CTH.L Regulatory News (CTH)

For immediate release 14 June 2018

CareTech Holdings PLC

("CareTech" or the "Company")

Interim Results for the six months ended 31 March 2018

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care services in the UK, is pleased to announce its interim results for the six months ended 31 March 2018.

Financial Highlights

· Revenue increased by 11.2% to £87.6m (H12017:£78.8m)

· Underlying EBITDA(i) increased by 6.6% to £19.5m (H12017: £18.3m)

· Underlying profit before tax(ii) increased by 5.3% to £13.8m (H12017: £13.1m)

· Underlying diluted earnings per share(ii) reduced by 9.2% to 14.86p (H12017: 16.37p)

· Strong operating cash inflow before non-underlying items of £19.1m (H12017: £15.8m) with net debt of £147.0m at 31 March 2018 (31 March 2017: £122.5m) (iii)

· Interim dividend increased by 6.1% to 3.50p (H12017: 3.30p) per share

· Net assets have grown by 6.7% to £208.3m (H12017: £195.2m)

· Cash inflows from operating activities were £15.8m (H12017: £11.5m)

Strategic Highlights

· CQC and Ofsted ratings for the Group companies have improved and remain ahead of sector averages

· Strong organic growth initiatives continue

· Strengthened management team able to scale the business further

· Successful ongoing integration of recent acquisitions

· CareTech Foundation first partnerships with Barnados, British Asian Trust and Skills for Care launched

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

"This has been an impressive performance for the first half of 2018 which delivered year on year growth in revenue, underlying EBITDA and profit before tax.

"The Group has a number of consolidation opportunities under consideration. In addition, it has a strong pipeline of organic additional beds in reconfigured services and in new services. This will lead to a growth in capacity and revenues which will generate additional EBITDA and cash so the Group can achieve its target of double digit growth in underlying diluted earnings per share in the medium term.

"The 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 CareTech's continuing growth.

"I am pleased that the CareTech Charitable Foundation has had a successful first year. There has also been good progress on both International and Digital projects during the half year."

(i) Underlying EBITDA is operating profit stated 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) Net debt is defined by the Group's banking facilities and comprises Cash and cash equivalents net of loans and borrowings.

(iv) EBITDA is operating profit stated before depreciation, share-based payments charge and amortisation of intangible assets.

For further information, please contact:

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 292 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.

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 215 properties.

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

Chairman's Statement

The solid platform has continued to deliver strong organic growth and is poised for further acquisitions

I am pleased to report another solid performance in the six months ended 31 March 2018. CareTech has delivered an impressive performance increasing revenue, underlying EBITDA, and underlying profit before tax compared with the comparable period in 2017. This further demonstrates the benefits of the Board's strategy over recent years where it has actively sought to:

· Create complementary care pathways focused on outcomes for service users

· Reconfigure the existing property portfolio to meet market demand

· Invest in people and IT systems processes and controls

· Develop a senior leadership team able to significantly scale the business

· Strengthen the balance sheet through a combination of share placement and improved banking facilities

· Accelerate organic growth and bolt-on acquisitions

The growth going forward is underpinned by the strong foundation that we have built over the past few years and the Group continues to develop and grow its five operating divisions, which come under the two outcome-based sectors of Adult Services and Young People Services. We continue to extend both our geographic coverage and our outcome based care pathway range of services organically and through the purchase and sale of properties to meet the needs of our marketplace, specifically the requirement for greater acuity service provision. This ensures that CareTech is in a very strong position to address the demands of our evolving marketplace and the Board remains confident of the Group's performance for the remainder of the year.

Following the share placement in 2017 and improved banking facilities plus further strengthening of the management team, the Group is ideally placed to make further bolt-on acquisitions to our existing care pathways in a market that remains very fragmented and to give greater geographical spread. We are also currently making good progress on a number of organic projects adding beds in reconfigured services and in new services where we have acquired properties in the North West, West of England and Scotland.

