Interim Results

CareTech Holdings PLC

("CareTech" or the "Company")

Interim Results for the six months ended 31 March 2015

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care services in the UK, is pleased to announce its interim results for the six months ended 31 March 2015.

Key Points

· Underlying EBITDA(i) increased by £0.6m to £14.5m (H12014: £13.9m)

· Underlying profit before tax(ii) increased by 11% to £9.4m (H12014: £8.5m)

· Underlying diluted earnings per share(ii) increased by 8% to 14.05p (H12014: 13.07p)

· Strong operating cash inflow before non-underlying items of £12.9m (H12014: £13.1m) with net debt of £147.2m at 31 March 2015 (31 March 2014: £165.7m)

· Overall capacity moved since the year end by 22 places to 2,052 (FY2014: 2,074)

· Interim dividend increased by 8% to 2.80p (2014: 2.60p) per share

· The Group raised £21m in March 2015 which will be used to fund acquisitions and growth

· Net Assets have grown by 27% to £130.8m (H12014: £103.2m)

· EBITDA(iii) increased by 4% to £13.2m (H12014: £12.7m)

· Cash inflows from operating activities were £11.5m (H12014: £10.9m)

(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 of CareTech, said:

"We are delighted to report a solid performance for the first half of 2015. CareTech is in a very strong position to address the demands of our evolving marketplace and the Board remains confident of the Group's performance for the remainder of the year.

"Having raised £21m gross from the placing in February, the Group has a number of consolidation opportunities in the pipeline and we are currently making good progress on a number of potential bolt on acquisitions. This will lead to a growth in capacity and revenues which will generate additional EBITDA and cash to continue organic and infrastructure improvements so the Group can achieve its target of double digit growth in underlying diluted earnings per share.

"The continued provision of 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."

For further information, please contact:

About CareTech

CareTech Holdings plc is a leading provider of specialist social care services, supporting adults and children with a wide range of complex needs in more than 250 specialist services around the UK.

Committed to the highest standards of care and care governance, CareTech provides its innovative care pathways through five divisions covering adult learning disabilities, mental health, young people residential services, foster care and learning services.

CareTech, which was founded in 1993, began trading on the AIM market of the London Stock Exchange in October 2005 under the ticker symbol CTH. Its freehold portfolio comprises more than 160 properties.

For further information please visit: www.caretech-uk.com.

Chairman's Statement

A solid platform to deliver strong growth both organically and by acquisitions

I am pleased to report a solid performance in the six months ended 31 March 2015. CareTech has delivered an impressive performance increasing Gross Profit, underlying EBITDA and Profit before Tax despite a slight decrease in Revenue compared with the comparable period in 2014. This further demonstrates the benefits of the Board's strategy over recent years of expanding the care pathways.

During the period, the Group continued to develop and grow its five operating divisions, which come under the two outcome-based sectors of Adult services and Young People Services. The growth going forward is underpinned by the strong starting point that we have built over the past 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, specifically the requirement for greater acuity service provision. This ensures that CareTech is in a very strong position to address the demands of our evolving marketplace and the Board remains confident of the Group's performance for the remainder of the year.

Following the recent capital raise and the strengthening of the management team, the Group is now in a strong position to make bolt-on acquisitions to our existing care pathways in a market that remains very fragmented. We are currently making good progress on a number of potential bolt- on acquisitions.

Our current initiatives and acquisition strategy give the Group the ability to achieve double-digit growth in underlying diluted earnings per share going forwards.

Results

Group revenue in the half year of £60.7m (H12014: £61.5m) has delivered an underlying EBITDA(i) of £14.5m (H12014: £13.9m), representing growth of 4.3%. Without the effect of reconfigurations Group Revenue and EBITDA would have grown on a like- for- like -basis by 1.2% and 8.6% respectively; this constitutes an investment for the future and allows the Group to meet Commissioner demands whilst expanding our care pathways.

The underlying EBITDA(i) margin of 23.8% (H12014: 22.6%) has further improved on last year principally due to reconfigured services and operational efficiencies.

Underlying profit before tax(ii) increased by 10.6% to £9.4m (H12014: £8.5m) and underlying diluted earnings per share(ii) was 14.05p (2014: 13.07p) This increase of 7.5% is due to the growth in underlying earnings arising from the improved EBITDA margins partially offset by an increase in the number of shares issued in March 2015 as a result of the placing.

During this period, we also maintained our strategic focus towards taking the Group's operational platform forward to the next stage of development in what is a growing market. As a consequence, we have further invested in our systems and operating structure in order to provide the appropriate quality and resource to drive medium-term growth organically, investing £3.6m in the period (H12014: £3.3m). Additionally, following our analysis in the past two years of demand trends, we are building new services and new properties are being developed including a school, and further homes 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 Board took the decision in January to make acquisitions again after a number of bolt-on acquisitions were identified to enhance the geographic spread of services and improve the Care Pathways.

