Final Results

Cambian Group plc

Audited results for the year ended 31 December 2016

1 Adjusted EBITDA is earnings from continuing operations before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, merger and acquisition costs, IPO share option charges and exceptional items (note 3).

2 Exceptional items (note 5) and extinguished items (note 7) have been provided in order to present the results more fairly.

3 Adjusted earnings per share from continuing operations is earnings per share from continuing operations before amortisation, merger and acquisition costs, IPO share option charges, exceptional and extinguished items, net of their tax effect (note 10).

Highlights

· Disposal of Adult Services for a premium price of £379m in cash, which is reported as discontinued operations, with settlement of all bank debt.

· Focus on Children's Services which is reported as continuing operations.

· Revenue increased by 13% to £182.1m (2015: £160.7m) from increased occupancy.

· Average occupancy increased by 11% to 1,300 places (2015: 1,169 places), with average utilisation increasing to 74% (2015: 72%), while closing capacity remained flat at 1,744 places (2015: 1,762 places).

· Adjusted EBITDA of £16.2m (2015: £18.4m) reflecting increased revenue offset by extended negotiations on fee increases, provision for sleep-ins and repositioning of some services.

· High quality regulatory ratings maintained, with 83% of facilities rated as "Good" or "Outstanding" at 31 December 2016 (31 December 2015: 83%).

· Strong balance sheet, with net cash of £116.1m before the return of capital.

· Return of capital increased from £40m to £50m.

Christopher Kemball, Chairman, commented:

"The sale of the Adult Services business will allow the Cambian Group to focus on being a market leading provider of specialist children's services, where the Board sees significant opportunities for margin improvement and growth."

Enquiries:

A results presentation will be held for analysts at 9.30am today at the offices of Numis Securities, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. If you would like to attend, please confirm your attendance to [email protected]

For those unable to attend, there will also be a conference call at 9.30am. The presentation to be given by management will be made available ahead of time at: http://www.cambiangroup.com/cambiangroup/investor/home.aspx 

A replay function will be available for up to two weeks after the presentation.

As set out in last year's Annual Report, we have undertaken significant remedial action to rectify the issues of the previous year. Under our Chief Executive Officer, Saleem Asaria, and Chief Financial Officer, Martin Hopcroft, we have implemented improvements in our financial processes and systems, including cost control, and we are managing the business on a much tighter basis. We are continuing to focus on further improving our systems and we have continued to invest in our HR function and the recruitment and training of staff.

Financial results

We are commenting on both Children's Services and Adult Services on a combined basis, as we completed the sale of the latter on 28 December 2016. On a combined basis, revenue increased by 12% to £324.1 million (2015: £290.1 million), while Adjusted EBITDA of £45.0 million was an increase of 6% over the prior year's number of £42.5 million.

On a statutory basis where Adult Services are treated as discontinued operations, we are reporting that revenue in Children's Services increased by 13% to £182.1 million (2015: £160.7 million), while Adjusted EBITDA was £16.2 million (2015: £18.4 million). Operating loss before exceptional items was £0.2 million (2015: £1.9 million profit), while operating loss was £7.6 million (2015: £2.0 million). Adjusted earnings per share from continuing operations was 2.4 pence (2015: 1.8 pence), while loss per share from continuing operations was 17.2 pence (2015: 8.1 pence). The Group's closing capacity in Children's Services has remained flat at 1,744 places with average utilisation of 74% (2015: 72%).

Sale of Adult Services

On 5 December 2016, after a competitive process, we announced the sale of the Adult Services business for consideration of £379 million to a subsidiary of Universal Health Services, Inc. which is a major NYSE listed acute care and behavioural health services provider. The transaction, which was not conditional on approval by the Competition and Markets Authority, completed on 28 December 2016.

As part of the transaction, we have entered into a transitional services agreement with a term of not less than six months and not more than nine months. On an agreed compensation basis, Cambian will provide specific services relating to IT, finance, procurement and estates to ensure a smooth transition of the services and the patients for which it cares.

