement, and accrual thereof.
(iv) Deferred tax arises in respect of the following:
2018 | 2017 | |
£000 | £000 | |
Derivative financial instruments | (134) | (188) |
Full provision for deferred tax under IAS 12 | 846 | (981) |
Intangible assets | (124) | 730 |
Roll over relief | 14 | |
Prior year adjustment | 39 | 3,101 |
Other adjustments | (6) | - |
621 | 2,676 | |
4 Taxation
(a) Recognised in the consolidation statements of comprehensive income
2018 | 2017 | |
£000 | £000 | |
Current tax expense | ||
Current year | (4,622) | (4,809) |
Current tax on non-underlying items | 1,004 | 1,138 |
Corporation tax overprovided in previous periods | (359) | (80) |
Total current tax | (3,977) | (3,751) |
Deferred tax expense | ||
Current year | (873) | 825 |
Adjustment in respect to prior year | 103 | 1,320 |
Deferred tax on non-underlying items | 621 | 2,676 |
Total deferred tax | (149) | 4,821 |
Total tax in the consolidated statement of comprehensive income | (4,126) | 1,070 |
(b) Reconciliation of effective tax rate
2018 | 2017 | |
£000 | £000 | |
Profit before tax for the year | 15,370 | 16,779 |
Tax using the UK corporation tax rate of 19.0% (2017: 19.5%) | 2,920 | 3,272 |
Non-deductible expenses including impairment charge | 1,059 | 636 |
Other tax adjustments | 27 | (613) |
Corporation and deferred tax overprovided in previous periods | 120 | (4,365) |
Total tax in the consolidated statement of comprehensive income | 4,126 | (1,070) |
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.
5Earnings per share
2018 | 2017 | |
£000 | £000 | |
Profit attributable to ordinary shareholders | 10,648 | 17,849 |
Weighted number of shares in issue for basic earnings per share | 75,690,422 | 70,037,602 |
Effects of share options in issue | 25,235 | 24,389 |
Weighted number of shares for diluted earnings per share | 75,715,657 | 70,061,991 |
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 | 14.07p | 25.48p |
Diluted | 14.06p | 25.48p |
6 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.
2018 | 2017 | |
£000 | £000 | |
Profit attributable to ordinary shareholders | 10,648 | 17,849 |
Non-underlying items | 15,897 | 8,787 |
Underlying profit attributable to ordinary shareholders | 26,545 | 26,636 |
Underlying earnings per share (pence per share) | ||
Basic | 35.07p | 38.03p |
Diluted | 35.06p | 38.02p |
7 Dividends
The aggregate amount of dividends comprises:
2018 | 2017 | |
£000 | £000 | |
Interim dividend paid in respect of prior year but not recognised as liabilities in that year (3.30p per share (2017: 3.00p per share)) | 2,498 | 1,923 |
Final dividend paid in respect of the prior year (6.60p per share (2017: 6.25p per share)) | 4,996 | 4,010 |
Aggregate amount of dividends paid in the financial year (9.90p per share (2017: 9.25p per share)) | 7,494 | 5,933 |
The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 11.00p per share, £8,166,018 (2017: 9.90p per share, £7,493,075).
8Business Combinations
(a)Acquisitions 2018
The Group acquired one company during the year and the details of this transaction are as follows:-
On 6 July 2018, the Group acquired 60% of the share capital of Purple Zest Limited for a total consideration of £0.1m with nogoodwill recognised.
The investment in Purple Zest Limited reflects CareTech's commitment to support a deeper understanding of disability issues and will build on Purple Conversation's innovative approach to supporting disabled people to attain employment and to support businesses, of all sizes and across all sectors, to have greater awareness and understanding of disability and to increase the number of disabled people employed.
The business has generated revenues of £0.3m and EBITDA of £nil in the year from acquisition to 30 September 2018.
The Group incurred legal and professional costs of £48k in relation to this acquisition, which were recognised in administration expenses.
(b) Post Balance Sheet Events
Subsequent to the year end the Group acquired Cambian Group plc and the details of this transaction are:
On 19 October 2018, the Group acquired 100% of the share capital of Cambian Group plc for a total consideration of £366m.
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 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.
A full announcement and prospectus was issued on 19 September 2018.
Given the proximity of the announcement to the completion date of the transaction and as previously announced the requirement of merger clearance from Competition and Market Authority under Enterprise Act 2002, it is not possible to give preliminary acquisition table at this time.
The Group incurred legal and professional costs of £3.5m in relation to this acquisition in the year which were recognised in administration expenses.
As a result of this acquisition the Group entered into new bank facilities:-
On 19 October 2018, the Group had entered into new Banking facilities with Lloyds Bank plc and National Westminster Bank plc for committed financing by way of term loans of between 3.5 to 5 years for up to £322m and a short term bridge loan of approx. £80m. The short term bridge loan was repaid in November 2018 following completion using principally Cambian's significant cash position.
In addition to the Term Loans and Bridge Loan, a £25m revolving credit facility is available to provide working capital for the Enlarged Group and an uncommitted accordion facility of up to £30m for general Corporate and Working Capital purposes (including acquisitions).
9 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.
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CareTech Holdings plc published this content on 06 December 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 06 December 2018 07:16:09 UTC
