Annual Financial Report

CareTech Holdings PLC

("CareTech" or "the Group")

Preliminary Results for the year ended 30 September 2020

Strong performance with financial results ahead of market expectations

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care and education services to adults and children, is pleased to announce its unaudited preliminary results for the year ended 30 September 2020.

Financial Highlights

· Revenue increase of 8.9% to £430.0m

· Underlying EBITDA(i) (pre IFRS 16) increase of 14.4% to £84.1m

· Underlying EPS (pre IFRS 16) increase of 14.4% to 43.0p

· Statutory EPS increase of 24.5% to 22.88p

· Strong operating cash conversion, accelerated reduction in net debt to £268.9m

· Cambian performing slightly ahead of targets set out at the time of acquisition

· Continuation of organic growth initiatives

· Increased final dividend of 8.75p declared and progressive dividend policy reaffirmed

Operational Highlights

· All operations have remained open in spite of the pandemic challenges

· CQC ratings of 91% and Ofsted 82% "Good" or "Outstanding" which compares favourably with the sector

· First investment made internationally - the Gulf region represents an attractive market with underserved requirements for specialist social care expertise

· Extended CareTech's Care Pathway through technology investment in Smartbox in October 2020, a market leading creator of software and hardware

· A donation of 1 million CareTech shares to the CareTech Foundation, an independent charity to support the wider social care sector

· Completed the transfer of seven services that were operated by The Huntercombe Group in November 2020, offering highly specialised facilities for the treatment of complex learning disabilities, Autism and Mental Health

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

"In these uncertain times, I am particularly pleased to report this set of results which are ahead of market expectations. This demonstrates the resilience of CareTech's established business model. Trading was particularly strong in the latter part of the year along with strong cash flow generation and continued deleveraging.

This year, we made our first acquisition internationally with the opportunity to take our expertise to the Gulf markets and support the local transformation of services in the region. We were also delighted to announce the acquisition of Smartbox, a market leader in the creation of software and hardware that helps disabled people and those with complex needs without speech to have a voice and live more independently.

Not only do we enter the financial year in a robust position, we remain confident in our outlook. I have no doubt that the next few years will see continued strong performance at CareTech. Our goal is to achieve this via both organic growth and bolt-on acquisitions across the portfolio and by expanding our Care Pathway through our international operations and technology. We expect to continue double digit EPS growth, and will see the full effect of the United Arab Emirates (UAE) acquisition coming through, contribution from Smartbox as well as further efficiencies from the Cambian integration. We are focused on cash generation and debt reduction, placing CareTech in a strong position for future EBITDA growth.

On behalf of our Board, I would like to convey my heartfelt appreciation to our employees for their dedication, commitment and professionalism during these unprecedented times."

There will be a presentation of the results to analysts at 10.00am this morning via conference call. This presentation will be available after the conference call at https://www.caretech-uk.com/investors/reports-and-presentations/financial-reports.aspx.

For further information, please contact:

CareTech Holdings PLC 01707 601800

Farouq Sheikh OBE, Group Executive Chairman

Christopher Dickinson, Group Chief Financial Officer

Consilium Strategic Communications 020 3709 5700

Mary-Jane Elliott

Chris Welsh

Angela Gray

Panmure Gordon (Nomad and Joint Broker) 020 7886 2500

Emma Earl

Freddy Crossley

Charles Leigh-Pemberton

Numis (Joint Broker) 020 7260 1000

Jonathan Wilcox

James Black

Duncan Monteith

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 around 5,000 adults and children with a wide range of complex needs in more than 550 day services the UK employing more than 10,000 staff; and an emerging presence in international markets.

Committed to the highest standards of care and care governance, CareTech's innovative Care Pathway covers Foster care, Children's Services, Adults Services and Technology Solutions.

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

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

Group Executive Chairman's Statement

Strong performance and business resilience despite COVID-19

It is my pleasure to present our results for the period ending 30 September 2020. In these unprecedented times, CareTech has demonstrated the significant resilience of its business model and all sites have remained open throughout the COVID-19 pandemic.

Although the pandemic has not been without its challenges; through the incredible dedication of our staff, we continue to deliver the highest quality of care. Less than 3% of our service users fall into the formal NHS high-risk categories for COVID-19 such as those with underlying health conditions.

For CareTech's Adults CQC registered services, quality ratings were 91% Good or Outstanding, which compares favourably to the national average of 85%. Ofsted ratings remained at 82% Good or Outstanding across the Group. Both CQC and Ofsted have suspended routine inspections and are therefore not currently publishing ratings; however we have strengthened the management of quality and care governance functions to provide additional internal assurance.

To support staff through these unprecedented times, a CareTech COVID-19 Fund was launched in April 2020 that allocated up to £1m of the Group's cash to support colleagues facing adversity. Alongside this, a discretionary one-off payment was made during August 2020 as recognition to frontline staff for their efforts.

We have maintained our high levels of staff retention with the annualised retention rate at 75%. We remain committed to our people with a number of priorities this year focused on delivering best in class training and development.

Financial results and position

Results in this section are presented for the year ended 30 September 2020 on a non-statutory illustrative basis excluding the impact of IFRS 16 ("Leases") to enable a comparison with 2019 performance.