Repayment of bank debt

The net cash inflow after transaction costs of £374 million from the sale of the Adult Services business was used to repay the whole of the outstanding bank debt, which amounted to £286 million, on completion of the sale. The Group had net cash of £116 million on 31 December 2016.

Return of capital

Further to our announcement on 5 December 2016, the Group now intends to increase the return of capital to shareholders from £40 million to £50 million from the net proceeds of the disposal. Having taken advice and consulted with major shareholders, the Board has determined that the best way of effecting the return of capital is by way of a special dividend. This is still subject to a number of conditions, including creation of sufficient distributable reserves and final Board approval, which is expected to be announced by the end of the first half of 2017 and paid thereafter.

The net cash balances of the Group after implementing the return of capital will be used to invest in and grow our Children's Services business.

Future dividend policy

The Board intends to resume its progressive dividend policy this year and expects to pay an interim dividend for the first six months of the financial year, the amount of which will be determined by the performance of the business during this period. The interim dividend will be declared with the interim results announcement.

Senior management changes

On 28 December 2016, we appointed Anne Marie Carrie as Chief Operating Officer and a member of the Board. Anne Marie has run the Children's Services division for the last two years. She has extensive experience in the care services sector, having been previously Chief Executive Officer of Barnardo's (the UK's largest children's charity) and director of children's services at The Royal Borough of Kensington and Chelsea.

We are also delighted that, as announced on 15 February 2017, Anoop Kang will be joining as Chief Financial Officer in July 2017. Anoop was previously Group Financial Controller at Kier Group plc and, prior to that, held senior financial positions in the construction industry. He is a qualified ACA and graduate of Birmingham University. Anoop has very relevant experience in the improvement of financial systems and processes, investor relations and M&A.

Our current Chief Financial Officer, Martin Hopcroft, will provide a handover to his successor. Martin joined us in late 2015 and has been instrumental in reaching a negotiated settlement with our lending banks and in significantly improving our financial systems and controls. He leaves to pursue his independent career with the best wishes and thanks of the Board and management for an excellent job done.

Other Board changes

As previously announced, Alison Halsey, Chair of the Audit and Risk Committee, and Christopher Brinsmead, Senior Independent Director and Chair of the Remuneration Committee, have indicated their wish to step down from the Board at the conclusion of the Company's Annual General Meeting which will be held on 5 June 2017. On behalf of the entire Board and staff of Cambian, I would like to thank them for their unstinting support and commitment.

As disclosed in the Class 1 circular relating to the sale of the Adult division published on 9 December 2016, we have decided to establish a separate Quality & Safeguarding Committee which is chaired by Dr Graham Rich. Graham is currently a senior adviser to Boston Consulting Group, having previously been its director of health services. He is a qualified doctor and has held senior positions in the National Health Service, including Chief Executive and Chief Operating Officer of two healthcare organisations. The quality of our care for children and young people is paramount and the establishment of this committee provides additional oversight and control of our systems and processes.

At the same time, Mike Butterworth was appointed chair of the Audit Committee. Mike is an experienced public company financial executive, having been Chief Financial Officer of Cookson Group plc from 2005 to 2013, and is now a non-executive director of several publicly listed companies. I am sure that he will be a good mentor for our new Chief Financial Officer, while ensuring rigorous oversight of our financial team and risk management.

Future strategy and outlook

Cambian is now a pure children's behavioural services and specialist education business, offering a full range of essential services from therapeutic fostering through to specialist schools and residential care, covering autism, mental health, and sexual abuse and exploitation. As at the end of 2016, we managed 224 facilities and employed over 4,400 staff, looking after 1,270 children and young people.

We are currently one of the largest specialist children's services providers, and we operate in a highly fragmented market. Our Board believes that we have a significant opportunity to grow the business through a combination of organic growth and prudent bolt-on acquisitions. In addition to our cash balances, we have secured, subject to documentation, a medium-term revolving credit facility of £30m to support our measured growth plans, and the Board's current intention is that, in the medium term, net debt will not exceed 1.5 times Adjusted EBITDA.

