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HALF YEAR REPORT 2019

Extraordinary days every day

Our clients, John and Ann Marie Mellings, met 10 years ago and romance blossomed at Cranleigh Court in Wigan.

They married in June 2018 and this is a picture of the happy couple.

1 Highlights2 Chairman’s Statement10 Condensed Consolidated Statement

of Comprehensive Income11 Condensed Consolidated Statement

of Changes in Equity12 Condensed Consolidated

Balance Sheet 13 Consolidated Cash Flow Statement 15 Notes24 Directors and Advisers

Contents

Financial highlights

H1 2019 H1 2018 Change

Group revenue £192.5m £87.6m 120%

CareTech like-for-like revenue £98.2m £87.6m 12%

Underlying EBITDA(i) £33.3m £19.5m 71%

CareTech like-for-like EBITDA £20.2m £19.5m 4%

Underlying profit before tax(ii) £20.7m £13.8m 50%

Underlying basic earnings per share(ii) 15.82p 14.86p 7%

Statutory profit before tax £6.9m £8.5m (19)%

Statutory earnings per share 5.77p 8.62p (33)%

Operating cashflow before non underlying items £28.2m £19.1m 48%

Net debt(iii) £293.0m £147.0m 99%

Net assets £328.4m £208.3m 58%

Interim dividend 3.75p 3.50p 7%

Strategic 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 and synergies on track to be delivered to plan – Cambian EBITDA margin considerably improved over last published results – Independent property portfolio valuation of the Enlarged Group of £774m at the date

of acquisition – 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

(i) Underlying EBITDA is operating profit stated before depreciation, share based payments charge and non underlying items (which are explained in note 3).

(ii) Underlying profit before tax and underlying basic earnings per share are stated before non underlying items (explained in note 3).

(iii) Net debt comprises Cash and cash equivalents net of bank loans and borrowings and finance leases.

CareTech Holdings PLC – Half Year Report 2019 1

Highlights

2 CareTech Holdings PLC – Half Year Report 2019

Chairman’s Statement

I am delighted to be reporting our first financial results following the acquisition of Cambian in October 2018. The Group’s performance reflects the scale of the acquisition and delivers a substantial increase in revenue and EBITDA compared with the same period last year.

I am pleased to report that the Group’s trading performance in the year to date is in line with market expectations and we have delivered on all of our key work streams, 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 half 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 at least £3m of cost savings, in the first full year since acquisition, are on track to being delivered.

Farouq Sheikh Executive Chairman

This year we have reached the special milestone of our 25th anniversary.

Farouq Sheikh Executive Chairman

of 6 places for CareTech. The integration of the Cambian business is now well underway and synergies identified as planned.

The Group’s innovative Care Pathways, which now include those specialist children’s education and therapeutic foster care services delivered by Cambian, delivers positive outcomes for individuals in the Group’s care, which together with the cash flows available, put the Group in a strong position to continue growing market share.

The financial results for this period show significant increases in Revenue and EBITDA reflecting the Cambian acquisition. 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: Adult Services, Children’s Services and Foster Care.

Like for like, CareTech’s underlying performance reflects the strategic initiatives undertaken over recent years and has delivered a stronger performance compared with the same period last year. Furthermore, Cambian’s results deliver increased Revenue, underlying EBITDA and EBITDA margins when compared to the same period last year.

Cambian share CareTech’s commitment to delivering the highest standards of care and the strategy of working with care commissioners to deliver innovative services. Together, the enlarged Group benefits from favourable demographics underpinned by the growth in outsourcing to the private sector and from the increasingly stringent regulatory environment, which is driving consolidation in a fragmented market.

Looking forward, the Group will continue with the integration plan and delivering the synergies as set out at the time of acquisition. Continued growth is underpinned by the strong foundation built over the past few years and the Group continues to develop and grow all the three operating divisions with particular focus on higher acuity service provision. The Group will continue to extend both the geographic

CareTech has grown into a leading national provider of social care and education services to some of the most vulnerable people in our society. These results build on the foundations we have laid out over the last 25 years and we look forward to the future with confidence.

A transformational six monthsThe six month period to 31 March 2019 has been transformational for CareTech following the acquisition of Cambian in October 2018. In the year that 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. The acquisition of Cambian was immediately followed by the CMA placing a hold separate embargo over the combined business for which the Group received unconditional clearance in mid-February 2019. As part of the acquisition, the Group renewed its banking facilities until 2022 and 2023 and in January completed a ground rent transaction raising £31m net proceeds. CareTech’s organic developments have continued with the addition of 39 new beds in the half year whilst reconfigurations and supported living contracts coming to an end have resulted in a net increase


last year. The split of Revenue is £98.3m for CareTech and £94.2m for Cambian. Like-for-like CareTech’s Revenue in the period increased by 12.2% from £87.6m

Group underlying EBITDA(i) of £33.3m (2018: £19.5m), represents growth of 70.8% when compared with the same period last year. The split of EBITDA is £20.2m for CareTech and £13.1m for Cambian.

