Final Results

Cambian Group plc audited results for the year ended 31 December 2014

A year of significant progress for Cambian

1 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

2 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. All Adjusted EPS calculations reflect the number of shares in issue post IPO, excluding shares held in the Employee Benefit Trust, of 168,888,888

3 The basis of preparation is detailed in note 1 of the financial statements

§ 12% revenue growth in the period

§ 18% increase in Adjusted EBITDA1

§ Average occupancy of 80% (2013: 80%), with 2,145 service users at 31 December 2014 (2013: 1,718), plus 197 fostering placements (2013: 168)

§ 580 places added to capacity in the period, including 451 from acquisitions. Total capacity at 31 December 2014 of 2,750 places, an increase of 27% on 31 December 2013

§ 4 acquisitions completed in the year, including acquisition of Woodleigh Community Care, strengthening Cambian's position in the adult intellectual disability sector

§ Net debt of £188.7m (31 December 2013 £215.7m), with strong cash generation in the year

§ Advanced Childcare ("ACL") integration completed

§ Maiden final dividend announced of 1.8p per share, in line with commitment outlined at IPO

Saleem Asaria, CEO, commented "These results reflect a good performance in 2014, a year in which we also made significant progress in positioning ourselves for future growth. We are pleased with the acquisitions we made in the period, including that of Woodleigh in December which strengthens our position in the adult intellectual disability sector. The quality of care and value for money we offer continues to be appreciated by our customers, and we are well positioned to deliver on our vision to be the highest quality provider of specialist behavioural health services to children and adults."

Results presentation

A results presentation will be held for investors and analysts at 8.45am today at the offices of JP Morgan, 60 Victoria Embankment, London EC4Y 0JP. Materials from this presentation will be available online on the investor relations pages at http://www.cambiangroup.com from 8.45am.

Enquiries:

Overview of performance in the period

We are pleased to report that Cambian has continued to make significant progress measured against the priorities we set out at the start of the year, and at IPO in April 2014. At the same time, we achieved our financial objectives for 2014, and have further strengthened our platform for future growth. Our vision is to be the highest quality provider of specialist behavioural health services to children and adults, and our priorities for 2014 support this vision.

In relation to our priorities for 2014:

· We have now fully integrated Advanced Childcare into Cambian, with operations, quality, and support functions now combined. At the same time we have re-focussed our Children's Services to be more aligned with our customers' needs.

· In a year when our customers' demands for greater specialisation and quality have increased, we have launched new specialist services in the areas of children's mental health and sexual trauma, and launched a programme in our Adult Services division for people with a personality disorder.

· We have invested significantly in both training and in our facilities during the year, particularly in Children's Services, in support of our vision to be the highest quality provider in our market. At the same time we have maintained strong regulatory ratings in an increasingly tough regulatory environment.

· We have continued to grow our business and capabilities through making selective acquisitions which complement our existing services or bring new services to the group. In the year we made four acquisitions, the largest being Woodleigh Community Care, based in Yorkshire and Humberside. Woodleigh brings to the Group an innovative model for people with intellectual disabilities, aligned to the Government's Transforming Care agenda which can be expanded geographically across the country.

Our strategy for growing Cambian is: first, business optimisation, through the maturation of our existing sites and margin accretion on the current business; secondly, organic development, by the roll out of existing services and increasing capacity in high-demand areas; thirdly, innovation in the development and roll out of new services; and finally, growth through making value-accretive acquisitions which complement our current business and help drive us towards achieving our vision.

Business optimisation

In 2014 we delivered growth of 12% in revenue and 18% in Adjusted EBITDA. In our Adult Services business, where we saw the commissioning environment continue to improve following the recent changes in the NHS, and where our net organic capacity increased by just 3 places over the year, average occupancy increased to 89% (2013: 85%). In our Children's Services business, with a less mature portfolio of units, including the 126 places we added organically and 47 places we re-provisioned in the year, average occupancy was 74% (2013: 77%). The Group's Adjusted EBITDA margin was 20.1% (2013: 19.2%), as a result of leveraging our growth on the existing shared costs infrastructure, and a reduction in development losses in 2014 compared to 2013. Underlying EBITDA margin, after adding back development losses, was 20.9% (2013: 20.4%).

