Final Results

Cambian Group plc

Audited results for the year ended 31 December 2015

1 The basis of preparation is detailed in note 1 of the financial information

2 Adjusted EBITDA is Earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, exceptional items, M&A costs, and the charge relating to Continuation Option Plan shares awarded as part of the IPO

3 Adjusted basic EPS is defined as statutory basic EPS, adding back the impact of amortisation of acquired intangible assets, exceptional items, M&A costs, and the charge relating to Continuation Option Plan shares awarded as part of the IPO, net of the tax effect of these adjustments. 2014 EPS calculations reflect the number of shares in issue post IPO, excluding shares held in the Employee Benefit Trust, of 168,888,888

· Total capacity4 increased by 12% to 2,989 (2014: 2,668) 

· Lower than budgeted revenue growth of 21% to £290.1m

· Adjusted EBITDA of £42.5m, impacted by additional costs and lower occupancy in H2 2015

· Margins reduced to 14.7% (2014: 20.1%)

· Exceptional cost of £24.9m includes £21.7m non-cash asset impairment - Cambian remains underpinned by its valuable asset portfolio

· Average occupancy4 of 78% (2014: 81%)

· Completed £25.4m equity placing in March 2015 to support strategic acquisition of By the Bridge - creating a leading provider of therapeutic fostering

· Closing net debt of £239.3m

· Agreed terms for amendment of Group's bank facilities, with covenants reset

· Dividend suspended pending return to growth

4 2014 capacity and occupancy have been adjusted to remove CAMHS and Sexual Trauma school places where, although the education capacity is separately registered, the fee is combined within the residential facility fee. The impact is a reduction in 2014 closing capacity of 82 places and a reduction in 2014 closing occupancy of 35 occupants

· Strong demand for services

· Accelerated organic expansion plan added total of 377 gross places (321 net of closures)

· Launched a number of new specialist services

· Sustained high quality ratings: 92% of adult facilities and 83% of children's facilities rated by regulators as "Good" or "Outstanding" at 31 December 2015

However:

· Occupancy levels across new and existing places impacted by staff recruitment and capability issues

· Profitability further impacted by new unit opening costs and general cost overruns

· Trading issues exacerbated by inefficient cost management

· Commissioned PwC to undertake a financial review of certain aspects of the Group's cost management

· Actions being implemented to strengthen systems, processes and controls

· Reduced capital expenditure in 2016

· Revised growth strategy with a short-term focus on increasing occupancy

· Reviewed staffing requirements and significantly reduced central function headcount

· Launched cost efficiency programme

· Implemented strict recruitment processes and redesigned training initiatives to enhance specialist staff capabilities

· Board considering strategic options which may include sale of certain assets or business units

· Remedial actions are delivering benefits

· Trading to date progressing well with occupancy levels increased in Q1

· Initiated price negotiations with commissioners regarding National Living Wage

· Delivering high quality scores and seeing increase in referrals

· Finance costs will increase as part of agreed terms for amendment of bank facilities

Christopher Kemball, Chairman, commented:

"The results for 2015 were very disappointing but our remedial actions are taking effect. We continue to experience strong demand for our specialist services and trading to date is in line with the Board's expectations. As previously advised, the result for the first half will be lower than H1 2015. The Board is confident that growth will be resumed for the year as a whole.

Despite the challenges we faced, we should not lose sight of the fact that Cambian remains fundamentally a good business with a strong value proposition for its customers.

Our agenda is clear: continue to implement the remedial action programme; ensure we meet our obligations under the agreed terms for the amendment of our bank facilities; and continue to deliver the highest quality specialist services our customers demand."

A results presentation will be held for investors and analysts at 2.30pm today at the offices of Numis Securities, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. There will also be a dial in facility for those unable to attend. If you would like to either attend in person or dial into the call, please register your interest via Instinctif Partners. Materials from the presentation and an audio webcast of the presentation will be available on the investor relations page of Cambian's website at http://www.cambiangroup.com/cambiangroup/investor/home from 6pm.

Overview

Operationally, 2015 looked as if it would be a year of achievement. We continued to experience significant demand for our services, our strong quality ratings were maintained, we broadened the range of our services with the acquisition of By the Bridge, a specialist fostering business, and we added significantly to our number of places in an ambitious expansion drive. 

Regrettably, our expansion plan was in retrospect overly ambitious and this is reflected in our disappointing financial performance. 

Difficulties in recruiting and training staff, particularly in Children's Services, left us unable to open some of our new facilities on time, and in order not to sacrifice quality, we made a number of unit level decisions to block or slow admissions, which resulted in revenues falling short of expectations.

This was further exacerbated by failures in forecasting and controlling our cost base during a period of integration and high growth, and has resulted in adjusted EBITDA over 12% lower than the previous year.

In response to this, we commissioned PricewaterhouseCoopers to undertake a financial review of certain aspects of the Group's cost management. In addition, we are currently implementing a number of remedial actions to improve our cost control, forecasting and management of our suppliers. We have restructured our central functions and more closely aligned them with the business, resulting in cost savings, and we have reduced our growth plan so that our focus is now on filling existing capacity.

We hired Martin Hopcroft, who has restructuring and turnaround experience, in late 2015 and he was appointed as Interim CFO in early 2016. In addition we have hired additional resource to focus on managing our cost base with an emphasis on procurement.

We are currently undertaking a search process for a permanent CFO.

Financial Results

Revenue increased by 21% to £290.1 million (2014: £240.6 million). Adjusted EBITDA was £42.5 million (2014: £48.4 million) with adjusted EBITDA margin down from 20.1% to 14.7%. Operating loss was £7.6m (2014: £7.1m profit). Adjusted earnings per share were 10.6p (2014: 11.0p). Statutory basic loss per share was 5.4p (2014: 6.1p loss).