The underlying EBITDA(i) margin was 17.3% (2018: 22.3%). This reflects the acquisition of Cambian whose margins are historically lower than the CareTech EBITDA margins. Like-for-like, CareTech EBITDA grew by 4% to £20.2m with overall EBITDA margins at 20.6% (H1 2018: 22.3%) the change reflecting the mix of the business and the timing of a number of reconfigurations in the first half of the year.

Cambian’s EBITDA margin, before synergies, was 13.2% which reflects a considerable increase on the 10.9% margin for the same period in 2018.

Underlying profit before tax(ii) increased by 50% to £20.7m (2018: £13.8m) and underlying basic earnings per share(ii) was 15.82p (2018: 14.86p), representing an improved return to shareholders following the Cambian acquisition.

During this period, the Group also maintained focus on taking the operational platform forward to the next stage of development in what is a growing and changing market. The Group has invested £14.2m in the period (2018: £5.5m) in the property estate in order to provide the appropriate quality and resource to drive medium term organic growth. Property Estate expenditure includes a specialist children’s residential service in Herefordshire, a service in Lancashire and the refurbishment of a mental health hospital in Hampshire. Also included in this capital investment is £6.0m paid by Cambian to acquire freehold properties for previously leasehold operations that were either committed to prior to the acquisition of Cambian or were required to be able to continue to trade from these locations and created no new capacity in the period.

Care Commissioners continue to demand flexible high-quality care solutions and favour

coverage and the range of outcome based Care Pathway services organically and through bolt-on acquisitions and the purchase of properties to meet the needs of the marketplace, specifically the requirement for greater acuity service provision.

This ensures that CareTech is in a very strong position to address the demands of the evolving marketplace and the Board remains confident of the Group’s performance for the remainder of the year.

Acquisition, share issue and bank facilitiesOn 19 October 2018, CareTech Holdings plc acquired the entire share capital of Cambian, a leading children’s specialist education and behavioural health service provider. Cambian’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.

The headline consideration for the acquisition was £360m (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. A bridge facility was in place to fund the acquisition and was subsequently repaid in full. A provisional acquisition table is included in note 7 to the accounts below.

New banking facilities include term loans of £322m and an undrawn revolving credit facility of £25m. In April 2019, the Group entered into a number of interest rate swaps as part of a hedging strategy.

ResultsIncluded in the Group consolidated results for the six months ended 31 March 2019 are Cambian’s Revenue, EBITDA and other income statement items together with cash flows for the period following completion on 19 October 2018.

Group Revenue in the half year has increased by 119.8% when compared with the same period


Chairman’s Statement continued

Service user capacity and occupancyCapacity as at 31 March 2019 was 5,072 places with CareTech having 2,628 places and Cambian, 2,444 places. Since September 2018, CareTech’s organic developments have continued with the addition of 39 new beds whilst reconfigurations reduced capacity by 13 beds. A further 20 supported living contracts came to an end, resulting in an net increase of 6 places for CareTech. The reconfigured beds, together with the 6 additional places and the additional capacity which came online towards the end of the 2018 financial year end underpins growth in revenues going forwards. Blended and mature occupancy of 87% and 93% compares favourably to the last trading update (30 September 2018: 86% and 93% respectively). There has been no net change in the number of places at Cambian from the date of acquisition by the Group.

Ground rent transactionIn 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 £31.0m and security of tenure with a 150-year lease term returning to CareTech a virtual freehold interest in each property. The commencing rent will be £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.

Cambian Integration and synergiesFollowing the unconditional clearance of the acquisition from the CMA in February 2019, the integration of the two business commenced. Significant headway has been made into this at the date of this report as the integration of the Senior Management team has commenced, a plan is in place around the integration of a number of the back-office support functions and an IT strategy is in place. The Board is confident that the integration of the two

operators able to deliver across the care pathway. The 2018 reconfigured services that have opened are already experiencing strong levels of demand from local authorities for referrals, validating the strategy of reconfiguration focusing upon greater acuity service provision.

A key feature of this business is its strong cash generation. For the period 1 October 2018 to 31 March 2019 Cambian has a 100% EBITDA to cash conversion(iii) and CareTech has a 97% 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 count these receipts in the conversion calculation, whilst the payrolls (which typically go out at the end of the month) are all counted in the consolidated Group cash flows. Taking this into account, the EBITDA to operating cash conversion for the consolidated Group is 85%.

