Preliminary Results

CareTech Holdings PLC

("CareTech" or "the Group")

Preliminary Results for the year ended 30 September 2014

CareTech Holdings PLC (AIM: CTH), a leading UK provider of specialist social care services, is pleased to announce its unaudited preliminary results for the year ended 30 September 2014.

Highlights

Statutory Financial Highlights

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

(ii) Underlying profit before tax and underlying diluted earnings per share are stated before non-underlying items.

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

(iv) Overall capacity has reduced by 42 reflecting the net of 63 additional beds now available, 12 beds withdrawn for reconfiguration, 30 places less in small supported living packages and a reduction of 63 for carers not currently accepting children.

(v) These statutory highlights have decreased following a non-recurring significant increase in 2013 as a result of the business activity in that year.

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

"Once again I can report on strong growth on all of our key business metrics. The successful pursuit of our business and social care strategies has created a solid foundation for further development as we enter our 22nd year of public service.

"The CareTech Group has earned an enviable standing as a safe, consistent and stable partner for local authorities and health commissioners as they increasingly outsource care services for which they have a legal duty to provide.

"The underlying performance of our business is strong and underpinned by demographic trends within our target markets. Improvements in the regulatory regime, commissioner attitudes and policy development favour growth for the best providers across the whole social care spectrum.

"These are exciting times for CareTech and with a thoughtful approach to growth, a skilled executive team and the support of our front line colleagues we look forward with fresh enthusiasm to 2015."

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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

Chairman's Statement

A year of further progress

I am pleased to present our Annual Report and results for the year ending 30 September 2014. Once again I can report on strong growth on all of our key business metrics. The successful pursuit of our business and social care strategies has created a solid foundation for further development as we enter our 22nd year of public service.

The CareTech Group has earned an enviable standing as a safe, consistent and stable partner for local authorities and health commissioners as they increasingly outsource care services for which they have a legal duty.

The Health and Social Care Information Centre shows that overall local government spending remained the same as the year before and that the average cost of caring for adults has remained virtually unchanged. Spending on adults with learning disability has shown a small increase.

However, we are seeing an important realignment in the pattern of funding of social care with increased spending on those people with higher acuity levels, CareTech's speciality, and a compensatory reduction of funding for people with less complex issues. Spending on "looked after" children shows a steady and consistent increase.

This pattern is in line with our expectation and confirms our strategic approach to remodel provisions to increase capacity at the more complex end of our client groupings.

In addition, we have seen growth in the drive toward more personalised service delivery and purchasing power being transferred to clients by way of Direct Payments. We see this as a significant development and one that will determine the pattern for longer term commissioning. In anticipation of this change, our management team has set in motion a very progressive shift toward the principles of personalisation in line with Government and local commissioner policies. This puts us in a good position to ensure continuing growth of our businesses and an increase in market share.

Dividend

The Group's policy has been to increase the total dividend per year broadly in line with the movement in underlying diluted earnings per share.

That growth in 2014 was 13.1% so the Board has proposed a final dividend of 5.40p (2013:4.68p) per share bringing the total dividend for the year to 8.00p (2013:7.00p) per share. The final dividend will be paid, subject to shareholder approval, on 11 May 2015, with an ex-dividend date of 5 March 2015 and an associated record date of 6 March 2015.

Our Board

On 27 September 2014 Stewart Wallace, Executive Director, retired from the Board and Care Governance and Safeguarding Committee on reaching the age of 65. No further changes have occurred to the Board, Remuneration Committee, Care Governance and Safeguarding Committee or Audit Committee.

It is intended that Stewart will continue to provide input to the Company on an advisory basis.

I am immensely grateful to Stewart for his key role in the development of the Group's services over the past 14 years.

Mike Adams, a Non-Executive Director and Chair of the Care Governance and Safeguarding Committee, has recently been awarded an Honorary Doctor of Education for disability leadership from Anglia Ruskin University.

Our People

The Group's divisional structure has been further developed with the two business segments of Adult Services and Children Services having underneath them the five Care Pathways.

I am extremely grateful to all of our managers and front-line colleagues for their exceptional commitment during the year. They have continued to deliver top quality services despite the pressure being placed on us from social services to reduce costs. Our continuing growth, measurable success and forward-looking approach are a reflection of the hard work and dedication of staff and managers throughout the organisation. I am very grateful for the outstanding contribution of our support teams and administrators as much as the more obvious contribution of our front line colleagues.

I thank all of them for ensuring that we maintain the right balance between care and commercial sense.

I am very positive about the coming year and the opportunities it will bring. We shall see the consolidation of our current developments, new ideas coming through our staff and management engagement programmes in addition to the systematic growth of mainstream services that have served us well over the years.