The Group's total capacity4 increased from 2,668 to 2,989 in the year with average occupancy4 of 78% (2014: 81%).

As previously advised, the Board is not recommending a final dividend and will look to reinstate the dividend at an appropriate time.

4 2014 capacity and occupancy have been adjusted to remove CAMHS and Sexual Trauma school places where, although the education capacity is separately registered, the fee is combined within the residential facility fee. The impact is a reduction in 2014 closing capacity of 82 places and a reduction in 2014 closing occupancy of 35 occupants

Bank Agreement

As announced in March 2016, our financial performance has resulted in a breach of our banking covenants at 31 December 2015 and would also be likely to have led to a breach when next tested in the current financial year. Accordingly, and as announced in March, we agreed a temporary waiver with our lending banks to cover this eventuality and to facilitate our discussions with them to amend our facility agreement.

On 26 April 2016 the Board and the Group's lending banks agreed terms for the amendment of the Group's £290m Facilities Agreement, the provisions of which are set out on page 13 of this announcement.

Strategy Update

The Board has been reviewing its strategic options in light of the agreed terms for the amendment of its banking facilities as well as the wider market environment in which it is operating.

The Board has concluded that it will continue to focus on its leading position in Children's Services and has appointed advisors to review its strategic options in the Adult Services business, which may or may not lead to a sale of all or part of this division.

No final decisions have been made on this or any other strategic option and the Board will provide updates as appropriate.

Quality of Care

Ensuring high levels of care quality for the individuals we look after is core to our business. I am therefore pleased to confirm that as at 31 December 2015, 92% of our adult facilities and 83% of our children's facilities were rated either "Good" or "Outstanding" by our regulators, CQC and Ofsted respectively, at a time when they are rightly increasing the standards they expect from care providers.

We are still aiming to improve the delivery of what we believe are life-changing outcomes for our patients by supporting them with our highly skilled specialist teams and deploying a therapy-led approach in modern and friendly surroundings. Our objective is to increase the proportion of our facilities rated "Good" or "Outstanding" over the medium term.

We make considerable efforts to anticipate and efficiently deliver the services required by our customers and regulators. As Chairman, I now meet CQC and Ofsted annually to discuss areas of mutual interest and concern. In this regard, we also invited David Behan, the Chief Executive of the CQC, to attend our Board and Audit and Risk Committees in August so that he could see, understand and comment on how we operate.

Board Changes

In July 2015, Dr. Graham Rich joined the Board as a Non-Executive Director and member of the Nominations and Audit and Risk Committees. Graham qualified in medicine and has spent his career in the healthcare profession where he gained significant experience in running two NHS organisations as well as having been Director of Health Services at The Boston Consulting Group, where he is now a Senior Advisor.

On 2 November 2015 it was announced that Andrew Griffith would stand down from the Board after the announcement of the 2015 full year results. Accordingly, Andrew has resigned from the Board on 27 April 2016 and will leave the business shortly. Martin Hopcroft was appointed as Interim CFO early in 2016 and we are currently undertaking a search process for a permanent CFO.

We are pleased today to announce the appointment of Mike Butterworth as an additional non-executive director with immediate effect.

Our People

The welfare of our dedicated and skilled staff is critical to achieving the best possible outcomes for those placed in our care. During 2015, we conducted a thorough review of our staff pay and conditions to ensure that we are in line with salaries in the NHS and our private sector competitors. As a result, we have simplified our pay scales, introduced additional pay for achieving relevant qualifications and linked these to the Government's announced National Living Wage ("NLW") levels, irrespective of an employee's age.

The Board would like to take this opportunity to thank all our staff for their hard work and dedication throughout the year. It is much appreciated.

Pricing

We have engaged with our customers since last November to discuss and agree increased prices for existing service users to reflect the NLW introduction and other factors, with the aim of ensuring that there will be no negative impact on the business. We are pleased with the progress we have made so far.

Outlook

The results for 2015 were very disappointing but our remedial actions are taking effect. We continue to experience strong demand for our specialist services and trading to date is in line with the Board's expectations. As previously advised, the result for the first half will be lower than H1 2015. The Board is confident that growth will be resumed for the year as a whole.

Despite the challenges we faced, we should not lose sight of the fact that Cambian remains fundamentally a good business with a strong value proposition for its customers.

Our agenda is clear: continue to implement the remedial action programme; ensure we meet our obligations under the agreed terms for the amendment of our bank facilities; and continue to deliver the highest quality specialist services our customers demand.

Christopher Kemball

Chairman

26 April 2016

Overview

We started 2015 with an ambitious plan to grow the business by increasing capacity organically, to broaden our range of services by acquisition and to strengthen the company's operating platform in line with our growth agenda.

Our failure to recruit and train staff to the required standards meant that we were unable to increase occupancy in line with our strategic plan. These operational events were compounded by weaknesses in our financial procedures and forecasting, which impacted our ability to adjust our cost base in a timely manner.

Consequently, the year ended with a disappointing financial performance as revenues increased but were lower than expected and the impact on margins impacted profitability.

During the year we became the largest provider of therapeutic fostering services through the acquisition of By the Bridge. Additionally, we launched a number of new specialist services.

Despite the disappointment of our financial results, we remain confident in the business. Cambian is a leader in the provision of high quality care in a market where there is urgent need. Our focus in the short-term is the ongoing remedial action plan to boost occupancy levels and to put the Group on a sound financial footing to enable sustainable profitable growth, including reviewing the Group's strategic options.

Business Performance

In 2015 the Group delivered revenue growth of 21% (2014: 12%), with an Adjusted EBITDA margin of 14.7% (2014: 20.1%). The revenue growth includes the impact of current and prior year acquisitions as well as revenue from new occupants in our sites.

