Interim Results

CareTech Holdings PLC

("CareTech" or "the Group" or "the Company")

Interim Results for the six months ended 31 March 2011

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 2011.

Highlights

Statutory Financial Highlights

(i) Adjusted EBITDA is operating profit stated before depreciation, share-based payments charge and adjustment items (explained in note 2);

(ii) Adjusted profit before tax and adjusted diluted earnings per share are stated before adjustment items (explained in note 2).

(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:

"The social care market has experienced unprecedented pressures in recent months, nevertheless CareTech has delivered improved turnover, EBITDA and PBT in line with Directors expectations. Public sector funding pressures together with quality issues and the financial models of some elderly care providers have led to a complex business environment. CareTech, with 87% of service users being looked after in good or excellent rated facilities, a predominantly freehold backed business model and outstanding reputation, is well positioned to deliver further growth in partnership with the users of our services and local authority commissioners".

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Chairman's Statement

Introduction

The social care market has experienced unprecedented pressures in recent months. Public sector funding pressures together with quality issues and the financial models of some elderly care providers have led to a complex business environment. CareTech, with 87% of service users being looked after in good or excellent rated facilities, a predominantly freehold backed business model and outstanding reputation, is well positioned to deliver further growth in partnership with the users of our services and local authority commissioners.

Despite the current market issues CareTech has delivered improved turnover, EBITDA and PBT in line with Directors expectations.

Results

Group revenue of £52.2m (2010: £41.4m) is 26% higher than the corresponding period last year and has delivered adjusted EBITDA(i) of £10.2m (2010: £9.5m), representing growth of 7%.

During the first half of 2011 our analysis of the market led us to focus on preparing the Group's operational platform for the next stage of growth. As a consequence, we have invested further in our management and operating structure in order to provide the appropriate quality and type of resource to drive medium term growth. Additionally, following our analysis of demand trends we have a further 5 homes which are being reconfigured to meet new approaches and service requirements. The adjusted EBITDA(i) margin of 20% (2010: 23%) has reduced due to our infrastructure investments, the current business mix and fee rate pressures from local authorities.

Adjusted profit before tax(ii) increased by 3% to £6.7m (2010: £6.5m) and adjusted diluted earnings per share(ii) declined by 6% to 10.76p (2010: 11.39p) due to 7% more shares in issue.

During the past twelve months we have invested a cash consideration of £39.5m in acquisitions, including £6.9m during the first half of this year, at an overall consideration multiple of around 6 times EBITDA, a 17% return on capital.

Operating cash inflow before adjustment items of £11.2m represents a 110% cash conversion of EBITDA(i), which demonstrates the strong quality of our earnings in the first half of the year. As a result of this and a reappraisal of a number of bolt-on acquisitions, the net debt of £121.9m at 31 March 2011 was significantly better than Directors expectations.

Dividend

Our policy continues to be that of reviewing the dividend broadly in line with the movement in earnings. The Board declares an interim dividend of 2.00p (2010: 1.84p) per share representing an increase of 8.7%, to be paid on 5 August 2011 to shareholders on the Register of Members on 8 July 2011.

Client capacity and occupancy

During the first six months of our financial year we have increased capacity by 121 places to 1,930 with occupancy levels of approximately 92% in established services and around 87% including facilities being developed.

Operating review

As announced last year, our internal management structure has been reorganised. We have attracted experienced sector specialists to our operational team and invested further in our support functions. One consequence of these actions has been to accelerate organic growth and the successful integration of recent acquisitions. We have also moved forward the development of a divisional structure focused on delivering high quality services across on a national platform through local relationships. A brief outline of each of our divisions is as follows:

Adult learning difficulties - with a client capacity at 31 March 2011 of 1,421 places and first half revenue of £36.7m this division represents approximately 70% of the Group's activities. Local teams are supported by regional management in delivering a care pathway range of services including residential care homes, supported living and community support services.

Young people residential services - providing care, support and education to young people with learning difficulties and emotional behavioural disorders, this division represents approximately 13% of the Group's activities with revenue of £6.9m and capacity at 31 March 2011 of 104 places.

Foster care and family services - looking after 269 children we have established ourselves as one of the largest independent fostering agencies in England. Family assessments are also provided for the courts and local authorities through our residential assessment service. The division represents 11% of the Group's activities with turnover of £5.6m in the six months to 31 March 2011.