Organic growth

The underlying dynamics of our market - population growth, increasing diagnosis and incidence of the conditions we serve, and the increase in outsourcing of services - provides a significant opportunity for Cambian to grow organically. In the year we added 129 net places organically, including the re-provisioning of 47 places for children in larger homes into 29 places in smaller units. The organic places added in the year were principally in our education services. The number of new places added in our sexual trauma services was somewhat below our target for the year, where we spent time re-focussing our service offering, and therefore delayed some planned openings. However, we currently have a strong opening pipeline for 2015, with 200 places currently under our ownership due to open during the year. In total we have 260 openings planned for 2015 including a personality disorder clinic, a residential intellectual disability unit, a day school for autistic children, and a number of facilities for children who have suffered sexual trauma.

Fostering

During 2014 we reviewed our therapeutic fostering offering, and we are looking to increase our investment in fostering in 2015, and in addition have identified potential acquisition opportunities in this area. We think fostering is an essential part of a complete and differentiated service offering for Looked After Children. Given that fostering has different characteristics from our residential and education services, from 31 December 2014 onwards we will no longer include fostering in our capacity and occupancy numbers and instead we will be reporting fostering revenue and placements separately. Accordingly, 2014 revenue from fostering was £6.8m (2013: £5.7m) from an average of 185 placements (2013: 152 placements).

Innovation

A key benefit that Cambian brings to our customers is the ability to innovate and respond to changing demands. In Children's Services we have developed new services for treating mental health conditions in children and adolescents ("CAMHS"), including a step down from current CAMHS services, and we have refocussed our sexual trauma services on the needs of higher severity children. In Adult Services, we have developed a service offering treatment for patients with personality disorders, supported by the acquisition of Ansel, with plans for a new unit to open in the first half of 2015.

Acquisitions

An important element of our growth strategy is to undertake selective acquisitions which complement our existing business by enabling us to reach new regions, or deliver new services, more quickly than we could do organically. In the first half of 2014 we completed the acquisition of three further education colleges from Mencap, as well as a day school for autistic children. In September 2014 we acquired Ansel, a 24 bed clinic for men suffering from personality disorders, supporting our growth strategy in this area. In December 2014, we acquired Woodleigh Community Care, a 152 bed service for adults with complex needs, challenging behaviours and learning disabilities, in the Yorkshire and Humber region. The net cash consideration for these acquisitions was £73.1m, which were funded out of the Group's bank facilities.

Quality and regulatory

In order to deliver on our strategy and vision, and build a sustainable business, our overriding focus remains on the quality of the services we provide to those in our care. We are regulated by the CQC and Ofsted for our English services, and HIW and CSIW for our Welsh services. The sector has seen an increasingly stringent regulatory environment in the year, both in the rigour of inspections and the time taken in registering new sites and services.

To drive our quality programme we have appointed Philip King, who formerly worked at the CQC, as Director of Quality and Risk, and Philip will join Cambian in April 2015. Our regulatory scores remained strong in the year and we currently have no facilities with compliance notices. A new scoring methodology for both Ofsted and the CQC is currently being rolled out, and a key role for our Director of Quality and Risk will be to ensure that Cambian navigates successfully through the new regulatory environment.

Organisation and people

In a year of transition from private to public ownership, we recruited a new Board who bring significant corporate and sector experience to Cambian.