We did however experience a revenue and occupancy shortfall against our initial expectations, in part due to difficulties in recruiting sufficient skilled staff in our new sites and to replace normal turnover in existing sites, particularly in our Children's Services division in the second half of the year. The Group's average occupancy in the year was 78% (2014: 81%).

Going into 2015, we had budgeted a significant increase in costs over 2014 in two main areas: first, an investment in our central functions such as HR, Marketing and Quality to build an operating platform capable of delivering significant growth; and, secondly, costs relating to newly opened units which are incurred ahead of revenue from occupancy.

With the shortfall in revenue against our budget, these costs impacted our profit in the year and, in addition, we experienced cost overruns in areas such as recruitment costs and repairs and maintenance. Our forecasting of costs was poor in part due to issues arising from the integration of the Cambian and Advanced Childcare back offices in the year. Once the revenue shortfall was identified, it took longer than expected to manage down non-wage costs during the year.

In response to this performance, we have taken a number of steps:

· We commissioned PricewaterhouseCoopers to undertake a financial review of certain aspects of the Group's cost management.

· We are currently implementing a number of remedial actions to improve our cost control, forecasting and management of our suppliers

· We have put on hold new openings to focus on filling the Group's current capacity from existing sites and those sites already in development. This will reduce 2016 openings to approximately 40 net additional places allowing for improved margins as the portfolio of facilities matures.

· We have restructured our central functions: we devolved our HR department into regional centres, reporting to the operating divisions and thereby improving the connection between staffing needs and our recruitment pipeline; we have disbanded our M&A and asset acquisition teams; and restructured our quality team. All of these steps will generate ongoing savings for the Group.

· Finally, we hired Martin Hopcroft, who has restructuring and turnaround experience, in late 2015 and he was appointed as Interim CFO in early 2016. In addition we have hired additional resource to focus on managing our cost base with an emphasis on procurement.

Service Delivery

The demand for Behavioural Health services in the UK remains strong, driven by underlying trends of a higher incidence and better diagnosis of conditions, together with greater quality of life expectations for those people impacted. In addition, HM Government continues to outsource such services, with high expectations for the quality of service provided and the outcomes expected.

In order to ensure that we are well-positioned to take advantage of these market dynamics we made significant changes in 2015:

· First, we moved to a greater specialisation and delineation of our services (for example in Autism and Personality Disorders).

· Secondly, we continued our move to higher severity services (for example for children who have suffered from sexual exploitation or abuse, or children and adolescents suffering from mental health conditions).

· Thirdly, we aligned our management, training and therapeutic capabilities to these services.

In line with these areas of focus, Cambian has grown its capacity significantly in the year, adding a total of 377 places. With 56 places being closed or re-provisioned, we added a net 321 places in the year including 259 in our Children's Services and 62 in our Adult Services.

With a focus on maturing our existing business, our growth plan for 2016 is restricted to completing units that are currently in construction, so we anticipate adding approximately 40 net new places to capacity in the year.

Children's Services

The focus of our growth plan in the year was in the Children's division.

We increased our education services significantly, in particular adding three large schools: Bletchley, Spring Hill and Potterspury Lodge (with a combined capacity of 166 places). These offer significant opportunity for future revenue growth as we build capacity and focus their offerings on higher value services to address more acute needs. We have also grown our Children's residential services, in particular for children suffering from abuse or neglect or with mental health conditions.

We have previously highlighted fostering as an area that we wished to grow. To this end, we were pleased to acquire By the Bridge in March. By the Bridge operates at the high-severity end of fostering and has built a reputation for providing high quality, therapeutic fostering services and for successfully placing children with complex needs in a family environment. As such, it occupies a niche position between traditional fostering and residential care and now forms an integral part of our Children' Services offering. Cambian's existing fostering operation has been integrated into By the Bridge during the year. Our focus is now on foster carer recruitment to drive placement numbers. At 31 December 2015 the Group had 668 fostering placements (2014: 203 placements), of which 501 related to By the Bridge.

Adult Services

The Adult Services market is more mature than the Children's market. However, we see opportunities in specialist sub-segments in the Adult market and, to that end, we opened four larger units in Adult in the year with including two Personality Disorder units, an Acquired Brain Injury unit and a unit for Adults with autism.

We have two Woodleigh units under construction and due to open later this year and, with a good performance from existing Woodleigh units since acquisition in 2014, we are confident that there will be strong demand for these services.

Quality and Regulatory

Our ambition is to be the highest quality provider of behavioural health services to Children and Adults. It is pleasing to report, therefore, that our regulatory scores remained strong throughout the year with 85% of our facilities rated good or outstanding with Ofsted or the CQC as at 31 December 2015. We underwent no embargoes and we currently have no facilities with compliance notices.

The sector is seeing 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.

At the same time we have seen an extension of the time taken to register new sites and services and this has contributed to delays in opening new sites.

From a governance perspective, in order to ensure an integrated approach to risk we have now merged the Audit Committee and the Quality and Risk Committee. The re-named Audit & Risk Committee now directly oversees all elements of risk in the business.

Fees

In April 2015 we increased fees, across the majority of our services, by an average of 2% for new admissions. From the beginning of 2016, have further increased fees for new service users.

As previously indicated, we are supportive of the introduction of the NLW and we are in negotiation with commissioners to mitigate the net impact by corresponding fee increases for all existing service users. We have engaged with our customers since last November to discuss and agree increased prices to reflect the NLW introduction and other cost factors with the aim of ensuring that there will be no negative impact on margins. We are pleased with the progress we have made so far.

Summary and Outlook

It is a disappointment to report poor results, especially when they disguise the very real progress we did make during the year in terms of new service delivery and care quality.