The Group's trading performance in the year was slightly ahead of market expectations. Trading was particularly strong in the latter part of the year with revenue increasing to £430.0m, an 8.9% increase.

Group EBITDA was £84.1m (2019: £73.5m) which represents growth of 14.4% when compared with the same period last year. The EBITDA margin was 19.6% (2019: 18.6%) reflecting the improvements to the Cambian business, delivery of synergies and organic growth.

Underlying profit before tax increased by 20.6% to £60.5m (2019: £50.2m) and underlying basic earnings per share was 43.0p (2019: 37.6p).

Cash performance has exceeded market expectations. The Group continues to have a strong financial position with Net Debt at 30 September 2020 being £268.9m compared with £291.1m at 30 September 2019, giving net debt/EBITDA of 3.1x. Operating cash conversion was strong and partially offset by the cash consideration paid for the UAE acquisition, development opportunities and integration costs associated with the Cambian acquisition. The Board continues to believe that the Group will achieve its target of reducing net debt/ EBITDA to below 3.0x.

Moving forward with our Strategy

We continue to make excellent progress in advancing our strategic goals:

Consolidating our market leading position in the United Kingdom

Following a period of accelerated growth, particularly through the Cambian acquisition, this year we have been able to consolidate our market position in Children's Services. Post-merger integration has progressed to plan including delivering on identified synergies; implementation of an integrated management structure for Cambian and CareTech Children's Services; and rollout of shared quality, compliance and governance arrangements.

Leveraging on this market leading status, which includes 46 specialist schools and colleges, our education teams are collaborating with the best research institutes to co-create and implement research led best practice in specialist education that can benefit Group services and the wider sector.

Continued favourable demographics underpinned by growth in outsourcing to the private sector will enable CareTech to remain a force for good delivering innovative service models to commissioners and improved outcomes for our service users.

On 30 November 2020, we completed the transfer of seven services previously operated by The Huntercombe Group. These services are highly specialised facilities for the treatment and care of adults with complex Learning Disabilities, Autism and Mental Health diagnoses. They consist of three hospitals, two care homes with nursing, a number of single accommodation units with residential care registration and the support of people in their own tenancies in a step down facility. The capacity of the services today is 125 beds. The transfer was structured with no capital outlay and is expected to be immediately earnings accretive.

As we move into 2021 and beyond we are well positioned to pursue a strong and active pipeline of organic service developments and bolt-on acquisition opportunities in both Adults Specialist Services and across Children's Services.

Taking our expertise to the Gulf markets

CareTech has been actively involved in the UK export drive to identify new markets.

Following extensive market engagement in the Gulf it is evident there is a significant need for the specialist services that CareTech has developed over 26 years. Responding to this need, CareTech completed its first investment in the UAE in February 2020, through the acquisition of a 52% interest in AS Investment Holdings Ltd and AS1 Investment Holdings Ltd (the "AS Group").

AS Group holds a majority equity interest in the American Center for Psychiatry and Neurology and Macani Medical Center, both well regarded specialist providers and its strategy is to introduce best in class mental healthcare, as a first step to developing a holistic Care Pathway of specialist services in the UAE.

With an experienced management team already in place, our plans are to support the AS Group in growing its services, and for this first regional investment by CareTech to act as a gateway to further investments in the Gulf region.

Like our UK services, the AS Group has demonstrated resilience in the face of the pandemic with full year results expected in line with the agreed business plan.

Accelerating digital adoption and extending CareTech's technology offer

COVID-19 has shone a bright light on the increasing reliance of technology in every aspect of our lives. People with complex needs have been disproportionally disadvantaged and isolated as digital transformation has not been inclusive. Assistive technology is the means to unlocking the digital world to millions of disabled people, from accessing information and having a voice to buying products and services.

Diversifying beyond CareTech's existing services, we announced in October 2020 the acquisition of a majority holding in Smartbox Assistive Technology Limited and associated subsidiaries, and Sensory Software International Ltd (collectively "Smartbox").

Smartbox is a market-leading creator of software, hardware and content for those individuals for whom speech difficulties is a challenge; and provides communication aids, environmental control devices, computer control technology and interactive learning. The Company is the market leader in the UK, has a presence in the US representing a significant growth opportunity, and supplies its solutions into more than 30 countries.

Smartbox generated revenue in excess of £10 million in 2019 and has a track record of profitability. It is expected that the acquisition will be earnings enhancing for CareTech in the first financial year of consolidation.

The Smartbox investment represents an important milestone to extend CareTech's highly acclaimed Care Pathway by providing technology solutions alongside our existing care services. As part of this strategy, a pipeline of additional buy, build and partnering opportunities are under active consideration.

Strengthened Board

Christopher Dickinson (FCA) joined our Board as Group Chief Financial Officer on 13 January 2020. Chris spent the previous year as Cambian's Chief Financial Officer and before joining CareTech was a Managing Director at Jefferies where he acted for CareTech on its acquisition of Cambian. Chris brings a wealth of highly relevant experience and his appointment reinforces our commitment to build a strong Executive Team.

We plan to appoint an additional independent Non-Executive Director during 2021, to further strengthen our board.