Other key cash flows in this period include payment of integration costs of £2.4m, payment of acquisition costs of £13.9m, payment of the interim dividend of £2.6m and corporation tax payments of £2.8m. As a result of this, and the proceeds from the ground rent transaction, net debt was £293.0m as at 31 March 2019.

Net assets have increased by £120.2m to £328.4m as at 31 March 2019 due to the acquisition of Cambian and compared with March 2018 this is an increase of 58%.

In the trading update issued on 1 May 2019, CareTech announced that annual fee rate negotiations with local authorities have begun and the Group anticipate a favourable response when compared with previous years. The National Living Wage increased from 1 April 2019, as did increases to both employer and employee pension contributions which, in addition to having a positive impact on staff pay, the Group believes will also have a positive impact on discussions with local authorities, who recognise that front line staff are an integral part of quality care delivery. Accordingly, the Group expects fee increases to cover the additional costs resulting from increases in front line staff pay and pension contributions.


The improvement in Cambian’s EBITDA margins will be achieved through increased staff retention and improved quality ratings which lead to increased occupancy levels which in turn lead to increased EBITDA margins. The increase in the EBITDA margin in the period to 13.2% (June 2018: 10.9%) before synergies demonstrates that Cambian are on track to deliver the medium term EBITDA margin target.

Operating reviewFollowing the acquisition of Cambian, it was announced that the Group will change the reported 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) Adult Services Adults Services comprises the core CareTech Adult Learning Disabilities business (ALD) as well as the much smaller Specialist Services business (SS) and Learning Services business.

The Adult Services capacity is 1,971 with revenue growing by 6.7% to £62.1m (2018: £55.2m) and EBITDA remained at £15m, whilst EBITDA margins changed from 26% to 24%. This change reflects the change in mix of the business as the number of supported living beds grew and the timing of a number of reconfigurations which will come on stream in the second half of the year.

Across the Group the focus on quality continues with CQC quality ratings at 94% Good or Outstanding in Adult Services, which compares favourably to the national average of 82% and against our last update report.

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. CareTech’s Adult Services care pathway includes residential care homes, independent supported living, community outreach, the Northamptonshire based Oakleaf with its care and rehabilitation for acquired brain injury and a newly developed

businesses can be achieved without undue disruption to the underlying operations of each business.

From 30 June 2019, CareTech’s COO, John Ivers, who has been with the business for four years, is taking the operational lead across the Group, becoming Group COO. This will drive a cohesive approach to the adoption of a Group wide business model, which will deliver the best possible outcomes for the people in the Group’s care. We also announce that Anne Marie Carrie, Cambian Group COO, has taken the decision to retire from the Cambian Group.

It was identified in the prospectus dated 19 September 2018 that the Group expected to realise synergies of £3m of cost savings at profit before tax in the first full year following the acquisition of Cambian. This is expected to be followed by £5m in the second full year and £6m by the third full year following acquisition.

The Group reports that it is on track to deliver the first full year synergies as set out in the prospectus and has visibility on the second full year savings. Initiatives that have already been implemented include, inter alia; – The former CEO, CFO 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 already been integrated and costs saving identified;

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

– The Group have exercised a break clause on the lease of the Cambian head office in Hammersmith; and

– A number of non-staff synergy savings have been made.

In the half year, the acquisition of Cambian has given the Group a broader geographic and acuity service offering which it shall seek to capitalise on over the coming years. Whilst the Group will focus on the integration of Cambian, delivering the synergies targets and improving its margins, the Group have continued, and will continue, to review its offering and increase capacity offering new and innovative services.



EBITDA for this division was £3.7m analysed as CareTech £0.8m and Cambian £2.9m.

Like-for-like, CareTech’s revenues were maintained and EBITDA fell by £0.1m to £0.8m reflecting a small increase in the cost base. For CareTech, Foster Care was less than 5% of its overall business.

Cambian’s Foster Care business is branded “By-the-Bridge” and offers a more specialist therapeutic service. With a combined capacity of 1,167 places, the Group has established one of the largest independent fostering agencies in England and Wales. There is a significantly increased demand for foster care for children who might otherwise have entered the residential care system. Foster care represents much better value for commissioners but the complexity of children being referred will often make the matching process quite complex, favouring larger agencies like CareTech and By-the-Bridge with a greater range of well supported foster carers.

Our PeopleOn 1 May 2019, The Board announced the appointment of Professor Moira Livingston as a Non-Executive Director. Moira has many years of experience in health and social care, latterly as a senior clinical leader and manager in the NHS, and will Chair the Group’s Care Governance and Safeguarding Committee.