Mental Health - our care pathway for mental health includes a small community based "open" hospital, residential care homes, independent supported living and community outreach. At 31 March the division had capacity of 136 places and generated revenue of £3.0m in the first half of our financial year.

Acquisitions

Strategic and bolt-on acquisitions made during the past twelve months have been successfully integrated into our divisional management structure and have performed favourably to our original expectations.

In December 2010 we announced the strategic acquisition of Care UK's fostering operations (74 places) and of Phoenix Therapy and Care Ltd ("Phoenix") (14 places) which provides services to individuals with spinal and brain injury. We have reorganised and re-branded the Care UK fostering business such that the pipeline of parent carers is now growing. Phoenix has provided the Group with a gateway in Scotland which facilitates further bolt-on and organic opportunities.

We are delighted to announce that in May 2011 we acquired TLC (Wales) Independent Fostering Ltd ("TLC") for consideration of £3.8m. Based in South Wales, TLC specialises in finding foster care placements for young people who have a wide range of complex needs including attention deficit disorder, autistic spectrum disorder and sensory impairments. Currently looking after 70 foster placements, TLC's expertise will be shared with our existing fostering operations and further extends the Group's range of services in South Wales.

Strategy

Our chosen specialisms within the social care market are already large and reliably expected to grow by around 5% per annum. Within this growth profile, the requirement to support those with greatest need is dominant. Both advances in medical science and demographics are key drivers of this growth.

The demand for specialist social care services is satisfied by a large number of smaller providers, indeed we are one of the largest and yet have less than a 2% market share in each of the sectors covered by our four divisions.

With a strong focus on high standards of care, our strategy continues to be that of developing a range of first class personalised solutions for individuals and placement authorities on a wider geographical basis.

Our current focus is upon the organic development of existing services together with small bolt-on acquisitions where the business case is compelling. Foster care, supported living and community outreach services can be grown organically with virtually no capital commitments and have been useful additions to our business model that complement the strong visibility of income streams enjoyed by the Group's residential services.

The underlying growth characteristics of our chosen markets together with a highly fragmented structure of supply, continues to provide CareTech with strong medium term growth opportunities and I look forward with confidence to further progress in a challenging environment.

Outlook and Prospects

Local authorities are increasingly asking providers to deliver measurable outcomes for the individuals they sponsor within the care and support system. In addition they are driving an approach to best value. In my view, CareTech is well placed to work in partnership with social services commissioners, delivering the outcomes they require at a price they can afford.

The underlying demographic characteristics of our specialist markets together with a highly fragmented structure of supply, continues to provide CareTech with strong medium term growth opportunities and I look forward with confidence to further progress in this challenging environment.

Farouq Sheikh

Chairman16 June 2011

(i) EBITDA is operating profit stated before depreciation, share-based payments charge and adjustment items (explained in note 2);

(ii) Profit before tax and diluted earnings per share are stated before adjustment items (explained in note 2).

Condensed Consolidated Income Statement

for the 6 months ended 31 March 2011

(i) Adjustment items are explained in Note 2.

(ii) Restatements are explained in Note 3.

Condensed Consolidated Statement of Comprehensive Income

for the 6 months ended 31 March 2011

Condensed Consolidated Statement of Changes in Equity

at 31 March 2011

(i) Restatements are explained in Note 3.

Condensed Consolidated Balance Sheet

at 31 March 2011

(i) Restatements are explained in Note 3.Unaudited Consolidated Cash Flow Statement

for the 6 months ended 31 March 2011

Net debt in the balance sheet comprises:

(i) Adjustment items are explained in Note 2.

(ii) Restatements 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 ended 30 September 2011. 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 2010.

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 6 months ended 31 March 2011 and should be read in conjunction with the Group's annual financial statements for the year ended 30 September 2010. Financial information for the year ended 30 September 2010 has been derived from the consolidated audited accounts for that period which were unqualified.

The condensed consolidated interim financial statements for the 6 months to 31 March 2011 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 16 June 2011.

2. Adjustment items

Adjustment 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. Adjustments 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 transaction costs have been incurred with external parties.

(ii) The Group incurred a number of non-recurring costs relating to the integration of recent 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.

(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) In April 2010, the Group completed a new banking arrangement. As such the unamortised element of loan fee costs on the replaced debt was written off.

(vi) Adjustment items relating to derivative financial instruments include the movements during the year in the fair value of 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 £652,000 (31 March 2010: £88,000 credit and 30 September 2010: £148,000 credit) arises in respect of a charge relating to derivative financial instruments in (vi) above. In addition, a credit of £816,000 (31 March 2010: £nil and 30 September 2010: £1,251,000) 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 £591,000 (31 March 2010: £587,000 and 30 September £1,535,000).

(ix) Restatements are explained in Note 3.

3. Restatements

Comparative information has been changed for the following:

(i) Acquisition and development related staff costs of £1,993,000 for the year ended 30 September 2010 have been reclassified such that they are charged against administrative expenses before adjustment items in the Consolidated Income Statement rather than within adjustment items. This has resulted in a change to the disclosed non-statutory EBITDA before adjustment items as set out below. Also, an adjustment has been recognised in the 6 months ended 31 March 2010 to write off acquisition and development related staff costs totalling £1,016,000 previously held as assets on the balance sheet as at 31 March 2010. These costs were originally expensed before 30 September 2010 so there is no similar adjustment at 30 September 2010. Consequently the taxation charge before adjustment items is also restated by £558,000 for the year ended 30 September 2010 and by £285,000 for the 6 months ended 31 March 2010;

(ii) The carrying value of derivative financial instruments of £6,314,000 previously shown within non-current liabilities as at 30 September 2010 has been reclassified into estimated current and non-current amounts of £2,877,000 and £3,437,000 respectively. As at 31 March 2010 £6,487,000 had been previously shown within non-current liabilities and is now reclassified as current and non-current amounts of £2,491,000 and £3,996,000 respectively at 31 March 2010. This analysis between current and non-current liabilities is in accordance with the estimated discounted contractual cash flow maturities of these derivative financial instruments. There is no effect on profit, cash flows or basic and diluted earnings per share from these adjustments;

(iii) At 30 September 2010 the current liability balance for deferred and contingent consideration payable of £14,735,000 included £7,500,000 in respect of a currently exercisable one-way option to acquire freehold property entered into by the Group at the same time as a business combination which was completed during the year ended 30 September 2010. A corresponding property asset had also been recognised, reflecting the cost of the property under the option. During the current year the directors have reconsidered the nature of the asset acquired as part of the business combination. Since the group was under no obligation to proceed with the acquisition of the property they have concluded that the asset acquired was in fact the option to make that acquisition, rather than the property itself. The fair value of the option at acquisition was nil. As a consequence an adjustment has been made to reduce both deferred and contingent consideration and property, plant and equipment by £7,500,000 in the balance sheet as at 30 September 2010. In addition this results in the reclassification of £417,000 of finance charges into Administrative Expenses for the year ended 30 September 2010 and £167,000 for the 6 months ended 31 March 2010. The disclosure of the acquisitions in the year ended 30 September 2010 has been restated for this adjustment. The option currently remains outstanding and expires in December 2011. There is no effect on profit before tax, cash flows or basic and diluted earnings per share from these adjustments;

(iv) In the Consolidated Balance Sheet, accruals relating to minimum future lease payments (the difference between operating lease rentals on a cash and straight-line charge basis), previously disclosed within Trade and other payables as current liabilities, have been reclassified in a separate line item as non-current liabilities as they will reverse in periods which are several years in the future. There is no effect on profit, cash flows or basic and diluted earnings per share from these adjustments.

The effect of the above on the financial information is as follows:

Adjustments (i) and (iii) also resulted in a change to the non-statutory EBITDA before adjustment items for both the 6 months ended 31 March 2010 and the year ended 30 September 2011 as follows:

4. Financial Expenses

(i) Restatements are explained in Note 3.

5. Taxation

(i) Restatements are explained in Note 3.

6. Earnings per share

(i) Restatements are explained in Note 3.

7. Acquisitions

(a) Acquisitions during the period ended 31 March 2011

The following provisional fair value table summaries the acquisitions made during the 6 months ended 31 March 2011:

(b) Reconciliation to Consolidated Cash Flow Statement

(c) Deferred and contingent consideration payable

(i) Restatements are explained in Note 3.

8. Share capital

On 15 March 2010, £15m before expenses was raised through the placing of 3,750,000 ordinary shares of 0.5p each in the Company at 400p per share.

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.