Outlook and Prospects

The underlying performance of our business is strong and underpinned by demographic trends within our target markets. Improvements in the regulatory regime, commissioner attitudes and policy development favour growth for the best providers across the whole social care spectrum.

We see a particular opportunity with mental health where the level of historic underfunding is now being addressed and we are quite excited about the proposed merger of health and social care budgets which has won the support of all political parties. In our view this will drive a better operating environment and enlarge the commercial opportunity for larger providers operating a comprehensive model of care.

In our view, the coming election year will give additional emphasis on under spending across the health and social care environment. There will be new opportunities for ambitious providers who are ready to work in partnership with commissioners to deliver creative solutions that will drive better value for the available resources. We believe that our robust infrastructure and strong management team are well placed to deliver the solutions that commissioners want.

Farouq Sheikh

Chairman

10 December 2014

Chief Executive's Statement and Performance Review

A Strong Foundation for Growth

Overview

It gives me great pleasure to report on another successful year that reflects the hard work of our management team, the enthusiasm of our staff and the support of our Board.

The Group has continued to build upon its solid foundations and remains in a strong position to continue as a leading provider of high quality specialist social care services in a large and growing UK market which remains fragmented.

The Group has continued to develop and has made further encouraging progress during the year.

Revenue of £123.3m (2013: £114.3m) for the year to 30 September 2014 represented growth of 7.9% and generated underlying EBITDA growth of 16.3% to £30.7m (2013: £26.4m).

Underlying operating profit increased by 17.6% to £27.3m (2013: £23.2m) and total operating profit decreased by 38% to £20.5m (2013: £32.9m) due to a non-recurring significant increase in 2013 as a result of the business combination.

Underlying profit before tax for the period was 13% higher at £19.7m (2013: £17.5m) and profit before tax was £12.5m (2013: £28.1m).

Consolidation and creating new opportunities

CareTech remains at the forefront of social care outsourcing and in the year there has been an increase in working closely with commissioners and regulators as the whole system grapples with the changes that policy and financial pressure have brought.

National public policy is a significant driver of local authority commissioning intentions and behaviour. For a number of years public policy has encouraged greater personalisation of health and social care for adults. Commissioners and leading providers are driving change that will mean offering people more choice and control over the care, treatment and support they receive while at the same time maintaining the quality and safety of those services.

Our care priorities drive successful outcomes for our service users and follow closely the guidance from central government.

Our key focus for delivering quality services and positive outcomes is supported by the following key factors:-

Communication

· We have open and frank dialogue with our service users, their families and social workers

Independence

· In our social care and health contracts we aim to help our clients to return to an ordinary life. It may be children who can return to their birth families or live independently. It may be adults who we can help on the pathway to recovery following a mental health breakdown or people with learning disability who we can support toward independent living.

Housing care and support

· We know that most people aspire to have a place of their own, employment and ongoing support. We have structured our services, developing new provision and creative partnerships with housing providers to enable these aspirations to be achieved whenever possible.

Self-directed support 

· It is pivotal to government policy that adults and children receiving social care are fully engaged in the support that they require. With some adults this extends to the provision of a cash sum enabling them to purchase their care and support directly. CareTech managers have been reviewing our systems and delivering training throughout the organisation to ensure that we are fit to deliver the requirements of self-directed support.

Quality and dignity

· CareTech has always delivered high quality care in exceptional premises. However, we have never been complacent about this and have undertaken many reviews to ensure that we deliver the right quality at an acceptable price. We have also learned a great deal from the experience of our NHS colleagues and developed a Dignity Test to ensure that our front line and administrative staff treat all our clients in ways that promote dignity.

Progress in the year

The year has seen continued progress as the Group concentrates on the introduction of innovative new services developed in partnership with local authority commissioners from within our existing portfolio of properties or through new properties either purchased or rented for service users.

There have been a small number of property disposals during the year where the service was not meeting commissioner aspirations and a reconfiguration was not possible or economically viable.

The Group has developed the site in Dudley for the Children Services and the first service has recently opened. The second service is being developed on the same site and planning permission has been granted for the conversion of an existing building into a seven bedroom service for children with learning disabilities and a six bedroom children's wheelchair accessible bungalow.

Our Children Services have had significant growth in Scotland and there have been new services opened in Dumfries, Galloway and Fife. In addition a new education facility is being opened near Dumfries to support these children.

In North Wales the Group has developed an Adult Learning Disability Service which is completed and awaiting registration.

The Group also continues to realise the benefit of organisational improvements that were put in place over the past few years. 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 next financial year. We are seeing the benefits of new executive appointments and the Clinical Director role is having a positive impact across the services.