We have moved quickly to remedy the issues facing our business and have already seen positive trends, including improved occupancy levels, in the first quarter of 2016. 

We are focussing on our core business. We are filling our existing capacity, ensuring that we have the necessary systems in place and deploying staff more efficiently.

We remain confident for the medium-term outlook and also the Group's longer-term potential.

Saleem Asaria

Chief Executive Officer

26 April 2016

Summary of Performance

2 Adjusted EBITDA is Earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, exceptional items, M&A costs, and the charge relating to Continuation Option Plan shares awarded as part of the IPO

4 2014 capacity and occupancy have been adjusted to remove CAMHS and sexual trauma school places where, although the education capacity is separately registered, the fee is combined within the residential facility fee. The impact is a reduction in 2014 closing capacity of 82 places and 35 occupants

5 Fostering is not included in the capacity and occupancy numbers, and instead is disclosed separately due to fostering's business model being different from our residential and education services

6 Capacity is defined as the number of separate places registered with a regulator to accept service users

Group performance

In 2015 the Group delivered revenue growth of 21% (2014: 12%). Average occupancy was 78% (2014: 81%) the drop largely being due to the lag effect of new places added in the year. The Group's Adjusted EBITDA margin was 14.7% (2014: 20.1%), impacted by additional costs being incurred in the year. At a unit level, costs were incurred particularly in relation to new sites in areas such as recruitment costs, in advance of revenue growth from occupancy. In addition, we increased costs centrally, including in our operations teams, HR function and sales and marketing function, which impacted the margin in the year in both Adult and Children's services.

With the scaling back of the Group's growth plan, Underlying EBITDA (calculated as Adjusted EBITDA adding back development losses, being losses incurred in the first 18 months of a site's operation or repositioning) is no longer a KPI that is being measured. Instead, Adjusted EBTIDA is the key measure of business profitability.

Divisional Performance

Adult

Adult Services revenue grew by 20% in the year including the contribution from Woodleigh, acquired in December 2014. Average occupancy was 87% (2014: 89%), the reduction mainly being the impact of the new places opened in the year being at the start of their maturity profile. Over the year, Adult Services added 43 net new occupants organically, a relatively modest number, but this follows a strong performance in 2014.

The primary areas of growth were in Personality Disorders and Acquired Brain Injury. As new units mature we expect to increase occupancy further in the future. Adjusted EBITDA margin was 20.6% (2014: 24.5%), reflecting the impact of growth sites in the year, some additional costs in our mature Adult sites, and additional support costs in areas such as HR and Quality.

Child

Children's Services revenue grew by 21% in the year, including the contribution of By the Bridge in 2015. Average occupancy in Children's Services was 73% (2014: 74%), reflecting the relatively immature nature of the Children's Services segment as compared to the Adult Services segment, and in particular, the significant capacity added in 2015.

Whilst we added 188 net new occupants organically in Children's Services, this was short of our target as we were unable to accept admissions in some parts of our children's services in the second half of the year due to staffing and training issues, and the relatively short tenure of new staff recruited. Our autism schools and Children's mental health services saw good growth in occupancy with new capacity added in the year.

The Adjusted EBITDA margin of Children's Services was 10.4% (2014: 17.0%), with an absolute reduction in Adjusted EBITDA of £6.1m. The biggest impact on profit was within our Children's residential services where we incurred significant additional costs in areas such as wages, recruitment and repairs and maintenance, without a commensurate increase in revenue. Against this our education and Children's mental health units grew profitability in the year. In addition, profitability was impacted by significant additional central support costs in the year, for example in the operations teams required to manage a portfolio of over 200 sites.

Operating Profit

Adjusted EBITDA reconciles to Operating Profit as follows:

2 Adjusted EBITDA is Earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, exceptional items, M&A costs, and the charge relating to Continuation Option Plan shares awarded as part of the IPO

M&A Costs

M&A costs represent advisory fees, stamp duty and other direct costs in respect of acquisitions completed in the year

Charge on IPO option plans

The charge on IPO option plans 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 will be included within Adjusted EBITDA.

Exceptional items

Exceptional items consist of a fixed asset impairment of £21.7m, £2.7m IT project costs written off, redundancy costs of £0.3m and IT integration costs of £0.2m.

The fixed asset impairment relates to 19 sites where the net asset value was not supported by the value in use or fair value less costs of disposal.

IT project costs written off relate to £0.9m costs capitalised in 2014, and £1.8m of costs capitalised in 2015, in relation to an integrated Finance, HR and CRM system. In December 2015 the Board revised the project in order to pursue a lower cost option of remediating current systems.

Finance Charges

The Group incurred net finance costs of £8.8m in the year (2014: £11.4m).

Taxation

The Group's tax charge was a credit £6.8m (2014: £4.1m charge). This includes a credit of £8.5m in relation to the impairment of assets and a revaluation of deferred tax liabilities following the change in the UK corporation tax rate. Excluding these factors, the Group's tax rate was 22% of profit before tax and M&A and exceptional costs. The difference between the current statutory rate of 20.25% and the effective tax rate is principally due to non-deductible expenditure and non-qualifying depreciation.

Earnings per Share

Statutory basic EPS was a loss of 5.4 pence (2014: loss of 6.1 pence), and statutory diluted EPS was a loss of 5.4 pence (2014: loss of 6.1 pence). Adjusted basic EPS is defined as statutory basic EPS, adding back the impact of amortisation of acquired intangible assets, the charge relating to Continuation Option Plan shares awarded as part of the IPO, and exceptional items and M&A costs, net of the tax effect of these items. 

Statutory basic EPS reconciles to Adjusted basic EPS as follows:

Acquisitions

During the year, the Group acquired By the Bridge for a net cash consideration of £34.3m, initially funded by debt and subsequently partially refinanced through an issue of additional share capital raising £25.4m.

