Half Yearly Report

Cambian Group plc unaudited results for the 6 months ended 30 June 2014

Delivering on our strategy

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

2 Proforma earnings per share pre-exceptional costs is based on the number of shares in issue post IPO

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

§ 11% revenue growth in the period

§ Increase in Adjusted EBITDA1 margin to 19.7% (H1 2013: 17.5%)

§ Average occupancy of 81% (H1 2013: 79%), with 2,237 service users at 30 June 2014 (30 June 13: 1,837)

§ Continued focus on quality - improved regulatory scores

§ 354 places added to capacity in the period, including 285 from acquisitions. Total capacity at 30 June 2014; 2,760 places, an increase of 23% on 30 June 2013

§ Advanced Childcare ("ACL") integration on track

Saleem Asaria, CEO, commented "This has been a year of significant progress for the Cambian Group, having merged with Advanced Childcare Limited and subsequently completed the IPO of Cambian in April. We have a strong balance sheet giving us significant headroom for growth. We are well positioned to deliver on our vision to be the highest quality provider of specialist behavioural health services to children and adults.

These results are in line with our expectations. They demonstrate the quality of care and value for money that we provide, through the dedication and expertise of all of our teams. We are executing on our strategy, including building a good pipeline for future growth. We remain confident in the outlook for the rest of 2014 and the opportunity in future years."

Results presentation

A results presentation will be held for investors and analysts at 9.00am today at the offices of Tulchan Communications, 85 Fleet St, London EC4Y 1AE. Materials from this presentation will be available online on the investor relations pages at http://www.cambiangroup.com from 9.00am.

Enquiries:

Performance in the period

Revenue grew by 11% in the period with a good performance in both our Adult and Children's Services divisions. In Adult Services, we saw the commissioning environment continue to improve following the recent changes in the NHS, with both our maturing and mature sites increasing occupancy. In our Adult Services we added 11 places organically. In Children's Services, demand remains strong and we achieved occupancy of 76% (H1 2013: 77%) in a period where 47 places were re-provisioned to focus on higher acuity services and 343 places were added, of which 58 were organic.

We are also pleased to report an increase in the Adjusted and Underlying EBITDA margin in the first half of the year compared to the prior year, reflecting operational leverage and the ability to scale the business off the existing fixed cost base. With the revenue growth, this resulted in an increase of 24% in Adjusted EBITDA in the period. As part of the ACL integration, we are merging central functions, and, whilst we expect to generate longer term efficiencies, we do not expect any benefit from this exercise to have a material impact in 2014.

Quality and operational risk management

Our overriding focus is, and will always be, on the quality of the services we provide to those in our care. We measure this by our own internal quality benchmarks and also by our regulatory scores. We are pleased to have increased our regulatory scores in the period, particularly in Children's Services where 81% of our Ofsted regulated facilities are rated "Good" or "Outstanding", an increase from 74% at 31 December 2013. In our Adult services, 98% of our facilities regulated by the CQC have four or five ticks (out of a maximum of five).

To underline the importance of quality and to strengthen the governance of our risk management processes, we have formed a Risk and Quality Committee of the Board which comprises a majority of non-executive directors, one of whom, Anne Marie Carrie, chairs the committee. Anne Marie was previously Chief Executive of Barnardos and Head of Children's services at the Royal Borough of Kensington and Chelsea. This committee sets quality and risk policy, and oversees quality assurance audits, quality KPIs, clinical outcomes, market data and service user satisfaction data. As part of the ACL integration, the Group's risk processes have been rolled out across ACL, including the adoption of the Group's whistleblowing line which reports to an external law firm.

Growth

There are three key growth drivers for the business: first, increasing occupancy in our existing facilities; secondly, increasing capacity organically and thirdly, acquisitions. We are pleased to report that we have made good progress on each of these objectives in the period.