It was also announced that Mike Adams OBE, has become an Executive Director in order to pursue a strategic role within the Group and to push forward the Purple business model.

The Group continues to seek the appointment of an additional Non-Executive Director and a further announcement will be made in due course.

In terms of staff retention, the Group’s annualised retention rate sits at 74% (which is analysed as 77% for CareTech employees and 71% for Cambian employees) and when compared with the industry average of under 70% remains favourable.

As an employer, CareTech is a registered apprenticeship training provider in its own right and the Board is convinced of the benefits that

wing of a specialist mental health facility in Fareham.

(2) Children’s ServicesChildren’s Services comprises CareTech’s and Cambian’s children’s residential and education services.

Children’s services capacity is 1,934 split between CareTech (356 places) and Cambian (1,578 places). Revenues for the division were £110.8m analysed as Caretech £32.1m and Cambian £78.7m.

EBITDA for this division was £26.5m analysed as CareTech £8.4m and Cambian £18.1m.

Like-for-like, CareTech’s revenues increased by 27.4% and EBITDA by 20.4% reflecting the increased capacity from the cap-ex invested in the 2018 financial year. EBITDA increased from £7.0m to £8.4m whilst EBITDA margins decreased by 1% to 26%.

The Group’s Children’s Services provides care, support and education to young people with complex behavioural problems, physical impairments, learning disabilities and emotional behavioural disorders (‘EBD’). 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 geographic spread of childrens 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 89% Good or Outstanding and 77% for the Cambian services resulting in a blended 78% Good and Outstanding ratings for children’s services across the Group.

(3) Foster CareFoster Care comprises CareTech’s and Cambian’s fostering services.

Foster Care capacity is 1,167 split between CareTech (301 places) and Cambian (866 places). Revenues for the division were £19.6m analysed as Caretech £4.1m and Cambian £15.5m.


and Team SOGB excelled against the competition winning an outstanding tally of 61 Gold, 57 Silver and 46 Bronze Medals.

DividendOur policy continues to be to increase the dividend broadly in line with the movement in underlying diluted earnings per share. Given the consistent earnings growth and cash generation the Board is therefore declaring an interim dividend of 3.75p (2018: 3.50p) per share, to be paid on 21 November 2019 to shareholders on the Register of Members on 24 October 2019 with an associated record date of 25 October 2019. The full year dividend will be reviewed at the year end. The Ordinary shares of CareTech will be marked ex-dividend on 24 October 2019.

Outlook and prospectsThe continued provision of first-class social care which represents good value and is focused on successful client outcomes will remain the main market driver for the Group’s continuing growth. The Group will continue to work in partnership with Local Authorities to deliver innovative services focused on delivering positive outcomes for individuals.

With a strengthened management team, having undertaken a major acquisition and with improved Bank facilities in place together with cash from the ground rent transaction, the Group is well placed to take advantage of opportunities for further consolidation in the sector and for organic growth.

Farouq SheikhChairman20 June 2019

(i) Underlying EBITDA is operating profit before depreciation, share-based payments charge and non underlying items (explained in note 3);

(ii) Underlying profit before tax and underlying diluted earnings per share are stated before non underlying items (explained in note 3).

(iii) EBITDA to cash conversion is calculated as operating cash flows before non underlying items divided by underlying EBITDA.

the in-house apprenticeship programme has had for both staff and for service users. The apprenticeship levy is an opportunity to continue to deliver excellence in the care sector and is a tangible example of the Group’s commitment to the development of its 10,000 staff. The Group’s internal training department, through the Aspire Programme delivered over 60,000 learning interventions last year of which 26,000 were classroom based. This commitment to training and development leads to staff being trained to deliver the highest quality care for the individuals supported by the Group.

The Group has a number of SAYE schemes in place as well as share schemes for its senior executives and operational staff. Several hundred colleagues took advantage of the 2016 SAYE scheme at a share price of 194p and will see real value now that the scheme has matured.

Focus remains on attracting and retaining the best talent in the sector; the Group continuously focuses on employee engagement and will again this year look to offer the SAYE scheme to all staff as well as share options plans for Executives and management teams.

Social ResponsibilityThe CareTech Charitable Foundation was created in 2017 and in early 2018 launched three partnerships with matched funding relevant to the care sector with Barnados, British Asian Trust and Skills for Care.