We are pleased to report that, with effect from 4 March 2015, Anne Marie Carrie has accepted a full-time executive position with the Group as CEO of our Children's Services division. Anne Marie (previously a non-executive director of Cambian) brings considerable experience to the role, having previously been Chief Executive of Barnardo's (the UK's largest children's charity providing fostering, education and counselling services to vulnerable young people) and, prior to that, Director of Children's Services and Deputy Chief Executive of The Royal Borough of Kensington and Chelsea. Consequently, Anne Marie has stepped down from the Board and from the Quality and Risk Committee and Alison Halsey will chair the latter on an interim basis. We have already commenced a search for a suitable replacement as independent non-executive director and chair of the Quality and Risk Committee.

In 2014 we strengthened our senior team with the recruitment of an HR director and a Company Secretary & Head of Legal. In addition we now have a commercial function dedicated to finding and pursuing acquisitions and the execution of our organic growth plan.

First and foremost, it is the 6,800 people who provide care and support to our service users on a day by day basis who are the heart of Cambian. With the UK economy performing well and a growing demand for healthcare services, we have seen an increasingly competitive market for employees and skills in the UK. In the year we undertook a review of the recruitment and retention of staff, and the overall employment proposition that Cambian offers, and we will be launching new initiatives in response to this review in 2015.

ACL integration

Having merged with ACL on IPO in April 2014, we have now fully integrated ACL into Cambian. This has involved re-structuring the leadership team, upgrading the risk and quality function, and integrating the operating platform including support services such as IT and finance. In a dynamic market, we have also aligned Children's Services more closely to customer needs; upskilling staff in order to accept higher severity service users, investing in our ESD education provision, and enhancing the therapeutic services provided. Anne Marie Carrie's responsibilities as CEO of Children's Services will include the businesses formerly part of ACL.

Summary and outlook

The strong results reflect a good performance in 2014 with progress made against the objectives set out at the start of the year and on IPO. This good performance demonstrates the quality of care and value for money we provide to our customers, and the Board is confident that Cambian is well positioned to grow and looks to the year ahead with confidence.

Summary of performance

1 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 Underlying EBITDA is Adjusted EBITDA adding back development losses incurred in the period, defined as losses on sites which are within 18 months of opening and are yet to reach a profitable occupancy

5 Fostering is no longer 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 places registered with a regulator to accept service users

Group performance

The Group delivered revenue growth of 12% (2013: 16%) with average occupancy of 80% (2013: 80%) in the year. Our Adult Services division, with relatively mature units, increased occupancy to 89% (2013: 85%). In our Children's Services division, where significant capacity was added in the year, average occupancy was 74% (2013: 77%). 

As a key partner to the UK public service providers, we offer excellent value for money both in terms of outcomes and as compared to the cost of Government provision of equivalent services. After a period where prices have been held stable, we increased prices on average by 2% for new service users in April 2014, and this positively impacted revenue as service users were admitted at new price levels.

Adjusted EBITDA margin was 20.1% (2013: 19.2%) with tight cost control and a reduction in development losses in 2014 compared to 2013. Underlying EBITDA margin, adding back development losses, was 20.9% (2013: 20.4%).

Divisional performance - Adult Services

Overview of performance

Adult Services revenue grew 11% in the year; including the contribution of the acquisition of Ansel from September and Woodleigh Community Care in December. Excluding these acquisitions, growth was 8%. Average occupancy increased to 89% (2013: 85%), driven by the fill up of maturing sites. Overall, our Adult business performed well in 2014. This was partly a result of the commissioning environment improving (following changes to the NHS in 2012 which had impacted the structure of commissioning healthcare), and partly with a number of maturing units filling up, such as our adult brain injury and residential autism services. 

The Adjusted EBITDA margin of our Adult Services division was 24.5% (2013: 24.8%), reflecting the benefit of improved operational leverage offset by a higher allocation of shared costs to Adult in 2014 than in 2013. This change followed a review of our allocation methodology, and excluding the impact of this higher shared cost allocation, Adult Adjusted EBITDA margin increased by 2.0 percentage points. Underlying EBITDA, adding back development losses incurred, was £25.2m (2013: £23.4m).