In addition, the Group purchased the share capital of Interact Care Limited, a portfolio of assets providing Learning Disability services to Children, for a net cash consideration of £3.3m, and acquired two schools, Spring Hill and Potterspury Lodge for £1.6m and £2.1m respectively. For the purposes of the capacity and occupancy numbers within this report, these purchases are treated as organic growth as the assets were acquired at rebuild cost and meet our organic growth capital expenditure hurdle rates of return.

Capital Expenditure

The Group incurred £44.3m (2014: £24.5m) of capital expenditure in the year, of which £32.5m was spent on acquiring and developing new capacity. A further £6.8m (2014: £5.2m) was spent on the maintenance of our existing units (including £0.6m remedial work on certain Woodleigh units), £1.8m was incurred on an integrated Finance, HR and CRM project (which was cancelled in December 2015 as the Group pursued remediation of current systems), and £3.1m was spent on IT and non-site level capital expenditure, including refurbishing our central office in Hammersmith.

Cash Flow

A reconciliation of cash flow from Adjusted EBITDA to the movement in net debt is set out below.

2 Adjusted EBITDA is Earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, exceptional items, M&A costs, and the charge relating to Continuation Option Plan shares awarded as part of the IPO

The movement on working capital comprises a £17.6m outflow on the movement on trade and other debtors, a £6.2m inflow from the movement on deferred income and £3.0m inflow on trade and other payables. The increase in trade and other debtors partly arises from an acceleration in the timing of billing of certain of our services in 2015 and is effectively offset by the increase in deferred income. Netting these two factors gives a net outflow of £11.4m from trade and other receivables - a reduction from the position reported in our 2015 half year results, but still a higher than expected outflow given the growth in the business in the year. The reason for this was issues arising out of the integration of the finance functions of Cambian and Advanced Childcare during 2015.

During the year, the Group made tax payments of £8.3m which related to the prior year charge, and instalment payments on our current year charge.

In March 2015, following the acquisition of By the Bridge, the Group issued 11,863,636 shares for a cash consideration of £25.4m, net of fees.

Debt Facilities

The Group extended its facilities agreement in March 2015 by £35m initially to fund the acquisition of By the Bridge. In the second half of 2015, the Group entered into £80m of interest rate swaps until April 2019 at a blended rate of 1.6% over LIBOR.

At 31 December 2015, the total facilities available to the Group were £290m of which £256.5m was utilised. Together with cash and other debt like items on the balance sheet, net debt was £239.3m (2014: £188.7m). 

On 26 April the Board and the Group's lending banks agreed terms for the amendment of the Group's £290m Facilities Agreement, the principal provisions of which are that a fee of £2.9m (representing 1% of the total Facilities) is payable immediately, with a flat rate margin of 3.75% over LIBOR payable on the amounts drawn under the Facilities. Furthermore, the facilities are split into "Tranche A" of £120m and "Tranche B" of £170m. Additional interest of 10% per year is to be accrued on Tranche A and paid on repayment or expiry of Tranche A. Should Tranche A not be repaid by 30 April 2017, then a further fee of £4.0m is payable. An exit fee of up to £10m is payable on repayment of Tranche A which expires on 30 September 2017. Tranche B expires on 31 March 2019. The Group has also amended its covenants and a number of information undertakings under the agreed terms.

An important requirement of the agreed amended terms is the repayment of Tranche A by 30 September 2017. As explained in the Chairman's statement on page 4, the Board has been actively reviewing with its advisors a number of strategic options for the Group and the Board is confident that these will enable a successful repayment by that date.

Dividend

In view of the disappointing financial performance of the business in the year, as announced on 9 February 2016, the Board has determined that no dividend will be proposed in respect of the 2015 financial year.

Statement of Directors' Responsibilities

The following statement will be contained in the 2015 Annual Report and Accounts.

Each of the directors, whose names and functions are listed in the annual report for the year ended 31 December 2015 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

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.

*Restated to reflect IFRS 3 (2008) measurement period adjustment for Woodleigh and Ansel (note 12)

Non-controlling interests relate to the equity held by management and ex-employees in Cambian Holdings Limited, Cambian Developments Limited, Care Aspirations Holdings Limited and Advanced Childcare Holdings Limited prior to the IPO.

Notes to the Financial Information

For the year ended 31 December 2015

1. General Information

Basis of Preparation

Cambian Group Plc (the "Company") is a company incorporated in Great Britain under the Companies Act. The principal activity of the Company and its subsidiaries (collectively, the "Group") is the provision of high quality behavioural health services to children and adults.

The preliminary announcement is based on the Group's financial statements for the year ended 31 December 2015 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 2015. 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 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.

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 the foreseeable future. Accordingly, they have adopted the going concern basis of accounting in preparing the financial statements. The directors have considered the Group and Company's forecasts and projections, taking account of reasonably possible changes in trading performance, as well as the impact of the agreed terms for the amendment of the Group's bank facilities and the strategy update set out on page 4 of this announcement, and are satisfied that the Group and Company should be able to operate within the level of its current facilities.

Notes to the Financial Information

For the year ended 31 December 2015

2. Exceptional items

The following table provides a breakdown of exceptional items:

IT project costs written off relate to £0.9m costs capitalised in 2014, and £1.9m of costs incurred 2015, in relation to an integrated Finance, HR and CRM system. In December 2015, the Board cancelled the project, and instead the Company is pursuing a lower cost option of remediating current systems.

Redundancy costs relate to senior management who were made redundant in the second half of 2015.

Impairment loss is the difference between the net asset value of property, plant and equipment, and the greater of value in use or fair value less costs to sell.

Business integration costs represent the cancellation of IT contracts.

The gain on acquisition is the difference between the fair value of the assets acquired and the consideration on certain acquisitions in the year.