The year has started overall in line with the Board's expectations as we continue to grow our occupancy levels. Our focus will be on managing the transitional services agreement, continuing to build out our existing portfolio, further improving our financial systems and processes, and rightsizing our cost base, bearing in mind that we are contractually bound under the transitional services agreement to continue to provide specified services until at least the middle of the year.

Our staff

We have continued to make improvements in our pay scales and career training and qualifications for our staff, taking in to account the phased introduction of the Government's National Living Wage. We have managed to recover the increased cost of our overall wages bill through selective price increases.

As always, our aim of achieving the best possible outcomes for the children and young people placed in our care depends on the skill and dedication of our staff. The Board thanks all our staff for their hard work and tremendous dedication to those placed in our care throughout the year.

Christopher Kemball

Chairman 

Overview

We began 2016 with a clear agenda: continue to implement our remedial action programme; meet our obligations under the amended bank facilities; and deliver the highest quality specialist services our customers demand.

I am pleased to report that we made significant progress across all three objectives.

· Following the disposal of the Adult Services division at the end of the year for consideration of £379 million, we were able to pay down fully the Group's bank debt and announce the intention to return capital to shareholders.

· Our remedial actions have delivered improvements across our systems and the business is now managed more rigorously, in particular on cost control. Ongoing remedial work, especially with our management information systems, will remain a priority during 2017.

· Our focus on delivering higher severity services and to the highest quality to meet our customer's demands saw occupancy increase across our existing capacity.

Business Performance

Following the disposal of the Adult Services business at the end of the year, these results will be the last time we report on the combined Children's Services and Adult Services businesses.

On a combined basis, revenue increased by 12% to £324.1 million (2015: £290.1 million). Adjusted EBITDA increased by 6% to £45.0 million (2015: £42.5 million), giving an Adjusted EBITDA margin of 14% (2015: 15%). Operating profit was £3.3 million (2015: £7.6 million loss). After the profit on sale of discontinued operations, earnings per share from continuing and discontinued operations was 68.4 pence (2015: 5.4 pence loss).

On a combined basis, the Group's average utilisation was 81% (2015: 78%), while total capacity finished the year at 1,744 places (2015: 1,762 places) after the sale of the Adult Services business.

Children's Services

Revenue increased by 13% to £182.1 million (2015: £160.7 million) reflecting an increase in average capacity to 1,751 places (2015: 1,621 places) and average utilisation improved to 74% (2015: 72%). Adjusted EBITDA was £16.2 million (2015: £18.4 million) reflecting increased revenue offset by additional costs from extended negotiations on fee increases, provision for sleep-ins and repositioning of some services.

In 2015, we took the strategic decision to develop an integrated recovery model incorporating care, education and therapy focused on children and young people with the highest needs. Following a restructuring of our services in 2016, including our fostering offering, and investment in upskilling our staff capabilities, we have repositioned the majority of our services to a differentiated high severity offering.

With increasing demand for our services and closing utilisation at 73%, we see significant potential to increase occupancy levels.

Adult Services

Revenue for the period increased by 10% to £142.0 million (2015: £129.5 million). Average capacity was 1,206 places (2015: 1,208 places) while average utilisation was 92% (2015: 87%). Adjusted EBITDA was £28.8 million (2015: £24.1 million) reflecting increased revenue.

2017: a year of transition

The disposal of the Adult Services business followed a strategic review of options to pay down the Group's bank debt in full and to best position the business for the future. The review concluded that the increasing demand for specialist children's services and the shortage of specialist provision provided a major opportunity for Cambian.

The Company intends to become the market leading provider of specialist children's services where there are significant opportunities for growth, development and creation of shareholder value. It is our intention to start growing the business in a measured way through organic growth, and bolt-on acquisitions next year.

Before we can fully realise the opportunities we have identified, we have first to complete the complex separation of the Adult Services business from the Group, and we are carrying some additional overheads to meet our obligations under the transitional services agreement. Once these have been addressed, the business will have the opportunity to significantly improve margins from next year.

We will also be able to fully focus our resources on the strategic development and roll-out of the Children's Services business at a time of significant and growing demand for its critical services.

The opportunity for the Children's Services business

There is a recognised shortage of high quality specialist education and behavioural health services for children in the UK. The higher the severity of need, the more significant the shortage.