CareTech is delighted to have officially supported 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



Six months ended31 March 2019

unaudited

Six months ended31 March 2018

unaudited

Year ended30 September 2018

audited

Note

Before nonunderlying

items(i)

£000

TotalUnaudited

£000


items(i)

£000

Totalunaudited

£000


items(i)

£000

Totalaudited

£000

Revenue 2 192,510 192,510 87,569 87,569 185,689 185,689

Cost of sales (131,684) (131,684) (56,906) (56,906) (120,387) (120,387)

Gross profit 60,826 60,826 30,663 30,663 65,302 65,302

Administrative expenses (33,494) (46,913) (14,387) (19,783) (27,543) (45,116)

Operating profit 27,332 13,913 16,276 10,880 37,759 20,186

EBITDA 3 33,349 33,349 19,502 19,502 43,862 43,862

Depreciation (5,957) (5,957) (3,166) (3,166) (5,906) (5,906)

Share-based payments charge (60) (60) (60) (60) (197) (197)

Non underlying items 3 – (13,419) – (5,396) – (17,573)

Operating profit 27,332 13,913 16,276 10,880 37,759 20,186

Financial expenses 4 (6,626) (7,067) (2,435) (2,420) (4,867) (4,816)

Profit before tax(ii) 20,706 6,846 13,841 8,460 32,892 15,370

Taxation 5 (3,922) (660) (2,597) (1,932) (5,751) (4,126)

Profit for the period 16,784 6,186 11,244 6,528 27,141 11,244

Non-controlling interest (108) (108) – – (596) (596)

Comprehensive income for the period attributable to equity shareholders of the parent 16,676 6,078 11,244 6,528 26,545 10,648

Earnings per Share

Basic(ii) 6 15.82p 5.77p 14.86p 8.62p 35.07p 14.07p

Diluted(ii) 6 15.73p 5.73p 14.85p 8.62p 35.06p 14.06p

(i) Underlying EBITDA is operating profit before depreciation, share-based payments charge and non underlying items (explained in note 3).

(ii) Underlying profit before tax and underlying diluted earnings per share are stated before non underlying items (explained in note 3).

Condensed Consolidated Statement of Comprehensive Incomefor the six months ended 31 March 2019


Six months ended

31 March 2019unaudited

£000

Six months ended


£000

Year ended30 September

2018audited

£000

Balance at start of period 208,233 204,201 204,201

Total comprehensive income 6,078 6,528 10,648

Transactions with owners recorded directly in equity:

Issue of ordinary shares 116,679 43 42

Equity settled share-based payments charge 60 60 197

Dividends (2,645) (2,499) (7,494)

Minority interest – – 639

Balance at end of period 328,405 208,333 208,233

Condensed Consolidated Statement of Changes in Equityat 31 March 2019


31 March 2019

unaudited£000

31 March 2018

unaudited£000

30 September 2018

audited£000

Non-current assets

Property, plant and equipment 600,526 300,410 301,109

Other intangible assets 84,147 40,299 40,128

Goodwill 79,178 43,098 43,689

763,851 383,807 384,926

Current assets

Inventories 998 835 898

Trade and other receivables 55,382 22,609 31,747

Cash and cash equivalents 26,733 10,461 9,421

83,113 33,905 42,066

Total assets 846,964 417,712 426,992

Current liabilities

Loans and borrowings 2,379 13,593 153,830

Trade and other payables 53,763 12,718 24,875

Deferred and contingent consideration payable – 1,652 966

Ground rent liabilities arising under IAS17 100 50 50

Deferred income 37,666 3,213 3,372

Corporation Tax 13,114 7,924 6,836

Derivative financial instruments – 407 152

107,022 39,557 190,081

Non-current liabilities

Loans and borrowings 317,414 143,840 2,580

Provisions 14,936 – –

Deferred and contingent consideration payable – 1,133 –

Ground rent liabilities arising under IAS17 15,057 7,268 7,244

Deferred tax liabilities 64,130 17,516 18,854

Derivative financial instruments – 65 –

411,537 169,822 28,678

Total liabilities 518,559 209,379 218,759

Net assets 328,405 208,333 208,233

Equity attributable to equity shareholders of the parent

Share capital 545 379 379

Share premium 120,820 120,821 120,820

Shares held by Employee Benefit Trust (4,750) (4,750) (4,750)

Merger reserve 125,535 9,023 9,023

Non-controlling interest 769 – 639

Retained earnings 85,486 82,860 82,122

Total equity attributable to equity shareholders of the parent 328,405 208,333 208,233

Condensed Consolidated Balance Sheetat 31 March 2019


Six months ended


£000

Six months ended


£000


2018audited

£000

Cash flows from operating activities

Profit before tax 6,846 8,460 15,370

Financial expenses 7,067 2,420 4,816

Termination of onerous contracts – 727 377

Depreciation 5,957 3,166 5,906

Amortisation of intangible assets 4,922 3,558 7,428

Charitable foundation donation 390 – 380

Share-based payments charge 60 60 197

Acquisition transaction costs 10,318 – 2,967

Integration and restructuring costs 2,354 1,111 2,863

Impairment of goodwill – – 2,000

Profit arising from ground rent transactions (4,565) – –

Adjustments relating to prior acquisitions – – 1,558

Operating cash flows before movement in working capital and non underlying items 33,349 19,502 43,862