The majority of the exceptional costs are capital in nature and therefore do not attract a tax deduction. The Group estimates that £2.7m (2014: £2.5m) of the exceptional costs will be deductible, and this is reflected as a reduction of £0.6m (2014: £0.5m) in the tax charge for the year.

3. Finance income

Notes to the Financial Information

For the year ended 31 December 2015

4. Finance costs

5. Cash and cash equivalents

Cash and cash equivalents include cash held on behalf of clients. All interest earned on these funds are returned back to the client and are not included in the Group's statement of comprehensive income. An equivalent liability of £3.1m (2014: £2.1m) exists for this amount.

Notes to the Financial Information

For the year ended 31 December 2015

6. Goodwill

*Restated to reflect IFRS 3 (2008) measurement period adjustment for Woodleigh and Ansel (note 12)

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination.

Goodwill has been allocated to two identifiable CGUs, Adult and Child, which align to the reported operating segments. The recoverable amounts of the CGUs are determined from value in use calculations.

The cash-generating units to which goodwill is allocated are presented below:

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The recoverable amount, which is the higher of fair value less cost of disposal and the value in use of CGUs, has been determined based on value in use calculations. These calculations use cash flow projections for operational assets at the balance sheet date based on financial budgets approved by the board of directors for the forthcoming year and forecasts for up to four years which are based on assumptions of the business, industry and economic growth. Cash flows

Notes to the Financial Information

For the year ended 31 December 2015

beyond this year are extrapolated using growth rates, which do not exceed the expected long-term economic growth rate. The cash flows are discounted to the net present value using pre-tax discount rates.

The key assumptions for the value in use calculations are those regarding discount rates, long-term growth rates, mature occupancy rates, asset level fill rates, patient fee rates and costs. Mature occupancy rates, asset level fill up rates, patient fee rates and direct costs are derived from bottom up, asset by asset level analysis produced as part of management's annual budget process and are not dissimilar to past experience at the point of budget production. The Group has assumed a growth rate of 2% (2014: 2%) into perpetuity when assessing its future cash flows. Management estimates discount rates using pre-tax rates that reflect the market assessment of the time value of money as at each balance sheet date, adjusted for the risks specific to the CGUs.

The pre-tax rate used to discount cash flow forecasts of CGUs is as follows:

The Group has additionally utilised a third party to perform a valuation of the business, which supports the value in use calculations.

Sensitivities

A sensitivity analysis has been performed on each of the base case assumptions used for assessing the goodwill with other variables held constant. Consideration of sensitives to key assumptions can evolve from one financial year to the next.

The directors have concluded that in the case of Adult, due to the extent of the headroom of the value in use over the carrying amount of goodwill it is unlikely, although possible, that a key assumption would change to the extent that it causes the carrying amount of goodwill to exceed its value in use. In the case of Child, given the headroom of value in use over the carrying amount of goodwill is considerably less than in Adult, it is more likely that a change in a key assumption could cause the carrying value of goodwill to exceed its value in use. The current headroom for Child is £12.9m (2014: £49.2m). Consequently, the directors have considered the amount by which the value assigned to each key assumption must change, after incorporating any consequential effects of that change on the other variables used to measure recoverable amount, in order for the Child CGU's recoverable amount to be equal to its carrying amount. This is illustrated in the below table:

Notes to the Financial Information

For the year ended 31 December 2015

7. Property, plant and equipment

*Restated to reflect IFRS 3 (2008) measurement period adjustment for Woodleigh and Ansel (note 12)

In addition, the Group's obligations under finance leases are secured by the lessor's title to the leased assets, which have a carrying amount of £0.8m (2014: £1.1m). These assets are included under motor vehicles.

Notes to the Financial Information

For the year ended 31 December 2015

Impairment losses recognised in the year

During the year the Group carried out a review of the recoverable amount of its property, plant and equipment throughout to the business. The recoverable amount, which is the higher of fair value less cost of disposal and the value in use, has been determined initially based on value in use calculations. These calculations use cash flow projections for operational assets at the balance sheet date based on financial budgets approved by the board of directors for the forthcoming year and forecasts for up to four years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this year are extrapolated using growth rates, which do not exceed the expected long-term economic growth rate. The review has led to an impairment loss of £20.9m in land and buildings relating to the Adult segment, and £0.8m relating to the Child segment, which has been recognised in profit or loss.

The key assumptions for the value in use calculations are those regarding discount rates, long-term growth rates, mature occupancy rates, asset level fill rates, patient fee rates and costs. Mature occupancy rates, asset level fill up rates, patient fee rates and direct costs are derived from bottom up, asset by asset level analysis produced as part of management's annual budget process and are not dissimilar to past experience at the point of budget production. The Group has assumed a growth rate of 2% into perpetuity when assessing its future cash flows. Management estimates discount rates using pre-tax rates that reflect the market assessment of the time value of money as at each balance sheet date, adjusted for the risks specific to the Group.

Where the value in use ("VIU") has indicated and impairment, the Group also estimated fair value ("FV") less costs of disposal of the related land and buildings, through use of external valuations, based on recent market prices of assets with similar age and obsolescence.

The below table illustrates the net asset value compared to fair value less costs to sell, and value in use.

The discount rate used in measuring value in use was 8.7% per annum. No impairment assessment was performed in 2014 as there was no indication of impairment.

The impairments losses have been included in profit or loss in the administrative expenses line item.

Notes to the Financial Information

For the year ended 31 December 2015

8. Borrowings

The borrowings above are shown net of loan issue costs incurred at inception of the loan.