Organic growth

Our Adult net organic capacity increased by just 3 places in the year, but with growth capex of £5.8m in the year relating to Adult Services, we now have a strong pipeline of 80 places under our ownership expected to open in 2015. The places to be opened include services for personality disorders, acquired brain injury and residential autism. Whilst Adult Services is a more mature market than Children's Services, we believe good opportunities exist for continued growth, particularly in specialist sub-segments.

Acquisitions

We undertook two acquisitions in the year in Adult Services: the Ansel Clinic in September for a net cash consideration £4.1m and Woodleigh Community Care in December for a net cash consideration of £61.4m. Ansel is a unique service for people with personality disorders, and has a strong reputation in the industry through the specialist model of care it has developed. The acquisition of Ansel has also helped Cambian to strengthen its relationship with NHS England, and provides expertise to further expand this relationship. Woodleigh provides a full pathway for specialist, community-based, high severity care for adults with complex needs, challenging behaviours and learning disabilities. The business operates 152 beds, across 13 residential homes and supported living units and one hospital in the Yorkshire and Humber region. The care and approach of Woodleigh is well aligned to the Department of Health's Transforming Care agenda and provides Cambian with a platform to replicate these services and approach in additional sites in neighbouring regions. 

Divisional performance - Children's Services

Overview of performance

Children's Services revenue grew by 14% in the year, supported by the acquisition of three Further Education colleges from Mencap and the New Elizabethan School. Excluding these acquisitions, revenue growth was 5%. Average occupancy was 74% (2013: 77%), with a net of 126 places being added organically in the year. The performance of our schools for children with special educational needs, such as Autism, was good with high demand from our customers, and our newer sexual trauma services (the SACCs business that was part of ACL) and mental health units grew well in the year. Revenue from our complex care residential business (also part of ACL) was broadly flat on the prior year with a number of units re-provisioned in the year; we expect this business to grow in the future as units mature. Our fostering business grew well, and as stated above, we reviewed our fostering offering in the year and will be increasing our investment in 2015 in this area.

The Adjusted EBITDA margin of our Children's Services segment was 17.0% (2013: 14.9%) with good cost control in the year, a reduction in development losses in 2014 compared to 2013 and the benefit of a lower allocation of shared costs in 2014 than in 2013. This change followed a review of our allocation methodology, and excluding the impact of this lower shared costs allocation, Children's Adjusted EBITDA margin increased by 0.3%. Underlying EBITDA, adding back development losses incurred, was £25.0m (2013: £20.4m).

Organic growth

We added a net total of 126 places organically in the year, including the impact of re-provisioning 47 places for children in larger homes into 29 places in smaller units. These increases were mainly in our children's residential services including the associated education provision. In addition to adding places to capacity, we also expanded our 52 week education provision in certain of our education facilities, and added a further education service (similar to the colleges we acquired) into an existing Cambian unit. Of our total growth capex of £18.2m in the year, £12.4m related to Children's Services and we now have a strong pipeline of 120 places under our ownership and due to open in 2015. These include a day school for children with autism, and residential services for children suffering from mental health conditions, or sexual trauma.

Acquisitions

In the Children's Services division, we completed the acquisition of three further education colleges from Mencap, and a day school for autistic children, for a net cash consideration of £7.6m. The integration of these acquisitions has been completed and we are very positive about the opportunities they bring to the Group. An additional £0.3m of deferred consideration was paid in the year on a prior year acquisition.

Summary

Revenue in the year was £240.6m (2013: £214.3m), an increase of 12% on the prior year. Adjusted EBITDA was £48.4m (2013: £41.1m), giving a margin of 20.1% (2013: 19.2%). Operating profit was £7.1m (2013: £24.9m), after exceptional items in the year. Operating profit before exceptional items grew 5% to £29.4m (2013: £27.9m). A reconciliation of Adjusted EBITDA to operating profit is set out below:

1 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 period.

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 of £22.3m (2013: £3.0m) were incurred in the year and comprised the following items: £9.1m costs associated with raising capital, £7.7m for the cost of share schemes vesting on IPO (of which £3.6m was non cash), £5.7m in respect of business integration costs, and a £0.2m gain on acquisitions made.

Costs associated with raising capital are advisory fees and other costs related to the IPO of Cambian in April 2014. Share schemes vesting on IPO relate to the value of shares from prior incentive plans which vested on IPO. The majority of shares vesting were satisfied by the award of new shares in Cambian Group plc (effectively management rolling their shareholdings into Cambian Group plc shares). Of the £7.7m charge, £3.6m was non-cash, and £4.1m was payroll taxes due on the value of the shares vesting.

Business integration costs refer to costs associated with the merger and integration of ACL. The principal items included are external consultancy costs, retention bonuses for certain staff due to leave the business but whose services were required during the integration process, redundancy and recruitment costs for roles changing as a result of the integration, exit costs for certain redundant leases and contracts (such as a data centre agreement), and legal and advisory costs on a corporate entity reorganisation. We now consider the integration of ACL to be complete and do not anticipate any further one-off costs in 2015 in relation to the integration.

The gain on acquisition is the difference between the fair value of the assets acquired and the consideration on certain acquisitions in the year. See page 18 for more details.

Finance charges

The Group incurred net finance costs of £11.3m in the period (2013: £17.1m). Of this total, £4.4m related to the financing of the Group from the date of IPO to the 31 December 2014, and this post IPO cost is more representative of the cost of financing the Group under its new capital structure.

Taxation

The Group's tax charge was £4.1m (2013: £2.4m credit) representing 21% of profit before tax, M&A costs and exceptional charges. The difference between the current statutory rate of 22% and the effective tax rate is due to some expenses not being allowable for Corporation Tax purposes, in particular depreciation being in excess of capital allowances. AG

Earnings per share

Statutory basic EPS was a 6.1 pence loss. Adjusted basic EPS is defined as statutory basic EPS, adding back the impact of amortisation of acquired intangible assets, exceptional items, and the charge relating to Continuation Option Plan shares awarded as part of the IPO, net of the tax effect of these items. All Adjusted EPS calculations reflect the number of shares in issue post IPO, excluding shares held in the Employee Benefit Trust, of 168,888,888.

Statutory basic EPS reconciles to Adjusted basic EPS as follows:

Capital expenditure

The Group incurred £24.5m (2013: £14.3m) of capital expenditure in the period, of which £18.2m related to organic growth (2013: £9.5m). This capital expenditure has supported the 129 net new places we opened organically in the year, and also the pipeline of 200 places under our ownership and planned to open in 2015. Maintenance capital expenditure of £6.3m (2013: £4.8m) was incurred, relating to investment in our existing facilities which included a programme of quality improvements in the portfolio of our complex care and sexual trauma children's services units in the year. In addition, maintenance capital expenditure includes an investment in our IT systems particularly relating to HR and Payroll.

Acquisitions

The Group made four acquisitions in the year, being the Mencap Colleges, the New Elizabethan School, the Ansel Clinic and Woodleigh Community Care. The net cash consideration for these acquisitions was £73.1m, with an additional £0.3m deferred consideration being paid in the year on a prior year acquisition.

Dividend

As stated at the time of the IPO and subject to performance, the Board intends to pay an interim and final dividend in each financial year, which will be in the approximate proportions of one-third and two-thirds respectively of the total expected annual dividend.

As stated at the time of the IPO, the Directors intend that the first dividend to be paid by Cambian would be a final dividend amounting to not less than £3 million in respect of the period from Admission to December 2014. Consistent with this statement, the Board is proposing a single dividend of 1.8 pence per ordinary share, payable to shareholders on the register on 7 April 2015 and which will be paid on 23 April 2015, subject to approval by shareholders at the Annual General Meeting to be held on 15 April 2015.

Cash flow

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

Net cash from operating activities was £18.9m, the reduction being mainly a result of the exceptional items in 2014 which is described above. Within the movement in working capital, approximately £1m relates to year end debtors on the further education colleges acquired from Mencap, which were zero on acquisition (as Cambian did not acquire working capital).

Debt facilities

On 31 March 2014, the Group signed a five year £200m facilities agreement with a syndicate of banks consisting of a £75m term loan and a £125m revolving credit facility. The facilities carry interest at between 2.00% and 2.75% over LIBOR depending on the level of leverage. The principal covenants are net debt to Adjusted EBITDA (initially set at a maximum ratio of 4.5:1 and reducing over time to 3.75:1) and interest cover (calculated as the ratio of Adjusted EBITDA to finance charges) of not less than 4:1. For both covenants, Adjusted EBITDA is calculated after adding back development losses of up to £3m per year. On 3 December 2014 the Group's facilities were extended by £55m to finance the acquisition of Woodleigh Community Care, giving the Group total facilities of £255m.

At 31 December 2014 the Group had drawn £216.5m on these facilities. Together with cash on the balance sheet, net debt was £188.7m at the year end. Including the pre-acquisition profits of Woodleigh in the calculation (as prescribed under the facilities agreement), the Group's net debt to Adjusted EBITDA was 3.4x at 31 December 2014, and Adjusted EBITDA to interest payable was 9.5x. 

Statement of Directors' Responsibilities

The following statement will be contained in the 2014 Annual Report and Accounts.

Each of the directors, whose names and functions are listed in the annual report for the year ended 31 December 2014 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 profit 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.

Consolidated Income Statement

For the year ended 31 December 2014

Consolidated Balance Sheet

At 31 December 2014

Consolidated Statement of Changes in Equity 

For the year ended 31 December 2014

Consolidated Statement of Cash Flows

For the year ended 31 December 2014

Notes to the Financial Information

For the year ended 31 December 2014

1. General Information

Basis of Preparation

Cambian Group Plc (the "Company") is a company incorporated in the United Kingdom 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 2014 which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied by the Group in its prospectus for the years ended 31 December 2013, 31 December 2012 and 31 December 2011. The prospectus is publicly available, and can be obtained on request from the Company. 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 financial information set out in this announcement does not constitute statutory accounts within the meaning of Sections 434 to 436 of the Companies Act 2006 and is an abridged version of the Group's financial statements for the year ended 31 December 2014 which were approved by the directors on 4 March 2015. Statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar of Companies in due course. The auditor has reported on those accounts, the report was unqualified and did not contain statements under Section 498 of the Companies Act 2006. Statutory accounts for Cambian Group plc have not previously been prepared as the Company was incorporated on 8 March 2014.

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, and are satisfied that the Group and Company should be able to operate within the level of its current facilities.

Exceptional items

Exceptional items reflect expenditure which in the judgement of the directors, individually or, if of a similar type, in aggregate, need to be disclosed separately due to their size or incidence in order to obtain clear and consistent presentation of the Group's performance.

Business combination under common control

On 15 April 2014 (the "Transfer Date"), the Company legally acquired Cambian Capital Limited, Care Aspirations Capital Limited and Advanced Childcare Capital Limited, together with their underlying subsidiaries (collectively the "Holding Companies") (the "Transaction").

Prior to the Transfer Date, the Company and Holding Companies were ultimately owned by funds advised by GI Partners. Cambian Capital Limited's ultimate owner was GI GP LLC. The ultimate owner of Care Aspirations Capital Limited and Advanced Childcare Capital Limited was GI GP III LLC. The legal entities constituting the Group have not together constituted a legal group prior to the Transfer date.

Management has considered IFRS 10 Consolidated Financial Statements and concluded that the Holding Companies were under the common control of the funds ultimately controlled by GI Partners prior to the Transfer date. In making its judgement, management considered the definition of control in IFRS 10 and the detailed guidance contained therein.