(Increase) in Inventory (100) – (63)

(Increase)/decrease in trade and other receivables (3,226) 910 (8,228)

(Decrease)/increase in trade and other payables (1,812) (1,317) 3,875

Operating cash flows before non underlying items 28,211 19,095 39,446

Integration and restructuring costs (2,354) (1,111) (3,652)

Payment of charitable donations (390) – (380)

Payments under onerous contracts – (727) (377)

Cash inflows from operating activities 25,467 17,257 35,037

Tax paid (2,818) (1,426) (4,135)

Net cash from operating activities 22,649 15,831 30,902

Consolidated Cash Flow Statementfor the six months ended 31 March 2019


Consolidated Cash Flow Statement continuedfor the six months ended 31 March 2019

Six months ended


£000

Six months ended


£000


2018audited

£000

Cash flows from investing activities

Proceeds from sale of property, plant and equipment 31,026 – 1,201

Business combinations net of cash acquired (Note 7) (160,271) (939) (72)

Acquisition of property, plant and equipment (14,866) (5,536) (14,519)

Acquisition of software (858) (2,901) (2,538)

Payment of deferred consideration (966) – –

Payment of acquisition costs (13,902) – (839)

Net cash used in investing activities (159,837) (9,376) (16,767)

Cash flows from financing activities

Proceeds arising from the issue of share capital (net of costs) – 43 42

Interest paid (4,773) (2,397) (4,650)

Cash outflow arising from derivative financial instruments (594) (340) (649)

Bank loans drawdown 431,910 3,883 11,035

Loan arrangement fees (4,696) – (1,436)

Repayment of borrowings (263,576) – (5,775)

Payment of finance lease liabilities (1,126) (1,086) (2,189)

Dividends paid (2,645) (2,499) (7,494)

Net cash generated from financing activities 154,500 (2,396) (11,116)

Net change in cash and cash equivalents 17,312 4,059 3,019

Cash and cash equivalents at start of the period 9,421 6,402 6,402

Cash and cash equivalents at end of the period 26,733 10,461 9,421

Net debt as defined by the Group’s banking facilities comprises:

31 March 2019

unaudited£000

31 March 2018

unaudited£000

30 September 2018

audited£000

Cash and cash equivalents 26,733 10,462 9,421

Loans and borrowings (319,793) (157,433) (156,410)

Net debt at end of the period (293,060) (146,971) (146,989)


Notes

1. Accounting policiesThis interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ending 30 September 2019. These are anticipated to be in accordance with the Group’s accounting policies as set out in the latest annual financial statements for the year ended 30 September 2018 together with the adoption of IFRS 9 and IFRS 15.

All International Financial Reporting Standards (“IFRS”), International Accounting Standards (“IAS”) and interpretations currently endorsed by the International Accounting Standards Board (“IASB”) and its committees as adopted by the EU and as required to be adopted by AIM-listed companies have been applied. AIM-listed companies are not required to comply with IAS 34 ‘Interim Financial Reporting’ and accordingly the Company has taken advantage of this exemption.

In the current year, the following new and revised standards and interpretations have been adopted:

IFRS 9 Financial Instruments

IFRS 15 Revenue from Contracts with Customers

Clarifications to IFRS 15 (Apr 2016) Clarifications to IFRS 15 Revenue from Contracts with Customers

IFRIC 22 Foreign Currency Transactions and Advance Consideration

Amendments to IFRS 2 (Jun 2016) Classification and Measurement of Share-based Payment Transactions

Amendments to IFRS 4 (Sept 2016) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

Amendments to IAS 40 (Dec 2016) Transfers of Investment Property

The amendments listed above which were adopted did not affect the amounts reported in these interim financial statements.

The financial information in this interim report does not constitute statutory accounts for the six months ended 31 March 2019 and should be read in conjunction with the Group’s annual financial statements for the year ended 30 September 2018. Financial information for the year ended 30 September 2018 has been derived from the consolidated audited accounts for that period which were unqualified.

The condensed consolidated interim financial statements for the six months to 31 March 2019 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

This unaudited interim report was approved by the Board on 19 June 2019.

2. Segmental informationIFRS 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 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 turnover between the operating segments is not material.

The interim results 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 much smaller 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.