Our current initiatives and acquisition strategy give the Group the ability to achieve double digit growth in underlying diluted earnings per share over the medium term.

This performance has been underpinned by the strategic initiatives undertaken over recent years which have delivered a stronger performance compared with the same period last year on all of the key financial metrics.

CareTech's care pathways continue to be a key foundation to delivering positive outcomes for our service users. By helping our service users to live more independently, we are working in partnership with local authorities by providing them with greater value for money.

Results

Group revenue in the half year has grown by 11.2% to £87.6m (H12017: £78.8m) and has delivered an underlying EBITDA (i) of £19.5m (H12017: £18.3m), representing growth of 6.6%. Group Revenue and EBITDA excluding learning services would have grown on a like for like basis by 9.8% and 7.5% respectively stripping out the effect of the 2017 acquisition; this constitutes an investment for the future and allows the Group to meet Commissioner demands whilst expanding our care pathways and geography.

The underlying EBITDA(i) margin was 22.3% (H12017: 23.2%) having made further investment in the management team. The revenue in Adult Learning Disabilities has grown by 23.5% and EBITDA by 12.9% year on year reflecting the change of mix in margins for some of the acquired businesses. Young Person's residential has seen growth in revenue of 21.3% and a lower EBITDA of 11.4% due to the opening of new services. This will improve as the services gradually fill to maturity. Underlying margins continue to improve through reconfigurations, operational efficiencies and as new projects mature.

Underlying profit before tax(ii) increased by 5.3% to £13.8m (H12017: £13.1m) and underlying diluted earnings per share(ii) was 14.86p (2017: 16.37p) This reduction of 9.2% is due to the growth in underlying earnings arising from the improved EBITDA and lower financial expenses partially offset by an increase in the number of shares issued in March 2017 as a result of the placing. This full benefit of the utilisation of the share placement monies has not yet been reflected in earnings.

During this period, we also maintained our strategic focus towards taking the Group's operational platform forward to the next stage of development in what is a growing market. As a consequence, we have further invested in our property estate, our systems and operating structure in order to provide the appropriate quality and resource to drive medium term growth organically, investing £8.4m in the period (H12017: £9.2m). Additionally, following our analysis in the past two years of demand trends, new services and new properties are being developed including further children's services in Scotland, and further homes in North West and West of England. Beacon Reach has grown from opening in August 2017 to have 18 young people at the half year end and has continued to fill so far in the second half. Homes are being reconfigured to meet new demand and service requirements of Care Commissioners in the West Midlands and North West England and these are planned to be completed in the coming months.

Care Commissioners continue to demand flexible high-quality care solutions and favour operators able to deliver across the care pathway. Pleasingly, some of the 2017 reconfigured services that have opened are already experiencing strong levels of demand from local authorities for referrals, validating our strategy of reconfiguration focusing upon greater acuity service provision.

Investment has been made in new properties purchased, to open later in the year as residential services when refurbished, and there has been further investment in IT systems.

A key feature of this business is its strong cash generation. Operating cash inflow before non-underlying items of £19.1m represents a 98% cash conversion of underlying EBITDA(i), which demonstrates the continued strong quality of our earnings. As a result of this and the focus on organic growth as well as the share placement monies, net debt as defined by the Group's bank facilities was £147.0m at 31 March 2018. This was £0.1m lower than the year end position at 30 September 2017 of £147.1m due to share placement monies net.

Net assets have increased by £4.1m in the half year to 31 March 2018 and compared to March 2017 this is an increase of 6.7%.

In the trading update issued on 10 May 2018, CareTech announced that, annual fee rate negotiations with local authorities remain at an early stage and this year are against the backdrop of an increase in the Living Wage to £7.83per hour from 1 April 2018 and the change to the Company's sleep in rates from 1 July 2017. The Board anticipates that a more positive outcome will be achieved than in recent years and that the costs incurred will be covered by fee increases.

The Group has commenced discussions with its Bankers on a new facility as the current facility ends in January 2019.