Increasing occupancy

Average occupancy was 2,010 in the period (H1 2013: 1,784), an increase of 13% on H1 2013. This translates into an average occupancy rate of 81% (H1 2013: 79%). Average occupancy increased in both Adult and Children's Services. In the case of Adult Services this was primarily due to an increase in occupancy in both our mature and maturing units, and in the case of Children's Services this was due to both new capacity being added in the period and increases in our maturing facilities. Closing occupancy at 30 June 2014 was 2,237 places (31 December 2013: 1,886).

Organic growth

Following our IPO and having refinanced our previous debt with a new £200m bank facility, we now have the right capital structure to deliver on the organic growth opportunities which exist in our market. There is strong demand for high quality and cost effective behavioural health services, and the trend towards private provision of these services continues to grow. Whilst Cambian, with 250 facilities, has a broad spread of services across the UK, within individual service lines there are large parts of the UK where we do not have a presence and our focus is to expand in these regions where it makes commercial sense.

To this end, we incurred £8.3m of growth capital expenditure (defined as expenditure relating to increasing future capacity) in the period (H1 2013: £3.3m), buying eight new sites as part of this. We now have a pipeline, not yet included in capacity, of over 200 additional places owned and in development. This pipeline includes an autism day school, acquired brain injury and adult mental health services, and higher acuity children's residential services. We have an ambitious growth plan for the second half which will further increase this pipeline, and which will contribute to our longer term organic growth.

In the period, we also added 69 places organically, with the Group's capacity now being 2,760 places. 11 of these were in our Adult Services, with the remainder in Children's Services, in particular increasing the education provision within our Children's ESD (emotional and social difficulties) services. In addition to this, 47 beds were re-provisioned within Children's Services to focus on higher acuity services. Whilst this does not add to the capacity of the Group, it enables us to embed our high quality clinically led model in these services, and charge an appropriate fee for them.

Acquisitions

A key element of our growth strategy is to undertake acquisitions which complement our existing business and enable us to reach new regions, or deliver new services, more quickly than we could do organically. In the period we completed the acquisition of three further education colleges from Mencap, as well as a day school for autistic children, for a total consideration of £7.9m. The integration of these acquisitions is progressing as planned and we are very positive about the opportunities they bring to the Group. The behavioural health market is fragmented, and with an increasing regulatory burden and higher expectations from service users and customers, there are a number of businesses which would benefit from the scale and high quality focus of the larger operators like Cambian. With significant headroom in our debt facilities, we have the financial capacity to execute on such opportunities as they arise.

Pricing of our services

As a key partner to UK public service providers we offer excellent value for money, both in terms of outcomes and when compared to the cost of government provision for 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 will increase revenue as service users are admitted on the new price levels.

ACL Integration

Cambian merged with ACL immediately prior to our IPO in April 2014 (from a financial reporting perspective the results of ACL are included for both 2014 and 2013). The integration planning of ACL started in the autumn of 2013 and a detailed integration plan for the business was in place by the end of March 2014. Since the IPO we have successfully executed on the integration plan, with both operations and shared functions (e.g. risk, sales and marketing) now fully integrated except for finance which we expect to be fully integrated by 1 January 2015. We have also accelerated certain operational and senior management changes to embed a common culture, training regime and systems for operational monitoring.

Further Board Appointment

In May 2014, Chris Brinsmead joined the Board as our fourth Non-Executive Director, Senior Independent Director and Chairman of the Remuneration Committee. Chris brings significant knowledge of the healthcare industry and dealing with the NHS in his previous role as CEO and Chairman of Astra Zeneca UK. He also has considerable experience as a non-executive director of both publicly listed and private companies.

Our staff

We have a high quality workforce of over 6,000 people, and the Board would like to thank them for their day by day dedication in helping our service users to achieve their personal best. Their devotion and hard work is very much appreciated.