The segmental results for the six months ended 31 March 2019 (noting that the results of Cambian are for the period from 19 October 2018), six months ended 31 March 2018 and year ended 30 September 2018 and the reconciliation of the segment measures to the respective statutory items included in the consolidated financial information are as follows:

6 months to 31 March 2019

unaudited

6 months to 31 March 2018

unaudited

12 months to 30 September 2018

audited

CareTech Cambian Total CareTech Cambian Total CareTech Cambian Total

Adults

Client capacity 1,971 – 1,971 1,946 – 1,946 1,968 – 1,968

Revenue 62,123 – 62,123 58,249 – 58,249 118,736 – 118,736

EBITDA 14,971 – 14,971 15,356 – 15,356 31,885 – 31,885

Childrens

Client capacity 356 1,578 1,934 325 – 325 353 – 353

Revenue 32,100 78,704 110,804 25,196 – 25,196 58,707 – 58,707

EBITDA 8,378 18,102 26,480 6,961 – 6,961 17,024 – 17,024

Foster Care

Client capacity 301 866 1,167 301 – 301 301 – 301

Revenue 4,049 15,534 19,583 4,124 – 4,124 8,246 – 8,246

EBITDA 792 2,830 3,622 997 – 997 1,898 – 1,898

Total 2,628 2,444 5,072 2,572 – 2,572 2,622 – 2,622

Revenue 98,272 94,238 192,510 87,569 – 87,569 185,689 – 185,689

EBITDA 24,141 20,932 45,073 23,314 – 23,314 50,807 – 50,807


Notes continued

Reconciliation of EBITDA to profit after tax;

Six months ended


£000

Six months ended


£000


2018audited

£000

Underlying EBITDA before unallocated costs 45,073 23,314 50,807

Unallocated costs (11,724) (3,812) (6,945)

Underlying EBITDA 33,349 19,502 43,862

Depreciation (5,957) (3,166) (5,906)

Share-based payments charge (60) (60) (197)

Non underlying items (13,419) (5,396) (17,573)

Operating profit 13,913 10,880 20,186

Financial expenses (7,067) (2,420) (4,816)

Profit before tax 6,846 8,460 15,370

Taxation (660) (1,932) (4,126)

Non-controlling interest (108) – (596)

Profit after tax 6,078 6,528 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. Non underlying itemsNon 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:

Note

Six months ended


£000

Six months ended


£000


2018audited

£000

Acquisition expenses (i) 10,318 – 4,525

Integration and restructuring costs (ii) 2,354 1,111 2,863

Profit arising from the ground rent transaction (iii) (4,565) – –

Charitable donations (iv) 390 – 380

Termination of onerous leases – 727 377

Impairment of goodwill – – 2,000

Amortisation of intangible assets 4,922 3,558 7,428

Included in administrative expenses 13,419 5,396 17,573

Fair value movements relating to derivative financial instruments (v) (153) (468) (787)

Charges relating to derivative financial instruments (v) 86 341 513

IAS 17 lease imputed interest 112 112 223

Finance fees extinguished (vi) 396 – –

Included in financial expenses 441 (15) (51)

Tax on non underlying items

Tax effect:

Current tax (vii) 101 (349) (1,004)

Deferred tax (viii) (3,363) (316) (621)

Included in taxation (3,262) (665) (1,625)

Total non underlying items 10,598 4,716 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) The Group incurred a number of costs relating to the integration of the Cambian acquisition and reorganisation of the internal operating, finance and management structures.

(iii) Profit arises from a ground rent transaction with Alpha Real Capital LLP at a net yield of 2.85% and which raised £31.0m in cash to further support its growth strategy.

(iv) 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 Holding plc, the Foundation has an independent Board of trustees responsible for delivering its Charitable Objects. The Trustees include Haroon and Farouq Sheikh, Directors of the Group.

(v) 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.

(vi) Finance fees extinguished relate to finance fees paid on bank facilities which were replaced as part of the Cambian acquisition.

(vii) Represents the current tax on items (ii) and (iv) above.(viii) Deferred tax arises in respect of the following:


Notes continued

Six months ended


£000

Six months ended


£000

Year Ended30 September

2018audited

£000

Derivative financial instruments (note iv) (59) (80) (134)

Full provision for deferred tax under IAS 12 402 – 846

Roll over relief (776) – –

Intangible assets 1,134 – (124)

Other adjustments – 396 (6)

Prior year adjustments 2,662 – 39

Total 3,363 316 621

4. Financial expensesSix months

ended 31 March 2019

unaudited£000

Six months ended


£000


2018audited

£000

On bank loans and overdrafts 6,498 2,299 4,527

Finance charges in respect of finance leases 128 136 340

Financial expenses before non underlying items 6,626 2,435 4,867

Amounts relating to derivative financial instruments (note 3) (67) (127) (274)