The Transaction has been accounted for under the pooling of interest method, where the consolidated financial statements of the Company are presented as a continuation of an existing group, on the basis of ultimate common control and, therefore, outside the scope of IFRS 3 Business Combinations. The following accounting treatment has been applied in these consolidated financial statements:

a) the year ended 31 December 2013 and the information presented for the period commencing 1 January 2014 up until the Transfer Date are the combined results and financial position of the Holding Companies;

b) the assets and liabilities of the Holding Companies are recognised and measured at the pre-transaction carrying amounts, without restatement to fair value;

c) The share capital and share premium of the Company at the Transfer Date have been presented to 1 January 2013 and equally offset by a negative "other reserve" of £145.8m; and the retained earnings and other equity reserve balances presented prior to the Transaction are those of the Holding Companies as the Company did not trade prior to the Transaction; and

d) For the period up to the Transfer date, combined financial information incorporates the financial performance and position of Cambian Capital Limited, Care Aspiration Capital Limited, and Advanced Childcare Capital Limited.

2. Exceptional items

The following table provides a breakdown of exceptional items:

Costs associated with raising capital are advisory fees and other costs related to the IPO of Cambian Group plc in April 2014.

Business integration costs are costs associated with the merger with Advanced Childcare Group. The principal items included are external consultancy costs, retention bonuses for specific staff due to leave the business but whose services were required during the integration process, redundancy and recruitment costs for roles required as a result of the integration, exit costs for certain redundant leases and contracts, and legal and advisory costs on a corporate entity reorganisation.

The gain on acquisition is the difference between the fair value of the assets acquired and the consideration on certain acquisitions in the year. See note 11 for more details.

Share schemes vesting on IPO relate to the value of shares from prior incentive plans which vested on IPO. The majority of shares vesting were satisfied by the award of new shares in Cambian Group plc (effectively management rolling their prior shareholdings into Cambian Group plc shares). Of the £7.7m charge, £3.6m was non-cash, and £4.1m was payroll taxes due on the value of the shares vesting.

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

3. Finance income

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 £2.1m (2013: £1.3m) exists for this amount.

6. Borrowings

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

Prior to the IPO, the Group had four principal secured bank loans and an unsecured loan from its majority shareholder. On IPO, the Group refinanced all of its debt with a new senior term loan of £75m and revolving facilities agreement of £125m ("the facilities"), totalling £200m, provided by a syndicate of banks, and secured over the assets of the Group. The facilities were subsequently extended by £55m on 5 December 2014 to fund the acquisition of the Woodleigh Community Care. The facilities expire on 31 March 2019 and, loans drawn under the facilities carry an interest rate of between 2.00% and 2.75% above LIBOR.

At 31 December 2014, £75m was drawn under a fixed term loan and £141.5m was drawn under a revolving credit facility, both expiring on 31 March 2019.

7. 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.

On IPO, net cash proceeds received by Cambian Group plc from the issue of new share capital were £20.9m. The remaining shares were issued in a share for share exchange with the previous majority shareholders and conversion of an equity instrument issued by the majority shareholders.

8. Convertible equity instrument

The convertible equity instrument relates to the initial injection of funds into the Group by funds advised by GI Partners for the purposes of investment in the Group's operations which was converted to equity on 16 April 2014.

9. 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 statement of the Company was presented as a continuation of an existing Group, under the basis of ultimate control. Other items in other reserves includes the purchase of Cambian Group plc shares by the Employee Benefit Trust and the credit to equity for equity settled share based payments.

10. Share based payments

The entity has a forfeitable share scheme for the executive directors and qualifying employees ("participant"). The participant will forfeit the forfeitable shares if they cease to be an employee of the Group before the vesting date, unless otherwise determined by the Board.

During the year, and prior to IPO, nil-cost options were awarded to certain employees and executives of the Group under Continuation Option Plan 1 and Continuation Option Plan 2. 3,199,997 nil-cost options over ordinary shares were awarded under Continuation Option Plan 1, and a third of these become exercisable on each of the third, fourth and fifth anniversaries of the date of IPO and remain exercisable until the tenth anniversary of the date of IPO. 246,225 nil-cost options over ordinary shares were awarded under Continuation Option Plan 2, and these become exercisable eighteen months from the date of IPO and remain exercisable until the tenth anniversary of the date of IPO. All of the nil-cost options awarded under these plans were awarded at the then fair value market price of £2.25.

The total fair value charge of £7.8m will be expensed over the vesting periods, ranging between 18 months and 5 years. The total expense recognised in the year was £1.6m.

11. Acquisition of subsidiaries

Year ended 31 December 2014

(a) New Elizabethan School

On 17 April 2014 the Group acquired the trade and assets of The New Elizabethan School ("NES") for £0.7m. NES is a day school for children with 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 NES, 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 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.

NES contributed revenue of £0.4m and £Nil to the Group's profit before tax for the period between the date of acquisition and the balance sheet date.

(b) Mencap colleges

On 3 June 2014 the Group acquired the trade and assets of three Mencap further education colleges, Lufton, Dilston and Pengwern for £6.9m. The colleges provide a specialised environment to support the education of young people with complex health and behavioural 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 the three Mencap colleges, the provisional fair value of assets acquired and liabilities assumed at the acquisition date:

The goodwill of £1.0m 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.

Acquisition related costs (included in administrative expenses in Cambian Group plc consolidated income statement) amounted to £0.5m.

The three Mencap colleges contributed revenue of £8.0m and £2.1m to the Group's profit before tax for the period between the date of acquisition and the balance sheet date.

(c) Cambian 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:

The goodwill of £0.4m 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 period between the date of acquisition and the balance sheet date.

(d) 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:

The goodwill of £39.7m 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 £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 period between the date of acquisition and the balance sheet date.

Year ended 31 December 2013

(a) Whinfell School

On 13 June 2013 the Group acquired 100% of the share capital of Whinfell School Limited ("Whinfell") for £5.7m. 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 Whinfell, the fair value of assets acquired and liabilities assumed at the acquisition date:

The goodwill of £2.0m 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 £0.3m. 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.

Whinfell contributed £1.3m revenue and £0.1 to the Group's profit before tax for the period between the date of acquisition and the balance sheet date.

12. 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 and Underlying EBITDA as its primary and supplementary measures, respectively.

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.

Underlying EBITDA is Adjusted EBITDA adding back development losses incurred in the period, defined as losses on sites which are within 18 months of opening and are yet to reach a profitable occupancy.

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 2014:

The following is an analysis of the Group's revenue and results by reportable segment in 2013:

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, central administration costs including directors' salaries, 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.

13. Earnings per share

Basic earnings per ordinary share is based on the weighted average of 138,522,731 ordinary shares in issue during the period (2013: 63,415,000) and are calculated by reference to the loss attributable to equity holders of the Company of £8.4m (2013: £10.2m profit).

Diluted earnings per ordinary share is based upon the weighted average of 138,522,731 ordinary shares (2013: 63,415,000), which excludes the effects of the weighted average of share options under the Continuation Option Plans of 2,445,401 (2013: nil) that were anti-dilutive for the periods presented but could dilute EPS in the future and are calculated by reference to the loss attributable to equity holders of the Company of £8.4m (2013: £10.2m profit).

14. Net cash generated from operations

15. Net debt

16. Dividends

For 2014, the Board recommends a final dividend of 1.8 pence per ordinary share (a total cost of £3.1m) to be paid in April 2015. The proposed dividend is payable to all shareholders on the Register of Members on 7 April 2015. The proposed dividend is subject to approval by shareholders at the Annual general Meeting on 15 April 2015 and has not been included as a liability in the financial statements.

Group Risk Factors