Dividend

Our 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 3.50p (H12017: 3.30p) per share, to be paid on 23 November 2018 to shareholders on the Register of Members on 25 October 2018 with an associated record date of 26 October 2018. The full year dividend will be reviewed at the year end.

Service user capacity and occupancy

During the half year there was a total net increase of 38 residential and fostering places. There were 15 additional beds in reconfigured services and in new services there were 10 new beds in Adults and 41 new beds in Children's. The new and reconfigured services generate a higher contribution than the beds pre-configuration and are part of an ongoing strategy to enhance margins. There were 28 beds withdrawn for reconfiguration in the half year. There was no change of capacity in fostering. The Group's net capacity at the half year was 2,572 places (2,534 places as at 30 September 2017).

Compared with 30 September 2017, occupancy levels in the mature estate are unchanged at 93% and the blended occupancy is also unchanged at approximately 86%.

Acquisitions and Share Placement

On 23 March 2017, CareTech announced a placing which raised £37.4m for the Company. A number of organic growth projects and potential bolt-on acquisitions had been identified and the intention was that the placing proceeds would be deployed within approximately twelve months.

The Group acquired Selborne Care Limited in June 2017 for a consideration of £16.6m in cash. In the 12 months to 31 March 2018 the Group spent £19.5m on capital expenditure.

We continue to make good progress with a number of further opportunities. We undertake a thorough review process of new potential targets with a small senior team involved and have a strong pre- and post-implementation focus. The success of recent acquisitions and their transition to our core business is the template for future projects.

Operating review

The Group now continues to realise the benefit of organisational improvements that were put in place over the past few years. In the half year, we have continued to strengthen the management structure and improve the efficiency of our processes following further investment in new systems which will continue through the second half of the year. Our recent appointments have put us in a strong position to benefit from a number of commissioning opportunities by working in partnership with the NHS and Local Authorities especially in light of Joint Commissioning currently being developed.

The Time and Attendance system had been implemented across residential services before the half year provides margin improvements at homes level and it further progresses our back office centralisation which continues in the second half year with further new IT developments.

A summary outline of each of our divisions and sectors are as follows:

For the time being we continue to report the five operating divisions with their individual statistics and we report Adult Services which is the total of Adult Learning Disabilities and Specialist Services, and Children Services which is the total of Young People Residential, Fostering and Learning Services.

Adult Services

The Adult Services capacity is 1,946 with revenue growing by 19.3% to £57.3m (H12017: £48.0m) and EBITDA by 10.9% to £15.2m.

Adult Learning Disabilities - with a client capacity at 31 March 2018 of 1,732 places and first half revenue of £49.8m, this division represents 57% of the Group's activities. Year on year Revenue has increased by 23.5% and EBITDA has increased by 12.9%. The margin rate has reduced year on year due to the service mix of Selborne Care. We continue to offer a flexible, person-centred approach with support being offered on an individual planned basis. Demand remains high for the support of people with learning disabilities and we recognise an increasing complexity of need for referrals to our specialist services. We have identified a small number of additional learning disability residential services to reconfigure into services that provide a greater level of acuity and these are being developed with further services opening in Supported Living in the North West and South East. The focus on quality continues with the Care Quality Commission new ratings for the Group's services being rated better than the national averages.

Specialist Services - our care pathway for specialist services includes a small community based "open" hospital, residential care homes, independent supported living and community outreach. We also include all adult specialised services in this portfolio including Oakleaf with its care and rehabilitation of men with acquired brain injury. At 31 March 2018 the division had a capacity of 214 places and generated revenue of £7.5m in the first half of our financial year. A Managing Director has been appointed to the specialist services division and there is significant capital investment being made in these services.

Young People Services

The Young People Services (excluding learning services) capacity is 626 with revenues for the division rising by 16.8% to £29.3m (H12017: £25.1m) and EBITDA by 8.3% to £7.9m (H12017: £7.3m). The underlying focus of providing a complete care pathway for Young People is now coming through with much more strength and the sector also reflects the growth offset by a reduction in Learning Services. ROC and Spark of Genius opened new services in the half year.