IAS 17 leases imputed interest (note 3) 112 112 223

Finance fees extinguished (note 3) 396 – –

Total financial expenses 7,067 2,420 4,816


5. TaxationSix months

ended 31 March 2019

unaudited£000

Six months ended


£000


2018audited

£000

Current tax expense

Current period 3,922 2,608 4,622

Non underlying items (note 3) 101 (349) (1,004)

Corporation tax overprovided in previous periods – – 359

Total current tax 4,023 2,259 3,977

Deferred tax expense

Current period – (11) 873

Deferred tax on non underlying items (note 3) (3,363) (316) (621)

Prior year – – (103)

Total deferred tax (3,363) (327) 149

Total tax in the consolidated statement of comprehensive income 660 1,932 4,126

Effective tax rate on profit before tax (before non underlying items) 19% 19% 9%

6. Earnings per shareSix months

ended 31 March 2019

unaudited£000

Six months ended


£000


2018audited

£000

Profit attributable to ordinary shareholders 6,078 6,528 10,648

Non underlying items (note 3) 10,598 4,716 15,897

Profit attributable to ordinary shareholders before underlying items 16,676 11,244 26,545

Weighted number of shares in issue for basic earnings per share 105,415,473 75,689,416 75,690,422

Effects of share options in issue 600,608 23,467 25,235

Weighted number of shares in issue for diluted earnings per share 106,016,081 75,712,883 75,715,657


Notes continued

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 5.77p 8.62p 14.07p

Diluted 5.73p 8.62p 14.06p

Earnings per share before non underlying items (pence per share)

Basic 15.82p 14.86p 35.07p

Diluted 15.73p 14.85p 35.06p

7. Business CombinationsOn 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 provisional fair value and adjustments were £122.6m.


7. Business combinations (continued)The provisional acquisition table is as follows:-

Book values£000

Fair valueadjustments

£000Total£000

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

£000

Consideration paid was:

Cash 241,738

Settled in Shares 118,182

Total consideration 359,920

£000

Reconciliation to the cash flow statement

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 3 non underlying items.

Goodwill is attributable to the future economic benefits arising from assets which are not capable of being individually identified and separately recognised, these include value of the assembled workforce within the business acquired.


Notes continued

8. Impact of IFRS 16 – Accounting for leasesIFRS 16 “Leases” will be adopted by the Group on 1 October 2019 for the financial year ending 30 September 2020. IFRS 16 will primarily change lease accounting for lessees. Under the new standard, lease agreements will give rise to the recognition of an asset representing the right to use of the leased item and an obligation for future lease payments. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability, resulting in a higher interest expense in the earlier years of the lease term whilst the total expense recognised in the Income Statement over the life of the lease will be unaffected by the new standard.

From the work performed to date, it is anticipated that implementation of the new standard will not have an impact on overall net assets but will have an impact on the reported assets and liabilities of the Group and will have an immaterial impact on future Profit Before Tax and Earnings Per Share.

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


Company Number04457287

Registered Office5th Floor, Metropolitan House3 Darkes LanePotters BarHerts EN6 1AG

DirectorsFarouq Sheikh (Executive Chairman)Haroon Sheikh (Chief Executive Officer)Gareth Dufton (Interim Group Finance

Director)Mike Adams (Care Partnerships Director) Karl Monaghan (Non-Executive Director)Jamie Cumming (Non-Executive Director)Moira Livingston (Non-Executive Director)

Company SecretaryGareth Dufton

Nominated Adviser and Joint BrokerPanmure Gordon (UK) LimitedOne New ChangeLondon EC4M 9AF

Joint BrokersWH Ireland24 Martin LaneLondon EC4R 0DR

SolicitorsCharles Russell Speechlys5 Fleet PlaceLondon EC4M 7RD

Ashurst LLPBroadwalk House5 Appold StreetLondon EC2A 2HA

RegistrarsLink Asset ServicesNorthern HouseWoodsome ParkFenay BridgeHuddersfieldWest Yorkshire HD8 0GA

AuditorGrant Thornton UK LLPVictoria House4th Floor199 Avebury BoulevardMilton KeynesMK9 1AU


Directors and Advisers

This half year report is printed on FSC certified material. This product is biodegradable, 100% recyclable and elemental chlorine free. Vegetable-based inks were used during production. Both the paper mill and printer involved in the production support the growth of responsible forest management and are both accredited to ISO 14001 which specifies a process for continuous environmental improvement.

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CareTech Holdings PLC

Metropolitan House3 Darkes LanePotters BarHertfordshireEN6 1AG

Tel: 01707 601800Fax: 01707 655265

www.caretech-uk.com

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