These improvements have put us in a strong position to benefit from a number of the commissioning opportunities by working in partnership with the NHS and Local Authorities.

During the year we introduced a new care system for Foster Care which has recently gone live and we also have a new Time and Attendance system which is being implemented across all of the residential services in the coming months which will further our policy of back office centralisation.

Care Pathway Range and Services

The Group's focus remains the provision of specialist social care. This is underpinned by a well-defined range of provisions which meet all of the commissioner requirements. These services are now even more extensive and focused on providing high quality care and positive outcomes for all of our service users.

The Group continued to develop and grow its existing four operating divisions, which come under the two outcome-based sectors of Adult services and Children services. 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.

Following the acquisition of our new Learning Services divisions, I am particularly delighted to report on the integration and development of our apprenticeship model. The team has already completed pioneering work by developing the apprenticeship model in social care, with massive growth potential, but has also won a prestigious tender with the Department of Work and Pensions to develop a new model of mental health rehabilitation using the skills derived from working with apprentices.

We remain committed to the growth of residential care solutions for adults and children with the most complex needs and the CareTech Group has embraced the development of home based solutions including foster care where demand for more specialist services remain strong. Our residential care services for children cater for young people with particularly difficult issues and offer a national service; with strong growth seen in Scotland. Our adult services offer a solid and reliable provision across the whole spectrum of service offerings and we see a particular volume demand in the area of supported living, balanced by renewed demand for more specialised residential care solutions.

Our strategy is to offer a bespoke range of options so that we can maintain the Care Pathways that distinguish us from other providers.

Overview of progress

Our focus during the past year has continued to be on building on the acquisitions which established the Care Pathways whilst introducing innovative new solutions to meet the challenges faced by care commissioners.

Capacity has reduced to 2,074 places principally because we have continued to reconfigure services. Occupancy levels within our mature services remain at a creditable 92%, or 86% when taking into account our services under development and transition which is a 2% improvement on the previous year.

Much has been written about personalisation and I felt it would be useful to set out our own understanding and commitment to personalisation.

Personalisation means "recognising people as individuals who have strengths and preferences and putting them at the centre of their own care and support" (Social Care Institute of Excellence).

The traditional service-led approach has often meant that people have not been able to shape the kind of support they need, or receive the right kind of help. Personalised approaches such as self-directed support and personal budgets involve enabling people to identify their own needs and make choices about how and when they are supported to live their lives.

Our two business segments of Adult Services and Children Services comprise the following five care pathways.

1. Adult Learning Disabilities

Adult Learning Disabilities provides individually tailor made solutions for people living in their own homes, residential care or independent supported living schemes. We can work with clients to deliver self-directed support packages.

For some people residential care will continue as the preferred option and we increasingly offer several types of supported living and packages of individualised self-directed support to people in their own homes

This includes adult residential care homes, independent supported living and community support services.

The principal reason for the increase in EBITDA of £4.1m was the rent saving arising from the business combination in 2013, the reconfiguration of homes and their reopening late in the year.

We have continued to work closely with commissioners and this has helped us to achieve our growth through the past year. We take a long-term view, recognising that change will continue. With this in mind I am pleased to report that the closure and redevelopment of some of our long stay residential provision has been a great success over the past year and will continue to meet the changing requirements of commissioners and families.

The market for high acuity care and the support of people with learning disability is growing year on year. Demand for low-level support has been impacted by the cuts in local authority expenditure but this is not an area of activity in which CareTech operates. Conversely, resources for those with the highest level of need are being maintained and increased in some local authorities.

During the past year we have developed 63 beds through reconfiguration of existing residential services. Further new provision is under development.

2. Mental Health

Mental Health works in partnerships with the NHS to ensure a successful transition out of acute care, delivering pathways to independence. We have an outstanding track record for helping people away from acute care and supporting them in their own homes.

The adult services for this Care Pathway include a community based hospital, adult residential care homes, independent supported living and community outreach.

These services also had a reconfiguration of homes and a reopening early in the year.

Community Mental Health has always been a critical but relatively neglected area of social care. However, this is changing as the NHS drives to lower bed capacity and accelerated early discharge from acute psychiatric hospital care.

The growth of social care is certain but so is the immediate response by Government to one of the scandals of our age. There has been no progress in the removal of large numbers of learning disabled people from the controversial "Treatment and Assessment Centres" operating at various locations throughout the UK. CareTech has never operated any centres of this type but we understand that the CEO of NHS England has been tasked with ensuring that these centres are re-provided as a matter of urgency. CareTech is seeking opportunities to support the project and to offer a comprehensive solution within its community homes.

We are well positioned for further expansion in Mental Health and have a sustainable infrastructure to deliver growth. It was very pleasing that our management team in Lyndhurst, a residential home, were awarded the Care Team of the Year award against stiff competition at the prestigious National Care Awards ceremony this year.