Young People Residential Services - provides care, support and education to young people with complex behavioural problems, physical impairments, learning disabilities and emotional behavioural disorders ('EBD'). Due to new services opening capacity has risen by 25.5% to 325. This division generated revenue of £25.2m which is an increase of 21.3% and EBITDA has increased by 11.4% to £7.0m. The growth in EBITDA is behind the growth in revenue due to the costs of staffing new services whilst capacity at 31 March 2018 was 325 places. We operate services that cater for local needs but also manage certain highly specialised services that have a national catchment. Since 2012 the Group gained a foothold in Scotland and this was further extended through the acquisition of Spark of Genius and with the opening of additional services in Fife and Paisley. The division focuses increasingly on those children with the most complex needs and those who require our sophisticated clinical input.

Foster Care - with a capacity of 301 children we have established ourselves as one of the largest independent fostering agencies in England and Wales. The division had turnover of £4.1m in the six months to 31 March 2018 (H12017:£4.3m). We have observed 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 with a greater range of well supported foster carers.

Learning Services - Revenue to 31 March 2018 was £1.0m in the first half of the financial year and includes Dawn Hodge Associates (DHA) which has just had an Ofsted outcome of "outstanding" as an independent learning provider. Learning Services have been affected by the changes to the apprenticeship Levy which have reduced revenues in sector. The focus remains on staff recruitment for the CareTech group and through apprenticeships their retention, with Dawn Hodge focussing on local employers.

The Aspire Apprenticeship programme is one of a number of initiatives being taken on staff development and retention. There is also good progress on Pre-Employment Training Courses for Young People which are being introduced into some of our Young People Residential Services.

As an employer, CareTech is a registered apprenticeship training provider in its own right and the Board is convinced of the benefits that our apprenticeship programme has had for both our own staff and for the users of our services. 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 training and retaining its workforce. The Group is also fully committed to Disability Confident and is in the process of completing the employer scheme accreditation.

Strategy

The specialist social care market continues to benefit from strong demographic trends and higher acuity levels across the UK. Local Authorities are faced with increasing demands and financial pressures that have led to a greater focus on value for money. CareTech's experience has been that service commissioners recognise that the most complex people require continuing support which focuses on outcome based care pathways.

For those able to transition we provide clear outcome based pathways from residential care, principally into various forms of supported housing or foster care for children, while residential options continue to be in demand for those with the greatest need. However, we anticipate further shifts toward more sophisticated supported living packages linked to new personalised payment methodologies.

Our diversification policy means that we are now offering the full spectrum of social care services with the exception of traditional elderly care. We believe that our strategic position is now very strong, backed by an effective organisational structure, first class quality control and developing clinical infrastructure. In the medium term we are focusing on organic growth that builds on our successful base position. However, we would consider further strategic acquisitions that meet our key criteria by offering new expertise, geographical presence or consolidation opportunities.

People

There have been no changes to the Board, the Remuneration Committee, Care Governance and Safeguarding Committee or the Audit Committee in the half year.

As a foundation for growth the Senior Executive Team at CareTech has been further strengthened in the half year and we will continue to bring senior executives into the business to help build a strong foundation from which to drive growth and quality. The Adults LD Division continues to be managed by two managing directors having been split into two regions to enable geographic focus, and the Children's Division also has a managing director. A Specialist Services managing director to manage Oakleaf and the mental health services to reflect the broadening of acuity has been appointed. The Learning Division and Compliance teams have also been strengthened.

Social Responsibility

The CareTech Charitable Foundation was created a year ago and in early 2018 launched three partnerships with matched funding relevant to the care sector. With Barnados, the partnership will lead to a digital app, British Asian Trust to improve mental health services in Pakistan and Skills for Care to improve sector staff recruitment. Jonathan Freeman has been appointed CEO of the foundation with previous experience in management as CEO of Mosaic, part of the Princes Trust.

Outlook and prospects

The 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 CareTech's continuing growth.

The strategy of taking the Group from a single division to now supporting five complementary divisions has given the Group a strong foundation with a proven track record.

In the half year there has been progress on the International projects; CareTech presented at the Arab Health Conference in Dubai in January 2018 which has led to a number of ongoing discussions. Also there has been further progress on Digital initiatives relevant to Social Care.

With a strengthened management team and having undertaken the share placement and with improved Banking facilities in place, the Group has a number of consolidation opportunities and property projects which are currently being worked on. This will lead to a growth in capacity and revenues which will generate additional EBITDA and cash to continue organic and infrastructure improvements so the Group can achieve its target of double digit growth in underlying diluted earnings per share in the medium term.

CareTech will continue to work in partnership with Local Authorities to deliver innovative services focused on delivering positive outcomes for individuals.

Farouq Sheikh

Chairman

14 June 2018

(i) Underlying EBITDA is operating profit before depreciation, share-based payments chargeand 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 Income

for the six months ended 31 March 2018

(i) Non underlying items are explained in note 3. Condensed Consolidated Statement of Changes in Equity at 31 March 2018

Condensed Consolidated Balance Sheet at 31 March 2018

Consolidated Cash Flow Statement for the six months ended 31 March 2018

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

Notes

1. Accounting policies

This interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ending 30 September 2018. 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 2017.

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.

The financial information in this interim report does not constitute statutory accounts for the six months ended 31 March 2018 and should be read in conjunction with the Group's annual financial statements for the year ended 30 September 2017. Financial information for the year ended 30 September 2017 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 2018 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 5 June 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 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.

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).

2. Segmental information continued

The segmental results for the six months ended 31 March 2018, six months ended 31 March 2017 and 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:

Reconciliation of EBITDA to profit after tax;

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 items

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

(i) In accordance with IFRS 3 (as revised) items associated with business combinations have been taken to the income statement as incurred.

(ii) The Group incurred a number of costs relating to the integration of recent acquisitions and reorganisation of the internal operating and management structure.

(iii) Non underlying items relating to derivative financial instruments include the movements during the year inthe 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.

(iv) Represents the current tax on items (ii) and (iii) above.

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

4. Financial expenses

5. Taxation

. 

6. Earnings per share

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.

The movement in Profit before tax and Earnings per share relates to non-cash revaluation movements of derivative financial instruments associated with the Group's interest rate swaps.

Directors and Advisers

Company Number Solicitors

04457287 Charles Russell Speechlys

5 Fleet Place

Registered Office London EC4M 7RD

5th Floor, Metropolitan House

3 Darkes Lane Ashurst LLP

Potters Bar Broadwalk House

Herts EN6 1AG  5 Appold Street

London EC2A 2HA

Directors

Farouq Sheikh (Executive Chairman) Bankers

Haroon Sheikh (Chief Executive Officer) The Royal Bank of Scotland PLC

Michael Hill (Group Finance Director) 280 Bishopsgate

Karl Monaghan (Non-Executive Director) London EC2M 4RB

Mike Adams (Non-Executive Director)

Jamie Cumming (Non-Executive Director) Lloyds TSB Bank PLC

Large Corporate 25 Gresham Street

Company Secretary London EC2V 7HN

Michael Hill

Alliance & Leicester PLC

Nominated Adviser and Joint Broker Santander Corporate Banking

Panmure Gordon (UK) Limited 2 Triton Square

One New Change Regents Place

London EC4M 9AF London NW1 3AN

Joint Brokers AIB Group (UK) PLC

WH Ireland Corporate Banking

24 Martin Lane 9/10 Angle Court

London EC4R 0DR London EC2R 7AB

Auditor Registrars

Grant Thornton UK LLP Link Asset Services

Victoria House Northern House

4th Floor Woodsome Park

199 Avebury Boulevard Fenay Bridge

Milton Keynes Huddersfield

MK9 1AU West Yorkshire HD8 0GA