To that end the Group announced a conditional placing of 10,000,000 shares at a price of 210p per share on 27 February 2015 raising gross funds of £21m which were received after the AGM and AIM listing in March 2015.

A key feature of this business is its strong cash generation. Operating cash inflow before non-underlying items of £12.9m represents a 89% cash conversion of underlying EBITDA(i), which demonstrates the continued strong quality of our earnings. As a result of this and the focus on organic growth as well as the placement monies the net debt was £147.2m at 31 March 2015. The March 2015 net debt is £18.9m lower than the year end position at 30 September 2014 of £166.1m due to the placement monies net of the increase in fleet vehicles of £3m on hire purchase.

Net Assets have increased by £27.6m in the half year to 31 March 2015 which is an increase of 26.7% over March 2014.

In the trading update issued on 15 April 2015, CareTech announced that, whilst fee rate negotiations with Local Authorities were at an early stage, the Board believed based on feedback received that a positive position would again be achieved. Since then negotiations have progressed well and the final outcome still remains likely to be positive.

Dividend

Our policy continues to be to increase the dividend broadly in line with the movement in underlying diluted earnings per share. Given the consistent earnings growth and cash generation the Board is therefore declaring an interim dividend of 2.80p (H12014: 2.60p) per share, to be paid on 27 November 2015 to shareholders on the Register of Members on 12 November 2015 with an associated record date of 13 November 2015. The full year dividend will be reviewed at the year end.

Service user capacity and occupancy

During the half year, 25 additional beds in reconfigured services and new services have been brought into capacity. They generate a higher contribution than the beds in pre-configuration and are part of an ongoing strategy to enhance margins. The Group's net capacity at the half year was 2,052 places (2,074 places as at 30 September 2014). The net decrease in capacity of 22 places comprises 20 places in services that have been withdrawn for reconfiguration into new care models and two places that were removed in supported living. Once the services have been reconfigured, we expect them to contribute a higher profit margin than previously. During the period, there was a net reduction of 18 in capacity within fostering, reflecting increases in the numbers on our register of carers who were not able to foster children currently.

Occupancy levels in the mature estate have improved to 93% from 92% and the blended occupancy is at approximately 87%, which is an improvement on 86% at 30 September 2014.

Acquisitions and Placement

On 27 February 2015, CareTech announced a conditional placing of 10,000,000 shares at a price of 210p per share, raising gross funds of £21.0m. Following approval at the Company's AGM, the new shares were listed on AIM on 10 March 2015. The management team invested a total of £1.2m, demonstrating its ongoing commitment. The Board was pleased that existing shareholders were extremely supportive and also welcome a number of new shareholders to the Group.

A number of organic growth projects and potential bolt-on acquisitions have been identified and the intention is that the placing proceeds will be deployed within approximately 12 months of the issue. We continue to make good progress with a number of these opportunities and have exclusivity on businesses which if completed, will account for more than half of our placement proceeds.

Operating review

The Group now continues to realise the benefit of organisational improvements that were put in place over the past few years. In the half year, we have continued to strengthen the management structure and improve the efficiency of our processes following further investment in new systems which will continue through the second half of the year. Our recent appointments have put us in a strong position to benefit from a number of commissioning opportunities by working in partnership with the NHS and Local Authorities especially in light of Joint Commissioning currently being developed.

The new Time and Attendance system has been implemented across residential services in the half year period and it further progresses our back office centralisation.

A summary outline of each of our divisions and sectors are as follows:

For the time being we continue to report the five operating divisions with their individual statistics and we report Adult Services which is the total of Adult Learning Disabilities and Mental Health, and Young People Services which is the total of Young People Residential, Fostering and Learning Services.

Adult Services

The Adult Services capacity is 1,596 with revenue of £40.8m and EBITDA of £11.4m. The sector's margin has improved to 28.0% (H12014 27.6%) as a result of the reconfiguration investment.

Adult Learning Disabilities - with a client capacity at 31 March 2015 of 1,482 places and first half revenue of £37.5m, this division represents just over 60% of the Group's activities. We continue to 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 provide 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 and these are being developed. Our focus on quality is now showing through with compliance for our services in England at 94% for our adult regulated services compared with a Care Quality Commission national average of 86% under the old system of ratings; going forwards we will provide information on the new system of ratings and to date on the 28% of our registered services inspected we are ahead of the national average by 5% on services rated good. This new system is being carefully monitored by our Care Governance and Safeguarding Committee.

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 2015 the division had a capacity of 114 places and generated revenue of £3.3m in the first half of our financial year down 12% on March 2014 principally due to services reconfigured and transferred to Adult Learning Disabilities. We work in partnership with the NHS rather than competing against them. Our objective is to encourage and support discharge into the community, 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 Services

The Young People Services capacity is 456 with Revenues of £20.0m and EBITDA £5.7m and the underlying focus of providing a complete care pathway for Young People is now coming through.