Outlook

These results are in line with our expectations. They demonstrate the quality of care and value for money that we provide, through the dedication and expertise of all of our teams. We are executing on our strategy, including building a good pipeline for future growth. We remain confident in the outlook for the rest of 2014 and the opportunity in future years.

Summary of performance

1 Adjusted EBITDA is Earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, exceptional items, 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 Within the capacity numbers above, Fostering capacity was flat over the period from 31 December 2013 to 30 June 2014

Revenue

Revenue grew by 11% in the period with strong occupancy across both our Adult and Children's Services. Average Group occupancy was 81% (H1 13: 79%), the increase being driven in our Adult Services where average occupancy was 89% (H1 13: 83%). In our Children's Services, where significant capacity was added in the period, average occupancy was 76% (H1 13: 77%).

Cambian completed the acquisition of three Mencap Colleges and the New Elizabethan School in the period. The contribution of these acquisitions to revenue in the period was £1.4m.

Profitability

Adjusted EBITDA reconciles to Operating profit as follows:

6 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

Adjusted EBITDA margin was 19.7% in the period (H1 2013: 17.5%) with disciplined cost control both at site level and in shared costs (such as property and regional management teams). Operating profit is stated after depreciation of £6.2m (H1 2013: £5.7m), share based payment charge for IPO Continuation Option Plans of £0.4m (H1 2013: nil) and amortisation of intangibles of £1.0m (H1 2013: £1.0m).

Underlying EBITDA is defined as Adjusted EBITDA adding back development losses defined as losses on sites which are within 18 months of opening and are yet to reach a profitable occupancy. Underlying EBITDA therefore provides a view of the performance of the existing business, excluding new sites. Underlying EBITDA margin was 20.3% in the period (H1 2013: 19.0%).

Exceptional costs of £18.7m (H1 2013: £0.9m) were incurred in the period. The exceptional costs comprised the following items: £8.6m costs in respect of the IPO, £7.7m for the cost of share schemes vesting on IPO (of which £3.6m was non cash), £2.0m in respect of the integration of Cambian and ACL, and £0.4m relating to the two acquisitions completed in the period.

Finance charges

The Group incurred net finance costs of £8.3m in the period (H1 2013: £9.1m). Of this total, £1.1m related to the financing of the Group from the date of IPO to 30 June 2014, and this is more representative of the cost of financing the Group under its new capital structure.

Taxation

The Group's tax charge was £1.7m (H1 2013: £0.4m credit) representing 25% of profit before tax 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.

Earnings per share

Statutory basic and diluted EPS was a 12.6 pence loss. Proforma EPS pre-exceptional items was 3.0 pence (H1 2013: 1.4 pence). Proforma EPS pre-exceptional items is based on the number of shares in issue post IPO for both periods.

Dividend

As stated at the time of the IPO, the Directors intend the first dividend to be paid by the Company will be a final dividend of not less than £3m in respect of the period from Admission to December 2014 which the Directors expect will be paid in the first half of 2015. There will therefore be no interim dividend paid in 2014.

Capital expenditure

The Group incurred £9.9m (H1 2013: £5.0m) of capital expenditure in the period, of which £8.3m related to growth assets (H1 2013: £3.3m). Maintenance capital expenditure of £1.6m (H1 2013: £2.0m) was incurred which relates to investing in the existing facilities and in the IT infrastructure.

Cash flow

Net cash from operating activities was a £3.0m outflow (H1 2013: £7.0m inflow) mainly as a result of the exceptional costs incurred in 2014 which are described above. The movement in working capital of £6.1m outflow (H1 2013: £6.0m outflow) reflects the expected trend of a working capital outflow in the first half of our financial year followed by an inflow in the second half as experienced in 2013.

Net cash used in investing activities was £17.8m (H1 2013: £10.3m), which comprised £9.9m capital expenditure and £7.9m of acquisitions. Cash inflow from financing activities was £23.3m (H1 2013: £3.1m outflow) comprised of the net movement on loans in the period, and £20.5m proceeds from primary share capital raised on IPO.

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 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. The Group was drawn £160m on these facilities at 30 June 2014 and net debt was £131.7m (H1 2013: £224.0m) at the same date.

Cautionary statement

This report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The report should not be relied on by any other party or for any other purpose.

The report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

7 Refer to note 1 for the basis of preparation of the comparative information at 30 June 2013 and 31 December 2013

8 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

1. Accounting policies

Basis of preparation

The interim Financial Statements for the six month period ended 30 June 2014 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. They have been prepared in accordance with the recognition and measurement criteria of IFRS. They do not include all the information required for full annual financial statements to comply with IFRS, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2013 as presented in the prospectus.

The accounting policies applied by the Group in these condensed set of financial statements are the same as those applied by the Group in its prospectus for the periods ending 31 December 2011, 31 December 2012 and 31 December 2013. The prospectus is publicly available, and available on request from the Company.

The financial information for the period ended 30 June 2014 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. Statutory accounts for Cambian Group plc have not previously been prepared as the Group came into existence on 15 April 2014.

The consolidated condensed financial information has been prepared on the historical cost basis except in respect of those financial instruments that have been measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Exceptional items

Exceptional items reflect items which 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. Examples of items which may give rise to disclosure as exceptional items include: acquisitions costs, costs associated with raising capital and restructuring costs. These items are 'non-recurring'.

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 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 condensed 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 condensed consolidated financial statements:

2. Segmental Analysis

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 customer:

Adult Services - Provision of specialist behavioural science healthcare services for adults

Children's Services - Provision of specialist behavioural science healthcare services for children

The following is an analysis of the Group's revenue and results by reportable segment for the six months ended 30 June 2014, 30 June 2013 and year ended 31 December 2013:

6 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

9 Development losses are defined as losses on sites which are within 18 months of opening and are yet to reach a profitable occupancy

2. Segmental Analysis (continued)

9 Development losses are defined as losses on sites which are within 18 months of opening and are yet to reach a profitable occupancy

2. Segmental Analysis (continued)

9 Development losses are defined as losses on sites which are within 18 months of opening and are yet to reach a profitable occupancy

3. Exceptional items

The following table provides a breakdown of exceptional items:

Acquisition costs are fees and other costs associated with acquisitions undertaken in the period. In H1 2014 these were the acquisition of three Mencap colleges and the New Elizabethan School. Costs associated with raising capital in H1 2014 relate to the IPO. Within the total, the principal costs were fees payable to the sponsor banks and financial advisor, legal costs and reporting accountant costs.

Business integration costs are costs associated with the merger with ACL. The principal items included are consultancy costs, stay bonuses for certain staff who will leave at the completion of integration but whose services are required during the integration process, redundancy costs and legal costs on a corporate reorganisation.

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.

4. Tax

The effective income tax rate, on profit before tax and before exceptional costs, for the six months ended 30 June 2014 is 25% (H1 2013: 32% credit), representing the best estimate of the annual effective income tax rate expected for the full year, applied to the profit before income tax and exceptional costs for the period.

5. Dividends

As stated at the time of the IPO, the Directors intend that the first dividend to be paid by the Company will be a final dividend of not less than £3m in respect of the period from Admission to December 2014 which the Directors expect will be paid in the first half of 2015. There will therefore be no interim dividend paid in 2014.

6. Earnings per Share

Basic earnings per ordinary share is based on the weighted average of 107,653,269 ordinary shares in issue during the period (30 June 2013 and 31 December 2013: 63,415,000) and are calculated by reference to the loss attributable to shareholders of £13.6m (six months ended 30 June 2013: £1.6m profit, year ended 31 December 2013: £10.2m profit).

Diluted earnings per ordinary share is based upon the weighted average of 107,653,269 ordinary shares (30 June 2013 and 31 December 2013: 63,415,000), which excludes the effects of share options under the Continuation Option Plans of 1,427,993 (30 June 2013 and 31 December 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 shareholders of £13.6m (six months ended 30 June 2013: £1.6m profit, year ended 31 December 2013: £10.2m profit).

7. Borrowings

8. Financial instruments

The Group holds the following financial instruments at fair value:

The fair value of the above financial instrument is predominately determined using observable market data. As such, all the financial instruments held by the Group at fair value are considered to have values determined by 'Level 2' inputs as defined by the fair value hierarchy of IFRS 13 'Fair Value Measurement'

For all other financial assets and liabilities, the carrying amount of the assets and liabilities approximates their fair value.

9. Net Debt

10. Called up share capital

On IPO, net cash proceeds received by Cambian Group plc from the issue of new share capital were £20.5m. The remaining shares were issued in a share for share exchange with the previous shareholders of the trading companies and conversion of an equity instrument.

Voting Rights

Following admission to the London Stock exchange the ordinary shares rank equally for voting purposes. On a show of hands each Shareholder has one vote and on a poll each Shareholder has one vote per ordinary share held. Each ordinary share ranks equally for any dividend declared. Each ordinary share ranks equally for any distributions made on a winding up of the Group. Each ordinary share ranks equally in the right to receive a relative proportion of shares in the event of a capitalisation of shares.

11. Acquisitions of subsidiary

On the 17 April 2014 the Group acquired the trade and assets of The New Elizabethan School (NES) and on 3 June 2014 the Group acquired the trade and assets of three Mencap colleges, Lufton, Dilston and Pengwern. The transactions have been accounted for by the acquisition method of accounting in accordance with IFRS 3 (2008). The provisional information on the acquisition is provided below.

The goodwill of £1.6m arising from the acquisitions consists of amounts paid for the trade attached to the assets. Acquisition-related-costs (included in administrative expenses in Cambian Group PLC consolidated income statement for the period ended 30 June 2014) amounted to £0.4m. The trade and assets of the three Mencap colleges and NES together generated revenue of £1.4m and Profit Before Tax of £0.5m in the period from acquisition to 30 June 2014.

12. Notes to the cash flow statement

13. Share-based payments

The charge for share based payment relates to shares under Continuation Option Plan 1 and Continuation Option Plan 2 awarded as part of the IPO. On 15 April 2014, 3,446,222 shares were awarded under these plans, at the then current market price of £2.25. The total fair value charge of £7,754,000 will be expensed over the vesting periods, ranging between 18 months and 5 years. The total expense recognised in the six months ended 30 June 2014 was £438,542.

14. Related party transactions

Balances and transactions between Group companies have been eliminated on consolidation and are not disclosed in this note. Other than the remuneration of executive and non-executive directors and members of the senior executive team, there were no related party transactions except for:

· Rental payments of £22,500 (six months ended 30 June 2013: £21,000, year ended 31 December 2013: £42,000) for a property owned by Riz Khan and payments for training services to a company owned by Mr Khan's spouse of £Nil (six months ended 30 June 2013: £128,500, year ended 31 December 2013: £257,000). There were no balances outstanding at the period ends.

· Fees paid to GI Partners (being a shareholder with representation on the Board) of £58,000 (six months ended 30 June 2013: £30,000, year ended 31 December 2013: £64,000). There were no balances outstanding at the period ends.

· Shareholder loans from GI Partners and key management personnel of £86,850,000 outstanding at the date of IPO were settled by way of issue of shares in Cambian Group plc on IPO (balance at 31 December 2013: £87,693,000, balance at 30 June 2013: £79,083,000).

All related party transactions are considered to be on an arm's length basis, and in the ordinary course of business.

Principal risks and uncertainties

The key risks were set out in detail on pages 16 to 24 in Cambian's prospectus, which is publicly available and available on request from the Company. A summary of the principal risks is set out below, all of which could have a material impact in the Group's business, results, financial condition or prospects: 

· The Group relies on publicly funded entities in the UK for substantially all of its revenue and the loss, or reduction of such funding or changes to procurement methods, or the structure of publicly funded entities such as the NHS, could negatively impact the Group's occupancy rates. In addition, given the pressures on public expenditure, in the future the Group may not achieve fee rate increases or may suffer fee rate decreases;

· The Group may fail to achieve anticipated occupancy rates or may reach those rates over a longer period of time than originally anticipated or may not be able to maintain occupancy rates;

· If the Group's costs increase, its results of operations and financial condition could be materially adversely affected. The Group's largest cost is payroll, driven primarily by the number of employees and pay rates. The number of employees is primarily linked to the number of sites operated and the number of individuals cared for by the Group, although the Group may not be able to flex payroll costs in line with occupancy;

· The Group operates in a highly regulated business environment, which is subject to political and regulatory scrutiny. Failure to comply with regulations or the introduction of new regulations or standards with which the Group does not comply could lead to substantial penalties, including the loss of registration on one or more of the Group's facilities;

· The Group's activities expose it to significant medical, clinical, safeguarding, and health and safety risks. Quality deficiencies could adversely impact the Group's brand, its reputation, its ability to market its services effectively and its occupancy rates;

· The Group's business involves the care of vulnerable people with complex needs, exposing it to significant risks around the actual or perceived quality of its safeguarding responsibilities. Lapses in the standards of care, or incidents of inappropriate behaviour in or associated with any of its facilities or services (whether by cared for individuals, members of staff or third parties) could adversely affect the Group's brand, its reputation, its ability to market its services effectively and its occupancy rates;

· The Group faces current and prospective competition from numerous local, regional and national service providers. The Group may also face competition for suitable sites for development opportunities and for the acquisition of existing businesses or locations. In each case, should the Group fail to continue to enhance and develop its service offerings, or otherwise fail to compete effectively with peers and competitors in the industry in which it operates, or if the competitive environment intensifies, individuals may be referred elsewhere for services that the Group provides, negatively impacting the Group's ability to secure referrals and limiting the expansion of the Group's business;

· The Group's operations are capital intensive and require significant capital investment as well as appropriate planning permission to support successful organic growth. There can be no guarantee that sufficient expansion opportunities will be available to the Group or that the construction or development of new facilities will not be subject to delays;

· The Group merged with ACL on IPO. Whilst the integration tasks are on track, the Group may not be able to continue to successfully integrate ACL into its business. In addition, if the Group is unable to identify, complete or successfully integrate further acquisitions, its growth may be limited;

· The senior management team is critical to the Group's continued performance. The Group's success is in part driven by the skills, experience and efforts of the Group's senior management and on the efforts, ability and experience of key members of the Group's management staff. The loss of services of one or more members of the Senior Managers or of a significant portion of any of the Group's management staff could weaken significantly the Group's management expertise and the Group's ability to deliver its services efficiently and effectively;

· The Group depends on its ability to attract and retain employees. The Group's operations depend on the number, efforts, ability and experience of its employees at the Group's facilities. The Group competes with other service providers to recruit and retain employees. Any reduction in the number of such employees which the Group may attract or an increase in the wages and salaries necessary to attract and retain them could negatively impact the Group's business;

· The Group's insurance may be inadequate, premiums may increase and, if there is a significant deterioration in the Group's claims experience, insurance may not be available on acceptable terms;

· The value of the Group's freehold and long leasehold real estate assets will be subject to fluctuations in the UK real estate market which may have a material adverse effect on the Group's financial condition;

· The Group handles sensitive personal data in the ordinary course of its business and any failure to maintain the confidentiality of such data could result in legal liability for, and reputational harm to, the Group; and

· The Group's level of indebtedness could, in certain circumstances, have a material adverse effect on the Group's operations and its ability to pay dividends.

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group will be prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

27 August 2014

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board