The Group has financed all of its debt with a senior term loan of £75m and revolving facilities agreement of £180m ("the facilities"), totalling £255m, provided by a syndicate of banks, and secured over the assets of the Group. The facilities were subsequently extended by £35m on 26 March 2015 to fund the acquisition of By the Bridge. Loans drawn under the facilities carry an interest rate of between 2.00% and 2.75% above LIBOR.

At 31 December 2015, £75m was drawn under a fixed term loan and £181.5m was drawn under the revolving credit facilities, both expiring on 31 March 2019.

As at 31 December 2015, the Group had breached the loan covenants, and consequently all borrowings are now current liabilities. Subsequent to the year end, the Group has agreed terms for the amendment of its facilities, refer to note 17.

Notes to the Financial Information

For the year ended 31 December 2015

9. Share capital

Following admission to the London Stock exchange the ordinary shares rank equally for voting purposes. Each ordinary share holds one vote and ranks equally for any dividend declared.

In March 2015, following the acquisition of By the Bridge Limited, the company placed 11,863,636 shares at 220 pence per share, for which net cash proceeds of £25.4m were received.

10. Cash flow hedging reserve

The cash flow hedging reserve includes the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges, net of deferred tax.

11. Other reserves

Other reserves of £145.8m arose at the date of the IPO, when the Group was formed and accounted for under the pooling of interest method. As a result, the consolidated financial statements of the Company were presented as a continuation of an existing Group, under the basis of ultimate control.

Other items in other reserves include the purchase of Cambian Group plc shares by the Employee Benefit Trust, a share placement of Cambian Group plc shares, and the credit to equity for equity settled share based payments.

Notes to the Financial Information

For the year ended 31 December 2015

12. Acquisition of subsidiaries

Year ended 31 December 2015

(a) By the Bridge

On 26 March 2015 the Group acquired 100% of the share capital of By the Bridge Holdings ("By the Bridge") for £44.8m. By the Bridge is an independent fostering provider specialising in therapeutic foster care for over 500 children and 350 foster families across the South East, Midlands, East, North West and Yorkshire. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008).

The following table summarises the consideration paid for By the Bridge, the provisional fair value of assets acquired and liabilities assumed at the acquisition date:

The goodwill of £14.1m arising from the acquisition consists of the value of the assembled workforce, potential synergies gained from combining the head office functions and expansion potential. None of the goodwill is expected to be deductible for income tax purposes.

Trade and other receivables include receivables with a gross contractual value of £2.1m. As at the acquisition date, the best estimate of contractual cash flows not expected to be collected was £Nil.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £1m.

By the Bridge contributed revenue of £19.3m and a profit of £6.1m to the Group's loss before tax for the year between the date of acquisition and the balance sheet date.

If the acquisition of By the Bridge had been completed on the first day of the financial year, Group revenues for the year would have been £302.9m and Group loss before tax would have been £14.2m.

Notes to the Financial Information

For the year ended 31 December 2015

(b) Interact Care

On 9 June 2015 the Group acquired 100% of the share capital of Interact Care Limited ("Interact") for £3.4m. Interact is a specialist provider of high acuity care for children and young adults (8 to 25 years of age) with learning difficulties, autism and complex needs. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008).

The following table summarises the consideration paid for Interact, the provisional fair value of assets acquired and liabilities assumed at the acquisition date:

The goodwill of £0.2m arising from the acquisition consists of the value of the assembled workforce, potential synergies gained from combining the head office functions and expansion potential. None of the goodwill is expected to be deductible for income tax purposes.

Trade and other receivables include receivables with a gross contractual value of £0.2m. As at the acquisition date, the best estimate of contractual cash flows not expected to be collected was £Nil.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £0.3m.

Interact contributed revenue of £2.2m and profit of £0.3m to the Group's loss before tax for the year between the date of acquisition and the balance sheet date.

If the acquisition of Interact had been completed on the first day of the financial year, Group revenues for the year would have been £290.7m and Group loss before tax would have been £16.5m.

Notes to the Financial Information

For the year ended 31 December 2015

(c) Potterspury Lodge School

On 15 July 2015 the Group acquired the trade and assets of Potterspury Lodge School ("Potterspury") for £1.8m. Potterspury is an operational special school in Northamptonshire catering to individuals with autistic spectrum disorders. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008).

The following table summarises the consideration paid for Potterspury, the provisional fair value of assets acquired and liabilities assumed at the acquisition date:

The acquisition resulted in a gain to the income statement as the previous owners were focussed on selling the business to a high quality acquirer and not marketed widely, as a result the Group was able to agree the purchase on favourable terms.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £0.2m.

Potterspury contributed revenue of £1m and £nil to the Group's loss before tax for the year between the date of acquisition and the balance sheet date.

If the acquisition of Potterspury had been completed on the first day of the financial year, Group revenues for the year would have been £291.4m and Group loss before tax would have been £16.4m.

Notes to the Financial Information

For the year ended 31 December 2015

(d) Spring Hill School

On 31 December 2015 the Group acquired the trade and assets of Spring Hill School ("Spring Hill") for £2.1m. Spring Hill is an operational special school in North Yorkshire, catering to individuals with learning difficulties and challenging behaviour. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008).

The following table summarises the consideration paid for Spring Hill, the provisional fair value of assets acquired and liabilities assumed at the acquisition date:

The acquisition resulted in a gain to the income statement as the previous owners were focussed on selling the business to a high quality acquirer and not marketed widely, as a result the Group was able to agree the purchase on favourable terms.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £0.1m.

The Spring Hill contributed revenue of £nil and £nil to the Group's loss before tax for the year between the date of acquisition and the balance sheet date.

If the acquisition of Spring Hill had been completed on the first day of the financial year, Group revenues for the year would have been £292.8m and Group loss before tax would have been £16.1m.