Social responsibility

The CareTech Foundation, established in 2017, is an independent grant-making corporate foundation registered with the Charity Commission and a first in the UK social care sector, demonstrating the Group's commitment to social purpose in wider society. Highlights during the year include; Increasing impact delivered through the Foundation's Partnership Grants, with some 105,000 beneficiaries supported directly and indirectly up to the end of December 2019 and its headline support, alongside the Group's, to the Care Sector Ball 2019 that raised £200,000 for the Care Workers Charity and Alzheimer's Society.

To further support the CareTech Foundation, the Group donated one million CareTech shares to the Foundation in June 2020. This donation will provide the Foundation with additional income and demonstrates CareTech's commitment to society, to our staff, and our desire to play a strong leadership role within the social care sector.

In parallel, over the past 12 months, Purple Zest Ltd, a 100% owned subsidiary of CareTech has pioneered in changing the disability conversation, supporting businesses, across all sectors and of all sizes, to accelerate their disability inclusion activities.

Purple Tuesday CareTech's flagship programme, and increasingly recognised as a national brand to support organisations to improve the disabled customer experience, has engaged more than 3,500 organisations making over 5,000 practical pledges to transform their customer service thereby changing the consumer landscape.

Summary and OBE award

Looking back over the past 26 years, CareTech has grown from a single small care home into one of the largest and most respected care providers in the UK operating more than 550 services. Our purpose throughout has been to enable individuals with complex needs to experience the same opportunities to live, learn, work and engage in their communities that we take for granted. This enduring focus on specialist social care has meant CareTech today supports around 5,000 service users and employs over 10,000 staff.

I am honoured to have been awarded an OBE (Officer of the Most Excellent Order of the British Empire) as part of Her Majesty the Queen's 2020 birthday honours list. With deep appreciation I accepted this recognition on behalf of the CareTech family for whom providing "extraordinary days every day" is our guiding mission. I am incredibly proud of the positive impact that the Group makes with individuals in our care and the communities we serve.

Outlook and prospects

CareTech enters the new financial year in a robust position and remains highly motivated to provide extraordinary days every day for our service users.

I am proud of our record of accomplishment and the culture we have embedded within CareTech. We listen to our service users, their families, to our staff and work closely with local authorities, independent inspectors and regulators to improve and shape best practice.

CareTech will continue to consolidate its position in the UK as well as take our expertise to the Gulf and leverage technology to enhance and extend our Care Pathway.

Looking ahead, I have no doubt we will see a continuation of growth and care excellence, which will help continue our target of double digit growth in underlying EPS and maintain our progressive dividend policy.

On behalf of our Board, I would like to thank our many stakeholders and the CareTech family, including colleagues joining us from the AS Group and Smartbox, for their dedication and commitment to the Group and for going the extra mile. Finally, I would also like to thank our shareholders for your continued support.

Farouq Sheikh OBE

Group Executive Chairman

3 December 2020

Group Chief Executive's Statement and Performance Review

An extraordinary year

2020 has been an extraordinary year. Faced with a global pandemic, CareTech continues, resolutely, to deliver on our purpose to create opportunity and transform outcomes for service users in our care and deliver value to commissioners. Our Care Pathway, which extend from Foster Care to Children's and Adults Services addresses the needs of individuals with complex needs. We provide services in a range of community-based settings that include schools and colleges; day care, residential and step-down supported housing; and specialist placements. Our offer now includes assistive technology to enable individuals without voice to communicate; considerably extending our digital reach to people with complex needs in our home markets and around the world.

Our commitment to high quality care

Fundamental to everything we do is an unwavering commitment to provide high quality care. Delivering this has required good governance, an open and transparent culture, dedicated focus to continuous improvement, and robust processes and systems. We have enhanced the terms of reference for our Care Quality & Governance Committee to include the growing clinical governance agenda across the Group. Alongside this we have strengthened the leadership and management of our quality, safeguarding and care governance functions as we continue to work closely with our regulators.

This investment in governance, good practice and management capacity has enabled us to mount a robust and effective response to the ongoing pandemic. The Group's priority throughout COVID-19 has been the health, safety and wellbeing of our service users and colleagues. We have taken immediate and decisive steps to develop a well-managed response to business continuity and a COVID-19 Taskforce led by the Executive Team has co-ordinated our decisions and actions., This has been informed by a dynamic risk assessment tool implemented to provide real time monitoring and support across all of our services.

We have given particular focus to how services are managing with key aspects of care quality - for example, availability of PPE and other important infection control measures. I am pleased to report arrangements have also been in place to provide staff cover between services and overall reducing agency workers.

Our services benefit from strict precautions including enhanced levels of cleaning, additional hygiene facilities and social distancing, and our internal compliance team has maintained a programme of visits, reviews and support to front line services.

Above all and despite these challenging times, we remain committed to the engagement of our staff and service users, and ensuring services continue to provide extraordinary days every day for those in our care.

Our commitment to our people

The Group recognises that finding and hiring the right people, based on our corporate values, is central to our ability to continue achieving our purpose. I congratulate our recruitment and learning services teams who through hard work and determination have recruited staff and on boarded them exceptionally well this year in unusually challenging circumstances.

CareTech is immensely proud of its longstanding diversity heritage. We are committed to developing a working environment and culture that promotes fairness and inclusivity. In October 2020, we initiated a Diversity & Inclusion Programme to shape our strategy and embed this into working practices and culture.

We remain committed to a culture of 'open dialogue' and our most recent Staff Survey received over 3,000 responses demonstrating positive engagement. Our focus for the coming year is to roll out Group wide plans to improve staff experience and act upon the feedback we received.

Our commitment to sustainability

We are a business driven by the conviction that brighter futures are achievable for everyone. It's a belief that we see lived on a daily basis as our service users and teams achieve extraordinary things.

As the challenges faced by our planet become ever more acute it's clear that all of our futures will be dramatically impacted by issues from global warming to resource scarcity and health threats. As a sector leader, CareTech recognises the role we can play as members of the global community towards a brighter future for everyone. We know that healthy people and communities are dependent on a healthy planet and the present global pandemic has brought that sharply into focus.

We take a holistic approach to sustainability, encompassing social and environmental impact. This year we have taken important steps towards building a meaningful strategy that will set out a clear roadmap to reduce our environmental footprint and implement ESG governance and reporting. This approach will enable us to align with and report against the UN's Sustainable Development Goal, most notably Goal 3 (Good Health and Wellbeing), Goal 4 (Quality Education) and Goal 10 (Reduced Inequalities).

Our commitment to supporting our local communities is delivered by the CareTech Foundation which provides grants to local charities and to the care sector more generally. CareTech donated 2% of its pre-tax profit to the Foundation alongside the recently donated one million shares to the Foundation.

Business performance

I am pleased to provide a review of each of CareTech's operating divisions as set out below. A new accounting standard, IFRS 16 Leases, was adopted with effect from 1 October 2019. To enable a comparison with the 2019 performance, results in this section include presentation for the year ended 30 September on a non-statutory illustrative basis.

Adults Services

Year to 30 September

Adults Services offer 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 CareTech recognises the increasing complexity of need for referrals to specialist services within the division.

CareTech's highly effective care teams are developing new ways to offer community support solutions and we believe that this will be an important growth platform in years to come. Specialist Services provision continues to dominate the health and social care agenda. Good Specialist Services is a significant contributor to a healthy community and national economy, while mental ill health is devastating to individuals and their families.

The market for high acuity care and support for people with learning disabilities is estimated to be £5.8bn and growing year on year due to demographic changes and individuals living longer. Demand for lower acuity support has been impacted by cuts in local authority expenditure, but this is not an area of activity in which CareTech operates. Conversely, funding for those with the highest level of need has maintained, and increased in some local authorities.

Due to COVID-19, CQC suspended routine inspections in March 2020 and has only just commenced inspections focused on higher risk services. Across Adults Services, CQC ratings are 91% Good or Outstanding, which compares favourably to the national average of 85%.

Revenues for Adults Services were £136.2m (2019: £123.6m) and EBITDA was £33.6m (2019: £32.7m). Revenues and EBITDA increased by 10.2% and 2.6% respectively. EBITDA margins adjusted to 24.7% reflecting the change in mix to the business as the number of supported living beds grew, and opening of two new residential sites in Specialist Services.

Placements increased by 29 to 1,997. 60 beds were introduced to the portfolio including 41 beds in two new residential sites in Specialist Services. A net 15 supported living contracts ended and 16 beds were withdrawn.

Children's Services

CareTech has developed an extensive range of highly technical care and education environments where those children will thrive. Our residential provision offers high staff ratios and highly skilled carers, capable of ensuring both safety and progression. As far as practicable we aim to help these children through our therapeutic care approach to move into a more normalised family style environment as soon as it is practicable to do so.

As with CQC, Ofsted suspended routine inspections in March 2020, and resumed inspections focused on higher risk services in September 2020. Ofsted ratings across the Group are 82% Good and Outstanding. Due to COVID-19 and Ofsted not currently publishing ratings, we do not expect the Group's ratings to change in the short term.

Revenues and EBITDA before unallocated costs for Children's Services were £252.9m and £65.9m, an increase of 9.7% and 18.4% respectively. Cambian has continued to see EBITDA margin enhancement through improved quality ratings, increased staff retention, and this leading to increased occupancy levels.

Capacity increased by 26 beds with 27 development projects brought into service, 22 capacity increases, eight beds withdrawn and 15 reconfigurations. The pipeline of organic investments in our Children's Services residential portfolio continues to be strong.

Foster Care

Foster care is undoubtedly the best care solution for most "looked after" children. Most children thrive in foster care where they are supported within an ordinary family home and with trained foster carers. CareTech provides for both mainstream and specialist foster care through local agencies across the UK. We offer a highly respected service for physically and intellectually disabled children as well as support for children with sensory impairments. We provide foster care family assessments and ongoing support to children who remain with their birth families and in their family home.

Revenue and EBITDA for Foster Care were £40.9m and £8.0m respectively. Capacity has decreased by 150 places, as available capacity has not always been fully utilised due to a number of solo placements, COVID-19 restrictions, foster parent leavers and in some cases young persons remaining in placement post- independence.

Looking forward, we are training our foster carers with the skills required to manage placements that are more complex and have linked Foster Care Services with our Children's Services residential team to provide an effective Care Pathway.

International

CareTech has actively targeted with the Gulf markets through inbound and outbound trade visits as this region increasingly looks towards international best practice to support local transformation of specialist social care services to meet population needs and in line with the UN's 2030 Agenda for Sustainable Development.

In February 2020, CareTech completed an investment into the AS Group, the largest provider of outpatient mental health services in the UAE. AS Group comprises two well-established brands, Maudsley Health and the American Center for Psychiatry and Neurology ("ACPN").

Maudsley Health is a partnership between the Macani Medical Center and South London and Maudsley NHS Foundation Trust ("SLaM"), the oldest psychiatric institution in the world. The partnership operates an outpatient facility in Abu Dhabi and in 2018 won the tender for an exclusive management agreement to provide clinical support to the Al- Amal Psychiatric Hospital in Dubai, a 276 beds state of the art Government owned facility exclusively dedicated to mental health.

ACPN has operated since 2008 providing psychiatry, psychology, occupational therapy, rehabilitation and related services. Services are state funded by Thiqa/Daman insurance and the brand's major customer group is UAE nationals.

Maudsley Health and ACPN have strong relationships with commissioners across the UAE and engage with them to develop care pathway opportunities. Through this investment in the AS Group, CareTech will support the acquired services to organically grow their Care Pathway into specialist education and social care services, workforce development and training, and pursue bolt on acquisitions.

Despite the challenges of COVID-19, the AS Group is on track to fully deliver its first year business plan under CareTech ownership, demonstrating the underlying resilience of the business. We are confident that a strengthened Care Pathway will significantly improve the availability of high quality services to an underserved social care market in the UAE, and act as a gateway to the wider Gulf region where we are experiencing growing interest in CareTech's expertise.

To support the regional growth opportunity we have established our corporate Managing Office for the Middle East North Africa in the Dubai International Financial Centre, UAE, and appointed an experienced management team to expand the Group's presence in the Gulf markets.

Summary and outlook

The pandemic has tested the resilience of UK PLC and businesses across the globe. I am pleased to report that our strategy in the markets we serve has proven to be robust and highly resilient even during these uncertain times. More importantly, I am delighted that CareTech in this 26th year of existence has demonstrated that commitment to purpose remains as strong today as it was when we opened our first small care home. Turning to the future, I remain confident about CareTech's outlook and prospects, to reach more people with complex needs at home and overseas, through a blend of high quality services and our digitally extended Care Pathway.

It is my pleasure to lead the Group, a business that has consistently made a real difference to so many lives. In these uncertain times we continue to celebrate the tremendous achievements of our service users across the country, holding an Arts and Crafts celebration, Easter Spirit event and a 'Blooming Marvellous' Gardening competition through the year.

I conclude by expressing my sincere thanks to our Board, our executive and management teams and colleagues throughout the Group for their hard work, commitment and dedication. In particular I would like to reach out to our staff to convey my heartfelt appreciation, and thank them, for the manner in which they continue to resolutely provide outstanding care to our service users, and supported each other, during this year of the pandemic.

Haroon Sheikh

Group Chief Executive Officer

3 December 2020

Group Financial Review

Results

CareTech has delivered a strong set of results for the financial year ended 30 September 2020.

Unless otherwise stated, results in this section are presented for the year ended 30 September 2020 on a non-statutory illustrative basis excluding the impact of IFRS 16 ("Leases") to enable a comparison with 2019 performance. Included in the Group consolidation results and reported in Adults Services and Children's Services operating segments for the year ended 30 September 2020 are the AS Group's Revenue and EBITDA and other income statement items together with the cash flows following completion on 4 February 2020.

Capacity and occupancy

Adults Services increased 29 places to 1,997 (2019: 1,968) due to 41 beds in two new residential sites in Specialist Services, a net four new supported living contracts offset by 16 beds withdrawn. Children's Services increased to 1,959 mainly due to 27 development projects, 22 capacity increases, eight beds withdrawn and 15 reconfigurations. Fostering decreased to 1,028 due to blocked beds as a result of COVID-19 and some foster parent leavers.

As at the balance sheet date, the Group capacity decreased to 4,984 (2019: 5,079) due to a decline in capacity within Foster Care.

At 30 September 2020, occupancy levels in the mature estate was 83% (2019: 85%) reflecting the timing of the start of the educational year due to a number of the Group's non-residential schools operating on a 38-week basis with the new education term commencing in October. Blended occupancy was 80% (2019: 80%).

Condensed Income Statement

Revenue and EBITDA

Group underling revenue increased by 8.9% to £430.0m (2019: £395.0m).

The Adults Services segment continued to experience high levels of occupancy at 92% across the mature estate. When this is blended with the facilities that are being reconfigured and so are under development, the blended occupancy level at 30 September 2020 was 86%.

We have seen an increase in capacity in Adults Services, largely due to two new residential Specialist Services sites opening during the year increasing capacity by 41 places. Revenues increased by 10.2% reflecting a continuation of high acuity user demand for both residential services and supported living and the inclusion of the AS Group. EBITDA margin decreased to 24.7% reflecting business mix, larger Specialist Sites opening and inclusion of the Group's UAE operations.

Despite the impact of COVID-19, local authorities have continued with fee increases to cover the additional costs resulting from increases in front line staff pay as a consequence of the National Minimum and Living Wage increase from 1 April 2020.

Children's Services increased by 9.6% to £252.9m, reflecting the improved performance at Cambian and the inclusion of the AS Group. Cambian has now been integrated into the Group and CareTech has achieved the medium term target of 16% EBITDA margins for Children's Services increased from 24.1% to 26.1%.

Group EBITDA margin has increased to 19.6% (2019: 18.6%). Synergies from the Cambian acquisition of over £5m were delivered in the financial year with actions already taken to deliver £6m run-rate synergies from the next financial year onwards.

Operating profit and profit before tax

The Group presents Operating Profit and Profit Before Tax as both underlying and statutory results. Underlying operating profit increased by 14.5% to £72.0m is EBITDA after depreciation and share-based payments charge.

The depreciation charge is £11.8m (2019:10.6m) reflecting the investment in land and buildings, motor vehicles and fixtures, fittings and equipment and the share-based payments charge of £330k (2019: £60k) reflecting the issuance of shares in November 2019.

Statutory operating profit of £53.4m (2019: £39.5m) is underlying operating profit less amortisation of £10.2m (2019: £10.2m), acquisition costs of £0.5 (2019: £10.3m), reflecting the costs incurred in acquiring the AS Group in February 2020, donations to the CareTech Foundation of £702k, other non-underlying costs of £3.7m largely associated with the integration of Cambian and share based payments charge of £4.1m in relation to the 1 million shares donated to the CareTech Foundation.

Adults social care providers have had funding available via local authorities to help support the provision of additional resources and associated costs necessary to halt any transmission of COVID-19. Funding of £2.6m has been extremely helpful in allowing the Group to take key steps to improve prevention and infection control in our services, and to support staff financially to self-isolate where this has been necessary. Additional costs of £3.4m have been incurred due to COVID-19 with a net cost to the group of £0.8m.

Underlying financial expenses decreased to £11.5m (2019: £12.7m) reflecting the accelerated deleveraging and reduction in banking covenants. Non-underlying financial expenses of £1.6m (2019: £2.4m) were incurred relating to the non-cash movement in derivative financial instruments.

Underlying Profit Before Tax improved to £60.5m (2019: £50.2m) and statutory Profit Before Tax increased to £37.8m (2019: £24.3m).

Taxation

The effective underlying tax rate was 18.7% (2019: 18.7%) and reflects management's expectations of future capital investment through organic developments and reconfigurations relative to available capital allowances and the impact of the reduction in the main rate of corporation tax in the year.

Earnings per share

The weighted average number of shares in issue rose to 109.8m mainly due to the 1m shares issued to the CareTech Foundation and 0.4m consideration shares for investment in the AS Group.

Underlying basic earnings per share (pre IFRS 16) increased by 14.4% to 43.0p from 37.6p in 2019.

Statutory earnings per share increased by 24.4% to 22.88p (2019: 18.38p).

Dividends

Our policy has been to increase the total dividend per year broadly in line with the movement in underlying diluted earnings per share. The final dividend will rise broadly in line with the increase in underlying earnings per share and increase to 8.75p per share (2019: 7.95p), bringing the total dividend for the year to 12.75p (2019: 11.7p), a growth of 8%. Dividend cover for 2020, based upon diluted earnings per share before non-underlying items is 3.3 times (2019: 3.18 times).

Cash flow and net debt

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

viii Net debt consists of cash and cash equivalents, bank loans, shareholder loan and lease and hire purchase contracts

The Group continues to have a strong financial position with Net Debt at 30 September 2020 being £268.9m compared with £291.1m at 30 September 2019. Operating cash conversion was strong which was partially offset by the cash consideration paid for the UAE acquisition (AS Group), development opportunities, integration costs associated with the Cambian acquisition and additional expenditure associated with COVID-19.

Cash inflows from operating activities were offset by a net COVID-19 related costs of £0.8m, payment to the CareTech Foundation of £0.7m, integration costs and restructuring costs of £3.9m and acquisition of the AS Group for £3.2m (net of cash acquired and including acquisition costs).

Capital expenditure was £26.8m which includes software development of £2.8m.

Dividend payments of £13.0m (2019: £10.8m) and corporation tax payments of £3.9m (2019: £5.9m) were paid during the year.

Bank facilities

CareTech's three key covenant ratios are leverage (ratio of net debt to covenant EBITDA to be no more than 4.5), interest cover (ratio of covenant EBITDA to net finance costs to be no less than 4x) and LTV (ratio of property value to net debt to be no more than 62.5%). As at 30 September 2020, we were operating comfortably within these ratios at 3.1x, 7.8x and 42% respectively. The Board believes the Group will achieve its target of reducing net debt/ EBITDA to below 3.0x for the year ended 30 September 2021.

New accounting standards

IFRS 16

A new accounting standard, IFRS 16 Leases, was adopted with effect from 1 October 2019. The standard requires leases which were previously treated as operating leases to be recognised as a lease liability with the associated asset capitalised and treated as a right of use asset.

The Group elected to adopt the standard using the modified retrospective approach, which means that comparative results for the year ended 2019 are not restated. On 1 October 2019, £76.2m of leases were recognised as liabilities on adoption of the standard and £71.7m capitalised as right of use assets.

The financial impacts of IFRS 16 for the year ended 30 September 2020 are set out in the table below.

The changes in accounting resulting from the implementation of IFRS 16 will not affect the way liquidity is assessed against the Group's banking covenants, which will continue to be assessed as though the accounting rules had not changed. As such, headline financial leverage will continue to be measured on a consistent (i.e. 'frozen GAAP') basis in 2020 and the Group continues to target a headline financial leverage, excluding the increase in leverage associated with the implementation of IFRS 16, of below 3.0x.

Christopher Dickinson

Group Chief Financial Officer

3 December 2020

Consolidated Income Statement

for the year ended 30 September 2020

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

(ii) Non-underlying items comprise: amortisation, acquisition expenses, integration, reorganisation and redundancy costs, donations to the CareTech Foundation, COVID-19 income and costs, and profit associated with the ground rent transaction (prior year only), and are explained in.

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2020

Consolidated Statement of Financial Position

as at 30 September 2020

These financial statements were approved by the Board of Directors and authorised for issue on 3 December 2020 and were signed on its behalf by:

Farouq Sheikh OBE Christopher Dickinson

Group Executive Chairman Group Chief Financial Officer

Company number: 04457287 

Consolidated Statement of Changes in Equity

 as at 30 September 2020

Consolidated Statement of Cash Flows

 for the year ended 30 September 2020

1 Background and basis of preparation

CareTech Holdings PLC (the 'Company') is a company registered and domiciled in England and Wales. The consolidated financial statements of the Company for the year ended 30 September 2020 comprise the Company and its subsidiaries (together referred to as the 'Group'). The unaudited summary financial information set out in this announcement does not constitute the Company's consolidated statutory accounts for the years ended 30 September 2020 or 30 September 2019. The results for the year ended 30 September 2020 are unaudited. The statutory accounts for the year ended 30 September 2020 are expected to be finalised on the basis of the financial information presented by the Directors in this preliminary announcement, and will be delivered to the Registrar of Companies in due course. The statutory accounts are subject to completion of the audit and may change. The statutory accounts for the year ended 30 September 2019 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not include references to any matter which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The preliminary announcement for the year ended 30 September 2020 was approved by the Board for release on 02 December 2020. 

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 Group Chief Executive Officer as he is primarily responsible for the allocation of resources to segments and the assessment of the performance of each of the segments.

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

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

The Group's operating segments have been determined based on the services that are summarised as follows:

· Adults Services - the provision of care and residential services for adults with learning disabilities, individuals recovering from mental health disorders, adults with autistic spectrum disorder, those with one or more physical impairment and adults with acquired brain injury.

· Children's Services - the provision of assessment, residential care and education for young people with challenging behaviours, and those with behavioural and emotional disorders.

· Foster Care - the provision of foster care for both mainstream and specialist foster care in small supportive groups across England and Wales for children with disabilities.

The results as at the balance sheet date report segmental information on the Group's three operating divisions.

The segmental results for the current financial year ending 30 September 2020 and prior year ending 30 September 2019 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;

Operations of the Group are primarily carried out in the UK, the Company's country of domicile. On 4 February 2020 the Group completed the acquisition of the AS Group, registered in the United Arab Emirates. Revenue of £15.5m has been generated in the UAE. All other revenues 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 CODM and are not measures used by the CODM to assess performance and to make resource allocation decisions.

3 Business Combinations

(a) Acquisition of "the AS Group"

On the 4 February 2020 the Group acquired controlling interest in AS Investments Holding Limited and AS1 Investments Holding Limited and their respective operating entities (collectively "the AS Group"). The Group indirectly controls 33% and 46% voting rights in the operating entities of AS Investments Holdings Limited and AS1 Investments Holdings respectively.

The initial consideration for the investment is £7.4m (which included £0.7m deferred consideration satisfied in May 2020), and a performance driven earn-out mechanism of up to £1.6m to be paid out in 2021. The Group expects this amount to be paid within one year from the date of acquisition and accordingly this amount is deemed to be at fair value. The expected range of the amount payable is between £0 to £1.6m

As part of the acquisition, the acquiree shareholders who are now shareholders of the Company, have provided a cash loan to the AS Group of £1.8m to be used for investment in future growth. This has resulted in a shareholder loan as noted in the cash flow statement. 50% of the unutilised amount will be repaid on 4 February 2021, and the remaining balance on 4 August 2021.

The AS Group is the largest provider of outpatient mental health services in the UAE and comprises two well-established brands, Maudsley Health and ACPN. Services provided by the AS Group have been cited earlier in this note.

The book values attributable to the acquisition were £2.0m net assets and the fair value and adjustments were £10.2m. The AS Group operates in UAE which is a 0% tax jurisdiction. Accordingly, there are no deferred tax assets and liabilities recognised.

The acquisition table is as follows:

Goodwill of £4.7m, which is not expected to be deductible for tax purposes, has been recognised. The goodwill represents the value of the workforce acquired. The Non-controlling interest in the AS Group has been calculated by applying the proportionate share in the fair value of the net assets acquired and represents their share of the AS Group.

Costs relating to this acquisition are expensed in the Income Statement in accordance with IFRS3.

The AS Group contributed revenue of £15.5m and £1.8m to the Group's profit after tax for the year between the date of acquisition and the balance sheet date. Had the acquisition of the AS Group been completed on the first day of the financial year, Group revenues for the year would have been higher by £7.7m and Group profit after tax would have been higher by £0.9m for the current year ended.

(b) Acquisition after the balance sheet date

Non-adjusting subsequent event

Subsequent to the year end, on 5 October 2020, the Group acquired a majority holding in Smartbox Assistive Technology Limited and associated subsidiaries, and Sensory Software International Limited (Collectively "Smartbox") a creator of augmentative and alternative communication (AAC) solutions (the "Investment").

The Group will pay up to £10.6m comprising of an aggregate initial purchase price £7.0m, funded through an equity contribution and loan note from the Group and equity contribution from the minority holders of Smartbox Holdings Limited. Earn-outs of up to £3.6m payable over a two year period from completion. The Group's contribution will be funded from existing cash resources.

Smartbox is a market-leading creator of software and hardware that helps disabled people without speech to have a voice and live more independently. It makes communication as quick, simple and effective as possible for those service users for whom speech difficulties can be a challenge. Its solutions include communication aids, environmental control devices, computer control technology and interactive learning.

Smartbox, headquartered in Malvern, UK with offices in Bristol and Pennsylvania US, was acquired by Tobii AB in 2018. Following a full inquiry from the UK Competition and Markets Authority, Tobii was required to sell Smartbox on competition grounds, providing the Group an opportunity to secure a majority equity stake in the innovative tech firm. 

To facilitate the acquisition, the Group has established a new subsidiary, Smartbox Holdings Ltd, which is 70% owned by the Group, with the remaining minority ownership held by the Smartbox management team.

Given the proximity of the acquisition to the announcement date it is not possible to provide an estimate of the financial effect at this time.

On 30 November 2020, the Group completed the transfer of seven services previously operated by The Huntercombe Group. These services are highly specialised facilities for the treatment and care of adults with complex Learning Disabilities, Autism and Mental Health diagnoses. They consist of three hospitals, two care homes with nursing, a number of single accommodation units with residential care registration and the support of people in their own tenancies in a step down facility. The capacity of the services today is 125 beds. The transfer was structured with no capital outlay and is expected to be immediately earnings accretive.

Given the proximity of the acquisition to the announcement date it is not possible to provide an estimate of the financial effect at this time.

4 Non-underlying items

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

(i) The Group has incurred additional costs as a results of COVID-19 in relation to higher sickness absence rates, personal protective equipment (PPE) costs, infection control and higher administration costs. The Group has received additional funding by way of government grants through local authorities to assist in dealing with this. The Group has worked closely with all aocal authorities in establishing a dedicated funding arrangement to support our services which has been collected to offset the additional costs, as noted above, that the Group has incurred in relation to COVID-19.

(ii) 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"). CMA costs relate to prior year only.

(iii) In the prior year, profit arises from a ground rent transaction with Alpha Real Capital LLP at a net yield of 2.85% which raised £31.0m in cash to further support growth strategy. The £31.0m proceeds are categorised as £23.1m relating to the operating lease element and £7.9m relating to IAS 17 ground rent liabilities.

(iv) 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 as outlined in the Scheme of Arrangement dated 19 September 2018.

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

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

(vii) To further support the CareTech Foundation, the Group has donated one million new ordinary Company shares to the Foundation. This donation will provide the Foundation with additional income and demonstrates the Group's commitment to wider society, to its staff, and its desire to play a strong leadership role within the social care sector. In connection with the donation, the CareTech Foundation has entered into a lock-up undertaking not to sell the New Shares without the Company Board's approval.

(viii) 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.

(ix) Represents the current tax on items (i), (iii), (iv) and (v) above, and includes a prior year adjustment of £3.4m.

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

Other adjustments comprise a number of deferred tax movements which are individually insignificant.

5 Taxation

(a) Recognised in the consolidated income statement

 (b) Reconciliation of effective tax rate

Included in the current tax prior year adjustments is an amount of £3.4m previously recognised on the acquisition of the Cambian Group PLC. Following a review of the tax position and the Cambian tax liabilities this liability is no longer required.

Deferred tax assets and liabilities have been measured in line with IAS 12 using the tax rates and laws that have been enacted or substantively enacted by the reporting date that are expected to apply when the asset is realised or the liability is settled. As the rate of 19% was substantively enacted on 17 March 2020 this is the rate used (2019: 17%). The tax rate has remained constant at 19% 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. Other tax adjustments comprise a number of items which are individually insignificant.

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.

7 Underlying earnings per share

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

8 Dividends

The aggregate amount of dividends comprises:

The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 12.75p per share, £14,000,000 (2019: 11.7p per share, £13,000,000).

On 23 November 2020 an interim dividend of 4.0p per share was paid to shareholders.

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.