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 £10.1m and had a capacity at 31 March 2015 of 154 places. We operate services that cater for local needs but also manage certain highly specialised services that have a national catchment. Since 2012 the Group gained a foothold in Scotland and this is now being further extended with the opening of additional services in Fife. 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 302 children we have established ourselves as one of the largest independent fostering agencies in England and Wales. The division had turnover of £5.3m in the six months to 31 March 2015. 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. 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. The division now focuses solely on Foster Care and there continues to be a major investment in new foster carers in the half year which provides the platform for growth.

Learning Services - Revenue to 31 March 2015 was £4.5m in the first half of the financial year. After several months of development work the Group launched the new CareTech Aspire Programme early in this half year; it will ensure that all of CareTech's care staff receive all mandatory and statutory training to the highest standard whilst also being offered the opportunity to complete a Level 2 or Level 3 apprenticeship which has been carefully tailored to suit individual roles.

The Aspire programme aims to empower every member of staff to deliver high quality, personalised care and ensure there is a development pathway available to all. From November 2014, all newly hired support workers have been offered an apprenticeship as part of their induction to CareTech. Up to 1,000 support workers are due to join the programme over the first 12 months and, to date; over 440 CareTech apprentices have begun their training.

This programme is one of a number of initiatives being taken on staff development and retention. There is also good progress on Pre-Employment Training Courses for Young People which are being introduced into some of our Young People Residential Services.

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.

Further growth will continue to be achieved by reconfiguring services and extending facilities in partnership with local authorities. Care commissioners continue to demand flexible high-quality care solutions and favour operators able to deliver across the care pathway. Pleasingly, some of the 2014 reconfigured services will soon open and are already experiencing strong levels of demand from the local authorities for referrals, validating our strategy of reconfiguration focusing upon greater acuity service provision.

People

There have been no changes to the Board, the Remuneration Committee, Care Governance and Safeguarding Committee or the Audit Committee in the half year.

As a foundation for growth the Board is pleased that the Senior Executive Team at CareTech has been strengthened with the appointment on 14 April of John Ivers as Chief Operating Officer. He brings considerable experience from across the care sector as former Chief Operating Officer of HC One and former Chief Executive of Nestor Health Care Plc and also Chief Executive of Saga Healthcare.

The Executive Team has also been reinforced and staff development remains a key priority.

Outlook and prospects

The continued provision of 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 five complementary divisions has given the Group a strong foundation with a proven track record.

The management team has only recently been further strengthened and this continued development gives the Group the ability to focus on continued growth in a fragmented market. Having raised £21m gross from the placing in February, the Group has a number of consolidation opportunities which are currently being worked on. This will lead to a growth in capacity and revenues which will generate additional EBITDA and cash to continue organic and infrastructure improvements so the Group can achieve its target of double-digit growth in underlying diluted earnings per share. As outlined we continue to make good progress with a number of the acquisitions and we hope that the current exclusivities will lead to some acquisitions being completed in the coming months.

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

Farouq Sheikh

Chairman

11 June 2015

(i) Underlying EBITDA is operating profit before depreciation, share-based payments chargeand 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 2015

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

(ii) The movement in Profit before tax and Earnings per share relates to non-cash revaluation movements of derivative financial instruments associated with the Group's interest rate swaps.

Condensed Consolidated Statement of Changes in Equity at 31 March 2015

Condensed Consolidated Balance Sheet at 31 March 2015

Consolidated Cash Flow Statement for the six months ended 31 March 2015

Net debt in the balance sheet comprises:

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 2015. 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 2014.

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 2015 and should be read in conjunction with the Group's annual financial statements for the year ended 30 September 2014. Financial information for the year ended 30 September 2014 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 2015 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 11 June 2015.

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 five segments. Our two key segments are Adult Services (Adult) and Children Services (Children). Adult Services comprises the Adult Learning Disabilities (ALD) and Mental Health (MH) divisions and the Children Services comprises Young People Residential Services (YPR), Foster Care (FC) and Learning Services (Learning). 

2. Segmental information continued

The segmental results for the six months ended 31 March 2015, six months ended 31 March 2014 and year ended 30 September 2014 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 opposite 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) Non underlying items relating to derivative financial instruments include the movements during the year inthe 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.

(iv) Represents the current tax on items (i) to (iii) above.

(v) A deferred tax credit of £236,000 (31 March 2014: £106,000 and 30 September 2014: £110,000) arises in respect of a charge relating to derivative financial instruments in (iii) above. In addition, a credit of £449,000 (31 March 2014: £94,000 credit and 30 September 2014: £1,883,000 credit) arises in respect of other adjustments. A charge from the effects of full provision for deferred tax under IAS 12 amounting to £nil (31 March 2014: £209,000 and 30 September 2014 £337,000).

4. Financial expenses

5. Taxation

In the 2015 Budget it was announced that the main rate of corporation tax will fall to 20% with effect from 1 April 2015. 

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.

The movement in Profit before tax and Earnings per share relates to non-cash revaluation movements of derivative financial instruments associated with the Group's interest rate swaps.