Notes to the Financial Information

For the year ended 31 December 2015

Year ended 31 December 2014

(a) Woodleigh Community Care

On 5 December 2014 the Group acquired 100% of the share capital of Woodleigh Community Care Group for £65.5m ("Woodleigh"). Woodleigh is a residential service for adults with complex needs, challenging behaviours and learning disabilities. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008).

The following table summarises the consideration paid for Woodleigh, the provisional fair value of assets acquired and liabilities assumed at the acquisition date, and the adjustment to finalise the fair values on the expiry of the measurement period:

* As at 31 December 2014, the acquisition accounting for Woodleigh was provisional in respect of assets and liabilities acquired. The review of the assets and liabilities acquired has now been completed with the resulting adjustment above.

The goodwill of £39.7m (£38.5 restated) rising from the acquisition consists of the value of the assembled workforce, potential synergies gained from combining the head office functions and expansion potential. None of the goodwill is expected to be deductible for income tax purposes.

Trade and other receivables include receivables with a gross contractual value of £1.1m. As at the acquisition date, the best estimate of contractual cash flows not expected to be collected was £Nil.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £1.4m.

Woodleigh contributed revenue of £1.4m and £0.4m to the Group's profit before tax for the year between the date of acquisition and the balance sheet date.

If the acquisition of Woodleigh had been completed on the first day of the financial year, Group revenues for the year would have been £257.9m and Group profit before tax would have been £2.0m.

Notes to the Financial Information

For the year ended 31 December 2015

(b) Ansel Limited

On 5 September 2014 the Group acquired 100% of the share capital of Ansel Limited ("Ansel") for £4.4m. Ansel is a 24 bed clinic for men suffering from personality disorders. The transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008).

The following table summarises the consideration paid for Ansel, the provisional fair value of assets acquired and liabilities assumed at the acquisition date, and the adjustment to finalise the fair values on the expiry of the measurement period:

* As at 31 December 2014, the acquisition accounting for Woodleigh was provisional in respect of assets and liabilities acquired. The review of the assets and liabilities acquired has now been completed with the resulting adjustment above.

The goodwill of £0.4m (£Nil restated) arising from the acquisition consists of the value of the assembled workforce, potential synergies gained from combining the head office functions and expansion potential. None of the goodwill is expected to be deductible for income tax purposes.

Trade and other receivables include receivables with a gross contractual value of £0.4m. As at the acquisition date, the best estimate of contractual cash flows not expected to be collected was £Nil.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £0.2m.

Ansel contributed revenue of £1.2m and £0.2m to the Group's profit before tax for the year between the date of acquisition and the balance sheet date.

If the acquisition of Ansel had been completed on the first day of the financial year, Group revenues for the year would have been £243.1m and Group loss before tax would have been £2.5m.

Notes to the Financial Information

For the year ended 31 December 2015

13 Business and geographical segments

Products and services from which reportable segments derive their revenues

Management has determined the operating segments based on the monthly management pack reviewed by the Board, which is used to assess both the performance of the business and to allocate resources within the Group. Management have identified the Board of Directors as the chief operating decision maker ("CODM") in accordance with the requirements of IFRS 8 - Operating segments. The operating and reportable segments are in reference to the category of the customer:

The Group assesses segment performance using Adjusted EBITDA as its primary measures.

Adjusted EBITDA is defined as earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, exceptional items, acquisition costs, and the charge relating to Continuation Option Plan shares awarded as part of the IPO.

All revenue for the Group is generated from within the UK and there are no inter-segment revenues. 

Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment in 2015:

Notes to the Financial Information

For the year ended 31 December 2015

The following is an analysis of the Group's revenue and results by reportable segment in 2014:

Segment assets and liabilities, including depreciation, amortisation and additions to non-current assets, are not reported to the CODM on a segmental basis and are therefore not disclosed. Goodwill has been allocated to reportable segments.

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit represents the profit earned by each segment without allocation of the share of profits of associates, investment revenue and finance costs, and income tax expense. This is the measure reported to the Group Chief Executive for the purpose of resource allocation and assessment of segment performance.

14. Loss per share

Basic loss per ordinary share is based on the weighted average of 177,827,244 ordinary shares in issue during the period (2014: 138,522,731) and are calculated by reference to the loss attributable to the equity holders of the company of £9.6m (2014: £8.4m loss).

Diluted loss per ordinary share is based upon the weighted average of 177,827,244 ordinary shares in issue during the period (2014: 138,522,731), which excludes the effects of the weighted average of share options under the Continuation Option Plans of 3,446,222 (2014: 2,502,052) that were anti-dilutive for the periods presented but could dilute loss per share in the future and are calculated by reference to the loss attributable to shareholders of £9.6m (2014: £8.4m loss).

Notes to the Financial Information

For the year ended 31 December 2015

15. Net cash generated from operations

16. Net debt

Notes to the Financial Information

For the year ended 31 December 2015

17. Post balance sheet event

On 26 April 2016 the Board and the Group's lending banks agreed terms for amendment of the Group's £290m Facilities Agreement, the principal provisions of which are that a fee of £2.9m (representing 1% of the total Facilities) is payable immediately, with a flat rate margin of 3.75% over LIBOR payable on the amounts drawn under the Facilities. Furthermore, the facilities are split into "Tranche A" of £120m and "Tranche B" of £170m. Additional interest of 10% per year is to be accrued on Tranche A and paid on repayment or expiry of Tranche A. Should Tranche A not be repaid by 30 April 2017, then a further fee of £4.0m is payable. An exit fee of up to £10m is payable on repayment of Tranche A which expires on 30 September 2017, while Tranche B expires on 31 March 2019. The Group has also amended its covenants and a number of information undertakings under the agreed terms.

The key risks, which will be discussed further, including how they are being addressed, in Cambian's 2015 Annual Report (which will be available in the investor relations section of the corporate website), are as follows: