Interim Results for the six months ended 31 March

CareTech Holdings PLC

("CareTech" or "the Group")

Interim Results for the six months ended 31 March 2013

CareTech Holdings PLC (AIM: CTH), a leading UK provider of specialist social care services, is pleased to announce its interim results for the six months ended 31 March 2013.

Highlights

·; Revenue increased by 1% to £56.6m (2012: £56.1m)

·; Underlying EBITDA(i) increased by 3% to £11.8 (2012: £11.5m)

·; Underlying profit before tax(ii) increased by 3% to £7.6m (2012: £7.4m)

·; Underlying diluted earnings per share(ii) reduced by 0.5% to 11.82p (2012: 11.88p)

·; Strong operating cash inflow before non underlying items of £10.9m (2012: £10.5m) with net debt of £133.2m at 31 March 2013 (2012: £131.5m)

·; Overall capacity increased by 32 places to 2,198

·; Interim dividend increased by 5% from last year to 2.32p (2012: 2.21p) per share

Statutory Financial Highlights

·; EBITDA(iii) increased by 1% to £10.3m (2012: £10.2m)

·; Profit before tax £3.4m (2012: £4.0m)

·; Diluted earnings per share decreased by 33% to 6.03p (2012: 9.01p)

·; Cash inflows from operating activities were £10.9m (2012: £10.5m)

(i) Underlying EBITDA is operating profit stated before depreciation, share-based payments charge and non underlying items (explained in note 3).

(ii) Underlying profit before tax and underlying diluted earnings per share are stated before non underlying items (explained in note 3).

(iii) EBITDA is operating profit stated before depreciation, share-based payments charge and amortisation of intangible assets.

Commenting on the results, Farouq Sheikh, Executive Chairman said:

"I am pleased to report another solid performance in the six months ended 31 March 2013. By anticipating and responding to more sophisticated demand side trends and being more outcome based, CareTech has delivered increased revenue, underlying EBITDA and PBT on the comparable period in 2012 in line with the Board's expectations."

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Chairman's Statement

A strong springboard to deliver further growth

"I am pleased to report another solid performance in the six months ended 31 March 2013. By anticipating and responding to more sophisticated demand side trends and being more outcome based, CareTech has delivered increased revenue, underlying EBITDA and PBT on the comparable period in 2012 in line with the Board's expectations."

During the period, the Group continued to develop and grow its four operating divisions which come under the two outcome based sectors of Adult services and Children Services. The growth going forward is underpinned by the strong platform we have created over the last few years. We continue to extend both our geographic coverage and our outcome based care pathway range of services organically and through the purchase and sale of properties to meet the needs of our marketplace for greater acuity service provision. This ensures that CareTech is well positioned to address the demands of our evolving marketplace and the Board remains confident of the Group's performance for the remainder of the year.

Results

Group revenue of £56.6m (2012: £56.1m) is 1% higher than the corresponding period last year and has delivered an underlying EBITDA(i) of £11.8m (2012: £11.5m), representing growth of 3%.

In the last year we have closed services principally in the Adult Learning Disabilities Division for reconfiguration and without those services closed the underlying turnover and underlying EBITDA would have been 2.5% and 6% higher than the corresponding period last year.

During this period, we also continued to direct our strategic focus on preparing the Group's operational platform for the next stage of development in what is a growing market. As a consequence, we have invested further in our systems and operating structure in order to provide the appropriate quality and resource to drive medium term growth organically spending in total in the period £3.3m (2012: £2.8m). Additionally, following our analysis of demand trends last year, we have a further three homes which are being reconfigured to meet new demand and service requirements of care commissioners and these are planned to be completed in the next financial year. The underlying EBITDA(i) margin of 20.9% (2012: 20.4%) has improved on last year.

Underlying profit before tax(ii) increased by 3% to £7.6m (2012: £7.4m) and underlying diluted earnings per share(ii) was 11.82p (2012: 11.88p) This small decrease is as a result of the additional shares issued under the ExSOP scheme last year.

During the past twelve months we have made no acquisitions (previous 12 months £4.3m and preceding 12 months £39.5m) following the Board's decision to focus on organic growth rather than acquisitions.

Operating cash inflow before non underlying items of £10.9m represents a 92% cash conversion of underlying EBITDA(i), which demonstrates the strong quality of our earnings. As a result of this and the focus on organic growth, the net debt of £133.2m at 31 March 2013 was better than the Board's expectations. The March net debt is slightly higher than the year end position at 30 September 2012 of £131.2m due to the pattern of expenditure in the year. Importantly net debt is expected to reduce across the remainder of the year.

In the trading update issued on 17 April 2013, CareTech announced that, whilst fee rate negotiations were at an early stage, the Board anticipated that a broadly neutral position would be achieved. Since then negotiations have progressed and the final outcome is likely to be a slightly positive position.

As part of the refinancing in 2012 we had an independent valuation of the Group's 135 freehold properties and the portfolio was valued at £225m which underlines the strong asset backing within the business.

Dividend

Our policy continues to be that of increasing the dividend broadly in line with the movement in underlying diluted earnings per share. Given the consistent earnings growth and cash generation the Board therefore is declaring an interim dividend of 2.32p (2012: 2.21p) per share, to be paid on 5 August 2013 to shareholders on the Register of Members on 5 July 2013 with an associated record date of 7 July 2013, and will review the whole year's dividend at the year end.

Service User capacity and occupancy

During the first six months of our financial year we have increased capacity by 62 places and closed 30 places. As a result, capacity at 31 March 2013 is higher at 2,198 (March 2012: 2,116).

The increase in capacity was made up of 29 beds in 4 reconfigured services, 15 additional beds in supported living services and an additional capacity of 18 within fostering. The reduction in capacity comprises 14 beds in services closed for reconfiguration and 16 beds mainly in supported living. The beds within services for reconfiguration are expected to return to operational use within 12 months.

Occupancy levels within our mature services continue to be maintained at approximately 92% and 85% when taking into account our services under development.

Operating review

The Group is now realising the benefit of organisational improvements that were put in place in the last few years. In October 2012 the Group held an Investor Workshop "Leaders in Social Care" which gave the Operations Directors running each of the divisions the opportunity to outline the improvements within their division and the key opportunities faced and developments planned. Since then, we have continued to strengthen the management structure and improve the efficiency of our processes following the implementation of new systems. We have appointed an experienced Director of Personalisation to further improve our Supported Living and Domiciliary Care Services who has previously worked as an MD for two sizeable Supported Living businesses. Also appointed is a Clinical Director who is a General Practitioner with extensive experience of Clinical Commissioning and developing clinical and professional strategies in a PCT. These appointments put us in a strong position to benefit from some of the commissioning opportunities by working in partnership with the NHS and Local Authorities.

Work to strengthen our systems continues as we focus on improving the quality of our services, whilst managing our cost base. In the half year we replaced the different payroll and HR systems across the Group with iTrent. This new system went live from April 2013. We are also currently investing in a new care system for Foster Care which will be fully live in the next two months; not only will this give improved care reporting locally across the Division, but it will also enable more streamlining as back office functions continue to be centralised.

A summary outline of each of our divisions is as follows:

Adult Learning Disabilities - with a client capacity at 31 March 2013 of 1,455 places and first half revenue of £36.8m, this division represents approximately 65% of the Group's activities. We offer a flexible, person centred approach with support being offered on an individual planned basis. Services include residential care, nursing care, individual and group supported living schemes and domiciliary care services. We also offer day opportunity programmes on an individual basis. Demand remains high for the support of people with learning disabilities and we recognise an increasing complexity of need for referrals to our specialist services. We have identified a small number of additional learning disability residential services to reconfigure into services that provide a greater level of acuity.

Mental Health - our care pathway for mental health includes a small community based "open" hospital, residential care homes, independent supported living and community outreach. We also include certain specialised services in this portfolio. At 31 March 2013 the division had a capacity of 161 places and generated revenue of £3.1m in the first half of our financial year. We work in partnership with the NHS rather than competing against them. Our objective is to encourage and support community discharge, enabling the Trusts to work more efficiently and providing a route back to community life for people who have suffered a debilitating mental illness.

Young People Residential Services - providing care, support and education to young people with complex behavioural problems, physical impairments, learning disabilities and emotional behavioural disorders ('EBD'). This division generated revenue of £9.2m and had a capacity at 31 March 2013 of 141 places. We operate services that cater for local needs but also manage certain highly specialised services that have a national catchment. In early 2012 the Group acquired ACAD which gave the division a foothold in Scotland and this is now being extended with the opening of additional services in other parts of Scotland. The division focuses increasingly on those children with the most complex needs and those who require our sophisticated clinical input.

Foster Care - with a capacity of 441 children we have established ourselves as one of the largest independent fostering agencies in England and Wales. Family assessments continue to be provided for the courts and local authorities through placement with highly trained foster carers. The division had turnover of £7.5m in the six months to 31 March 2013. We have observed a significantly increased demand for foster care for children who might otherwise have entered the residential care system. Foster care represents much better value for commissioners but the complexity of children being referred will often make the matching process quite complex, favouring larger agencies like CareTech with a greater range of well supported foster carers and backed by a new care I.T. system and additional quality resources. Having established itself in England and Wales, the Foster Care division is now laying the foundations in Scotland to provide a care pathway alongside the Young People Residential Services and to offer the same well supported foster carer services platform as in England and Wales.

Acquisitions

Strategic and bolt-on acquisitions made during the previous few years have been successfully integrated into our divisional management structure and have performed favourably compared to our original expectations; of note is the development in progress in Scotland of Children Services in both the Young People Residential Division and the Foster Care Division.

During the half year the Group has made no acquisitions.

The last acquisitions were made in Scotland and we have continued to consolidate our position there and push forward organic growth in line with our market analysis and understanding of the political and demographic drivers. In the coming months we are planning to open new Children Services both as Young People Residential Services and Foster Care following registrations.

Strategy

The specialist social care market continues to benefit from strong demographic trends and higher acuity levels across the UK. Local Authorities are faced with increasing demands and financial pressures that have led to a greater focus on value for money. CareTech's experience has been that service commissioners recognise that the most complex people require continuing support which focuses on outcome based care pathways.

Commissioners also seek best value and we have responded by refining our range of service offerings, refocusing certain areas of provision and driving organic developments that deliver what commissioners want. We have opened reconfigured services designed to meet commissioner demands in the half year, and have also continued our strategy of purchasing sites so that we can provide services tailor-made to satisfy demand.

For those able to transition we provide clear outcome based pathways from residential care, principally into various forms of supported housing or foster care for Children, while residential options continue to be in demand for those with the greatest need. However, we anticipate further shifts toward more sophisticated supported living packages linked to new personalised payment methodologies.

Demand for the residential care of children and adults with complex needs will benefit from an overall increase in the demographic profile. However, commissioners will expect even more focused service plans with defined outcomes and the opportunity for those people to move into supported living wherever this is feasible. CareTech already has sound clinical and social care expertise but we plan to strengthen this further during the coming year, especially in the areas of specialist adult care.

Our diversification policy means that we are now offering the full spectrum of social care services with the exception of traditional elderly care. We believe that our strategic position is now very strong, backed by an effective organisational structure, first class quality control and developing clinical infrastructure. In the medium term we are focusing on organic growth that builds on our successful base position. However, we will undertake further strategic acquisitions that meet our key criteria by offering new expertise, geographical presence or consolidation opportunities.

Board changes

As previously announced, we strengthened our Board. Jamie Cumming was appointed a non-executive director of the Board with effect from 28 March 2013. Jamie has a strong track record, and extensive experience in the City which will prove invaluable on both the corporate side and more generally in our investor relations. He will chair the Remuneration Committee and sit on the Audit Committee and the Care Governance and Safeguarding Committee.

All of the non-executive directors sit on the Care Governance and Safeguarding Committee, which is chaired by Mike Adams. It has recently included external attendees to its meetings such as the Head of Safeguarding for Hertfordshire County Council and received external presentations such as Conflict Management from Maybo to help the Committee understand best practice. To further strengthen the Committee the new Clinical Director will work with clinical staff across the Group to help deliver outstanding care and support.

Outlook and prospects

First class social care which represents good value and is focused on successful client outcomes will remain the main market driver for CareTech's continuing growth.

The strategy of taking the Group from a single division to now supporting four complimentary divisions has served us well and enabled us to consistently keep growing earnings over recent years in a changing market place. Most importantly during this period the Group's operating cash flow has grown significantly whilst its need for capital to grow has reduced drastically as we have developed services that require little or no capital. Together this puts us in a strong position to continue to grow earnings using the free cash from the business whilst reducing net debt. Moreover the investment in IT and infrastructure made recently, coupled with strengthening of the senior management team, provides greater opportunity to further grow revenue and earnings for the Group.

CareTech will continue to work in partnership with Local Authorities to deliver innovative services focussed on delivering outcomes for individuals.

Farouq Sheikh

Executive Chairman13 June 2013

(i) Underlying EBITDA is operating profit before depreciation, share-based payments charge and non underlying items (explained in note 3);

(ii) Underlying profit before tax and underlying diluted earnings per share are stated before non underlying items (explained in note 3).

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 31 March 2013

(i) Non underlying items are explained in note 3.

Condensed Consolidated Statement of Changes in Equity

at 31 March 2013

Condensed Consolidated Balance Sheet

at 31 March 2013

Consolidated Cash Flow Statement

for the six months ended 31 March 2013

Consolidated Cash Flow Statement

for the six months ended 31 March 2013 continued

Net debt in the balance sheet comprises:

(i) Non underlying items are explained in note 3.

Notes

1. Accounting policies

This interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ending 30 September 2013. These are anticipated to be in accordance with the Group's accounting policies as set out in the latest annual financial statements for the year ended 30 September 2012.

All International Financial Reporting Standards ('IFRS'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM-listed companies have been applied. AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

The financial information in this interim report does not constitute statutory accounts for the six months ended 31 March 2013 and should be read in conjunction with the Group's annual financial statements for the year ended 30 September 2012. Financial information for the year ended 30 September 2012 has been derived from the consolidated audited accounts for that period which were unqualified.

The condensed consolidated interim financial statements for the six months to 31 March 2013 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

This unaudited interim report was approved by the Board on 13 June 2013.

2. Segmental information

IFRS 8 requires operating segments to be determined based on the Group's internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been determined to be the Chief Executive Officer as he is primarily responsible for the allocation of resources to segments and the assessment of the performance of each of the segments.

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

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

The Group has four segments, namely, Adult Learning Disabilities ('ALD'), Mental Health ('MH'), Young People Residential Services ('YPR') and Foster Care ('FC'). There has been no aggregation of the operating segments in arriving at these reportable segments.

The segmental results for the six months ended 31 March 2013, six months ended 31 March 2012 and year ended 30 September 2012 and the reconciliation of the segment measures to the respective statutory items included in the consolidated financial information are as follows:

Reconciliation of EBITDA to profit before tax;

All operations of the Group are carried out in the UK, the Company's country of domicile. All revenues therefore arise within the UK and all non-current assets are likewise located in the UK. No single external customer amounts to 10% or more of the Group's revenues.

No asset and liability information is presented above as this information is not allocated to operating segments in the regular reporting to the group's Chief Operating Decision Maker and are not measures used by the CODM to assess performance and to make resource allocation decisions.

3. Non underlying items

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

(i) In accordance with IFRS 3 (as revised) items associated with business combinations have been taken to the income statement as incurred. Acquisition expenses have been incurred with external parties.

(ii) The Group incurred a number of costs relating to the continued integration of acquisitions and reorganisation of the internal operating and management structure.

(iii) In accordance with IFRS 3 (as revised) adjustments to the fair value of acquisitions completed in previous financial years are recognised in the income statement. These adjustments relate to final completion account agreements with vendors.

(iv) Adjustments relate to non-cash additional charges under IAS 17 which incorporates recognising the effect of future minimum lease payment uplifts on a straight-line basis.

(v) The present value of the future cash flows receivable from the operation of a leased asset has been assessed as being lower than the present value of the rental payments to which the Group is committed. During 2012 the Group provided for £310,000 being the present value of any onerous element of the remaining lease life.

 (vi) Non underlying items relating to derivative financial instruments include the movements during the year in the fair value of the Group's interest rate swaps which are not designated as hedging instruments and therefore do not qualify for hedge accounting, together with the quarterly cash settlements and accrual thereof.

(vii) Represents the current tax on items (i) to (vi) [above].

(viii) A deferred tax charge of £315,000 (31 March 2012: £326,000 and 30 September 2012: £125,000 credit) arises in respect of a charge relating to derivative financial instruments in (vi) above. In addition, a credit of £678,000 (31 March 2012: £1,818,000 and 30 September 2012: £1,432,000) arises in respect of changes in future corporation tax rates, together with a charge from the effects of full provision for deferred tax under IAS 12 amounting to £404,000 (31 March 2012: £86,000 and 30 September 2012: £567,000 credit).

4. Financial expenses

5. Taxation

In the 2013 Budget, it was announced that the main rate of corporation tax would reduce to 23% with effect from 1 April 2013, falling by a further two percentage points in the subsequent year. The 23% rate was substantively enacted on 26 March 2013 and has resulted in a deferred tax credit in the six months ended 31 March 2013 of £1,818,000. A rate of 21% is expected to be substantively enacted during July 2013 and if so, deferred tax amounts as at 30 September 2013 will need to be calculated at 21%, which will result in a further credit to the income statement based on deferred tax balances in place at 31 March 2013.

6. Earnings per share

Diluted earnings per share is the basic earnings per share adjusted for the dilutive effect of the conversion into fully paid shares of the weighted average number of share options outstanding during the period.

7. Acquisitions

(a) Reconciliation to Consolidated Cash Flow Statement

(b) Deferred and contingent consideration payable

8. Share capital

On 4 April 2012 the Company issued a total of 1,608,337 new ordinary shares of 0.5p in the Company (the "New Ordinary Shares") in connection with the Company's Executive Shared Ownership Plan 2012 (the "Share Plan"). The New Ordinary Shares will be jointly acquired by the employee benefit trust (managed independently by EES Trustees International Limited) and award recipients, at the closing market price as at 4 April 2012 of 140.5p.

9. Distribution to shareholders and further information

This interim report is being sent to all shareholders and will be available to the public on the Group's website (www.caretech-uk.com) and from the Group's registered office, 5th Floor, Metropolitan House, 3 Darkes Lane, Potters Bar, Hertfordshire EN6 1AG. Further information regarding the activities of the Group, including a copy of the interim presentation, is available on the Group's website www.caretech-uk.com.