There are over 1.9 million children in the UK (approximately 16% of the total number of children in the country) with developmental disabilities of whom just under 200,000 would be classed as high severity and of which 88,000 would fall into Cambian's core target market. Cambian is one of the UK's major providers of specialist services and currently has a total capacity of 1,744 places and over 600 fostering places.

These requirements will continue to increase in the near term as advances in diagnostics and processes are likely to increase the formal identification of the number of children in need faster than the supply of additional capacity year-on-year.

Our vision is clear and deliverable: to become the highest quality provider of specialist education and behavioural health services for children. To this end, last year we took the strategic decision to develop our Children's Services business around a differentiated integrated recovery model incorporating care, education and therapy for children with the highest needs. In addition, our continued investment and work in outcome development will enable us to demonstrate our progress and achievements to our customers.

We start from a strong market leading position. Cambian is one of the largest independent providers of residential facilities, special education schools and therapeutic fostering services for children.

We also have the right components in place to further develop our offering:

· A well-invested estate of specialist care homes, day and residential schools, and foster families, which is unique in the UK.

· A bespoke delivery model comprising five core elements (safety, stabilisation, education, therapeutic intervention and parenting experience) designed to take the child in care through to adulthood "with a future".

· A high quality and highly skilled workforce led by an experienced management team.

Our focus through the transitional period will be to fill existing capacity and increase margins. Thereafter, within strict parameters including a commitment over the medium term that net debt will not exceed 1.5 times Adjusted EBITDA, we will develop the business through a combination of organic and acquisitive growth.

It is our aspiration to significantly increase the size of our business and the number of children we positively support over the next five years.

Fees

We support the phased introduction of the National Living Wage, and we continue to seek to cover the cost to Cambian of its progressive application through selective increases to service fees for all new and some existing users.

Quality and Regulatory

We are committed to providing the highest quality behavioural health services for children. The quality of our care for children and young people is paramount.

Meanwhile, the sector continues to see an increasingly stringent regulatory environment with an enhanced rigour of inspections, which we both welcome and are well-positioned to benefit from, in this drive to improve the focus on quality of care.

It is pleasing to report that our regulatory scores remain strong, with 83% of Children's Services rated good or outstanding with Ofsted or Care Quality Commission as at 31 December 2016, notwithstanding the continuing raising of quality standards.

We announced at the end of last year that we would establish a separate Quality & Safeguarding Committee. This is now up and running and is chaired by Dr Graham Rich, who joined the Board in 2015.

Summary and Outlook

We have an established reputation as a high-quality and valued service provider. With a well-invested estate, sound finances and improved systems, we have the opportunity to take the Group to its next stage of development as a focused and market leading Children's Services business with attractive margins and good growth prospects.

We remain confident for the medium-term outlook and the Group's longer-term potential, while in the short-term we are focused on completing the separation of the Adult Services business from the Group.

Saleem Asaria

Chief Executive Officer

On 28 December 2016, the Group made a substantial disposal with the sale of the Adult Services business. Prior to the disposal, the Group provided specialist behavioural healthcare services to children and adults. The Group is now wholly focused on children's services. As required by accounting standards, Children's Services are reported as "continuing operations" and Adult Services are reported as "discontinued operations", however they are presented together in order to provide a fuller understanding of the overall trading performance over the last two years.

The separate results for Children's Services and Adult Services are not identical to the results previously reported because some sites were transferred internally before the sale of the Adult Services business was finalised, while central costs have been reallocated to be consistent with the new perimeter.

Capacity and Occupancy

1 Capacity is the number of separate places registered with a regulator to accept service users.

2 Fostering is excluded from the capacity and occupancy numbers and disclosed separately.

3 Re-presented to reflect transfers of sites before the sale of Adult Services was finalised.

On a combined basis, average utilisation increased to 81% (2015: 78%), being 74% (2015: 72%) in continuing Children's Services and 92% (2015: 87%) in discontinued Adult Services. This reflects ongoing conversion of service user referrals, as well as planned reductions in capacity where sites have been modified to meet changing demand for services, or will be sold to fund new developments. Within Children's Services, average utilisation was 81% in Residential Care and 71% in Specialist Education, while the average fill rate was 1.39 times in Therapeutic Fostering. Closing utilisation was 73% (2015: 72%) in continuing Children's Services.

Revenue

1 Fostering revenue is included within Children's Services, and also disclosed separately.

2 Re-presented to reflect transfers of sites before the sale of Adult Services was finalised.

On a combined basis, revenue increased by 12% to £324.1 million (2015: £290.1 million), being an increase of 13% to £182.1 million (2015: £160.7 million) in continuing Children's Services and an increase of 10% to £142.0 million (2015: £129.4 million) in discontinued Adult Services. These reflect increased occupancy and improved fees for their respective mix of services, as well as the full year impact of previous acquisitions.

Adjusted EBITDA

1 Adjusted EBITDA is earnings from continuing operations before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, merger and acquisition costs, IPO share option charges and exceptional items (note 3).

On a combined basis, Adjusted EBITDA increased by 6% to £45.0 million (2015: £42.5 million), being a decrease of 12% to £16.2 million in continuing Children's Services and an increase of 19% to £28.8 million in discontinued Adult Services. These reflect increased revenue and operating efficiencies, offset by extended negotiations on fee increases, provision for sleep-ins and repositioning of some services.

Profit forecast

On 9 December 2016, the Group published a profit forecast in the circular relating to the recommended proposals for the disposal of the Adult Services business, which confirmed that Adjusted EBITDA for the financial year ending 31 December 2016 would be not less than £42.5 million. On a combined basis, Adjusted EBITDA of £45.0 million is consistent with the published profit forecast.

M&A costs

On a combined basis, M&A costs of £nil (2015: £2.3 million) represent advisory fees, stamp duty and other direct costs in respect of acquisitions completed in the previous year.

IPO share option charges

On a combined basis, the charge on IPO option plans of £2.2 million (2015: £2.3 million) arises on Continuation Option Plan shares awarded as part of the IPO, the impact of which is excluded from Adjusted EBITDA. Charges on future share-based awards are included within Adjusted EBITDA.

Exceptional items

On a combined basis, exceptional items were £17.1 million (2015: £24.9 million) relating largely to the financial restructuring and operational changes, of which £7.4 million (2015: £3.9 million) relate to one-off charges in the continuing Children's Services and £9.7 million (2015: £21.0 million) relate to one-off charges in the discontinued Adult Services business.

Operating profit/(loss)

1 Operating profit/(loss) is Adjusted EBITDA less depreciation, amortisation, profit or loss on disposal of assets, merger and acquisition costs and IPO share option charges (note 3).

On a combined basis, operating profit before exceptional items increased by 18% to £20.4 million (2015: £17.2 million), being an operating loss of £0.2 million (2015: £1.9 million profit) in continuing Children's Services and an operating profit of £20.6 million (2015: £15.3 million) in discontinued Adult Services, which reflect the benefits of the operational efficiencies and the remediation programme.

After exceptional items, the combined operating profit was £3.3 million (2015: £7.6 million loss), being an operating loss of £7.6 million (2015: £2.0 million) in continuing Children's Services and an operating profit of £10.9 million (2015: £5.6 million loss) in discontinued Adult Services.

Finance charges

On a combined basis, net finance charges increased to £29.8 million (2015: £8.8 million), which reflect eight months at the new funding rates as a result of the financial restructuring in April 2016, of which £29.8 million (2015: £8.7 million) relate to continuing Children's Services and £nil million (2015: £0.1 million) relate to discontinued Adult Services.

Extinguished items

All bank debt was settled on sale of the Adult Services business, so all costs of the financing facilities are reported as extinguished items within continuing operations.

Taxation

On a combined basis, there is a tax credit of £6.1 million (2015: £6.8 million), being a tax credit of £6.2 million (2015: £3.8 million charge) in continuing Children's Services and a tax charge of £0.1 million (2015: £10.6 million credit) in discontinued Adult Services. The difference between the current statutory rate and the effective tax rate is principally due to non-deductible expenditure and non-qualifying depreciation.

Earnings per share

Adjusted earnings per share from continuing operations was 2.4 pence (2015: 1.8 pence). After the profit on sale of discontinued operations, earnings per share from continuing and discontinued operations was 68.4 pence (2015: 5.4 pence loss).

Discontinued operations

On 5 December 2016, the Group entered into an agreement to sell Cambian Healthcare Limited and its subsidiaries, Care Aspirations Developments Limited and its subsidiaries, and Cambian Care Services Limited ("Adult Services"). The disposal was effected to allow the Group to focus on being a market leading provider of Children's Services, where the Board sees significant opportunities for growth, development and shareholder value. The disposal was completed on 28 December 2016, on which date control of Adult Services passed to the acquirer.

Post-completion transfer sites

At completion, it had not been possible to complete the transfer of all business contracts for a small number of sites between continuing Children's Services and discontinued Adult Services, as the requisite regulatory approval had not been received. Mechanics are agreed to govern this situation, which will not materially change the economics, although they may impact some reported figures until finalised.

Migration of services

The process of separating the Adult Services business involves the complex separation of significant business systems and support services. The time and resource to achieve this, together with the continuing maturing of occupancy, may result in a positive split of trading performance in 2017.

Capital expenditure

For continuing and discontinued operations, capital expenditure was £12.5 million in the year, of which £6.4 million was spent on continuing operations with £4.5 million on development of new capacity and £1.9 million on the maintenance of existing units. Going forward, capital expenditure in the continuing Children's Services will moderately increase given the new capital structure and strategy, together with investment in systems.

Cash flow

For continuing operations, net cash from operating activities was an inflow of £3.4 million (2015: £15.4 million), with working capital movements reflecting the growth in activity together with extended negotiations on fee increases. With the disposal proceeds from the sale of Adult Services and the financing costs of the amended bank facilities, but before payment of all transaction related costs, net cash was £116.1 million (2015: £239.3 million net debt). In view of the timing of the sale of Adult Services, some transaction related costs were settled after the year end.

Debt facilities

On 18 May 2016, the Group entered into an amended £290 million financing facilities agreement, the principal provisions of which were increased margins, additional fees, amended covenants and information undertakings, as well as restrictions on dividends and capital expenditure. With completion of the sale of Adult Services on 28 December 2016, bank facilities and swap contracts were settled in full.

The Group has agreed, subject to documentation, a new medium-term £30 million revolving credit facility for general corporate purposes with a margin of 2% over LIBOR on amounts drawn under the facility, together with customary fees, covenants, baskets and undertakings.

Martin Hopcroft

Chief Financial Officer 

The following statement will be contained in the Annual Report and Accounts 2016.

Each of the directors, whose names and functions are listed in the annual report for the year ended 31 December 2016 confirm that, to the best of their knowledge:

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy;

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and its subsidiary undertakings, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Saleem Asaria Martin Hopcroft

Chief Executive Officer Chief Financial Officer

Cautionary Statement

Certain statements in this preliminary announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Consolidated Income Statement

For the year ended 31 December 2016

1 Wholly attributable to owners of the ultimate controlling party.

2 Items that may be reclassified to profit and loss.

Consolidated Balance Sheet

As at 31 December 2016

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

Consolidated Cash Flow Statement

For the year ended 31 December 2016

Notes to the financial statements

For the year ended 31 December 2016

1. Basis of Preparation

Cambian Group plc ("Company") is incorporated in Great Britain under the Companies Act. The principal activity of the Company and its subsidiaries ("Group") is the provision of specialist behavioural healthcare services.

The preliminary announcement is based on the Group's financial statements for the year ended 31 December 2016 which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 31 December 2016.

The financial information does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by the way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

Exceptional and extinguished items reflect items of expenditure that have been disclosed separately due to their size or incidence in order to obtain clear and consistent presentation of the Group's performance.

2. Going concern

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for at least 12 months from the date of approval of these financial statements. Accordingly, they have adopted the going concern basis of accounting in preparing the financial statements.

3. Segmental analysis

On 28 December 2016, the Group made a substantial disposal with the sale of the Adult Services business. As required by accounting standards, Children's Services are reported as "continuing operations" and Adult Services are reported as "discontinued operations", however they are presented together in order to provide a fuller understanding of the overall trading performance over the last two years.

Performance is measured by Adjusted EBITDA, which is defined as earnings from continuing operations before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, merger and acquisition costs, IPO share option charges and exceptional items.

Notes to the financial statements

For the year ended 31 December 2016

3. Segmental analysis (continued)

Notes to the financial statements

For the year ended 31 December 2016

3. Segmental analysis (continued)

The allocation of revenue and costs between Children's Services and Adult Services in 2015 has been re-presented to reflect continuing and discontinued operations, as some sites were transferred for the purposes of the sale of the Adult Services business, while central costs have been reallocated to be consistent with the new perimeter.

4. Staff costs

Notes to the financial statements

For the year ended 31 December 2016

5. Exceptional items

Refinancing costs include specialists to assist in the financial restructuring. Sleep-ins is the provision for 2015 and prior years relating to the potential impact of the National Minimum Wage. Capitalised finance costs written off relate to the previously capitalised finance fees prior to the financial restructuring. Redundancy costs relate to senior management who were made redundant in late 2015 and early 2016. IT project costs written off relate to the decision in late 2015 to cancel a systems project. Costs on sale of Adult Services relate to specialists to facilitate the sale.

6. Finance costs

Notes to the financial statements

For the year ended 31 December 2016

7. Extinguished items

All bank debt was settled on sale of the Adult Services business, so all costs of the financing facilities are reported as extinguished items within continuing operations.

8. Tax

Corporation tax is calculated at 20.0% (2015: 20.3%) of the estimated taxable profit. Most of the exceptional costs are capital in nature and therefore not tax deductible, and it is estimated that £8.2m (2015: £2.5m) of the exceptional costs will be deductible, which has reduced the tax charge by £1.6m (2015: £0.5m).

Notes to the financial statements

For the year ended 31 December 2016

9. Sale of discontinued operations

10. Earnings/(loss) per share

Basic and diluted earnings/(loss) per share is based on the weighted average of 180,977,198 (2015: 177,827,244) ordinary shares in issue during the period and the profit attributable to the equity holders of £123.8m (2015: £9.6m loss).

Notes to the financial statements

For the year ended 31 December 2016

11. Goodwill

12. Other intangible assets

Notes to the financial statements

For the year ended 31 December 2016

13. Property, plant and equipment

Notes to the financial statements

For the year ended 31 December 2016

14. Provisions

Sleep-ins

The Group operates a number of sites where individuals "sleep in" overnight and are paid an allowance for so doing. It is the Group's view that this practice is not in breach of the National Minimum Wage Act 1998 or the National Minimum Wage Regulations 2015 (as amended and in force). Following the decision in Whittlestone v BJP Home Support Limited [2013] UKEAT, HMRC has made enquiries of Cambian and, the Board believes, other care service providers, regarding payments for individuals who are engaged in a "sleep in". HMRC's enquiries are at a preliminary stage and it is, therefore, not possible to say when HMRC may conclude their enquiries in this area nor what the result of those enquiries may be. The directors have used their judgement to make a provision for this. If it is ultimately judicially determined that Cambian had to pay each individual engaged in a "sleep in" an amount calculated by reference to the National Living Wage, the additional cost could be material. The amount has not been separately disclosed to avoid commercially prejudicing the issue.

Onerous contracts

The Company is party to an exclusive supply agreement in respect of pharmaceutical supplies. This contract did not automatically transfer with the sale of Adult Services. The supplier has indicated that the sale is in breach of the agreement and is seeking either a novation of the agreement or compensation. The directors have used their judgement to make a provision for this. The amount has not been separately disclosed to avoid commercially prejudicing the issue.

15. Share capital

Notes to the financial statements

For the year ended 31 December 2016

16. Net cash from operating activities

17. Net cash/(debt)

Cash and cash equivalents include cash held on behalf of clients, for which there is an equivalent liability. All interest earned is passed to clients and excluded from the Group's consolidated income statement.