3. Foster Care

Foster Care provide for both mainstream and specialist foster care in small supportive groups across England and Wales for children with disabilities. We also provide foster care family assessments in the home.

"Foster Care is on a rising trend in terms of both numbers placed in foster care and expenditure by local authorities." Laing and Buisson 2013.

This trend is driven by cost considerations, where fostering is considerably less expensive than residential care and by perceived quality factors. It is generally held that fostering in an ordinary family home delivers better quality than any residential setting. However the rising tide of fostering has been constrained by the challenge of finding foster carers with the right skill and motivation alongside preference by social workers to place within local authority services rather than the independent sector.

In 2013, 46% of children placed in foster homes were outsourced to the independent sector. This compares with 67% placed in residential homes operated by independent providers.

Our Foster Care teams and Young People Residential teams are working alongside each other to offer the best outcomes for Young People.

Our market intelligence suggest that most, if not all, independent sector fostering agencies are experiencing some degree of "hold back" at present. However, the consensus view is that this will not last long and local authorities will inevitably return to progressive outsourcing of foster care provision.

Outsourcing is well established in the culture of most local authorities, but the current austerity measures have led a small number of authorities to reflect on the 50% fee premium paid for independent fostering. This disparity of cost can be attributed in part to the fact that the most complex and therefore most expensive children are placed in the care of independent providers. However, it is also clear that local authorities fail to undertake a full cost analysis of their in-house provision. Wherever this has been done, outsourcing is demonstrably much better value.

Demand for foster care has increased overall but we have noted an increasing trend among some local authorities to make provision in-house for all but the most complex children. In our view this is an expensive and unsustainable approach that exposes local authority commissioners to risk. Our own services are being maintained at an acceptable level. Looking forward we are training our foster carers with the skills required to manage more complex work and have linked the fostering division with our residential team for children so that we can maintain an effective care pathway

4. Young People Residential Services

A number of children and young people need to live in specialised residential services and receive education. As far as practicable we aim to help these children move into a more normalised family style environment.

This segment contains children residential care homes, which includes facilities for children with learning difficulties and emotional behavioural disorders ("EBD"), and small specialist schools.

In the year this segment benefited from new services and will benefit from the Dudley site in the next financial year.

Children residential services have been growing as our reputation for quality care and support spreads. We are currently developing new beds and places that have been commissioned during the past year. I would like to express particular praise for the team in Scotland who have established a good presence in a relatively short time.

5. Learning Services

In November 2013, CareTech acquired a Learning Services business now operating as EQL Solutions, a national provider specialising in employment and training services to young people and adults. The business was acquired out of the administration of Elmfield Training with the knowledge that it required turnaround which has been the management focus during the year. The necessary investment and re-structuring will be completed shortly.

Its intensive pre-employment, development and apprenticeship programmes use public funds from the Skills Funding Agency to lay the foundations for individuals to achieve their career goals while helping to provide businesses with the vital skills they need in their workforce.

As well as supporting the workforce, EQL Solutions is also developing programmes for service users by enhancing the pathways to independent living and employment. Young People leaving care, for example, often don't know where to find the right job opportunities or have the opportunity to access employer-focused training. We can now bridge that gap by supporting young people as they make the transition to adult life. We are also exploring how best to help individuals return to employment after mental illness and to give people with learning disabilities the skills and confidence to gain employment so that they are able to live more independently.

Early mapping with CareTech's core business around the year end has gone well. Good progress has been made in identifying the potential for EQL Solutions to add value to CareTech's attraction and recruitment of staff and their retention, helping new employees gain the skills and qualifications to grow a successful career in care through an apprenticeship.

An apprenticeship is a work-based learning programme designed around the needs of employers, which leads to nationally recognised qualifications. It is available to anyone aged 16 and above and is made up of a practical competency component, on-the-job training and off-the-job learning. As well as Apprenticeships being a practical, cost-effective way to recruit and train new social care employees, many employers consider the framework to be a useful learning and development route for their current employees, across all ages and experiences.

For some time the Group has felt that the ability to offer pre-employment training to potential recruits, alongside apprenticeships and other development solutions for existing employees, would enhance and support many aspects of CareTech's outcome-based approach. We are delighted that the learning and development specialists in EQL Solutions are now working with all of the care divisions to continuously improve the standards of care and delivery across all our services. We look forward to collaborating with our partners to spread best practice and innovative training across the wider industry.

Our task during this year has been to integrate the new company, EQL Solutions and to establish a sound business base for growth and develop new products in line with discussions held with the Skills Funding Agency. I am pleased to confirm that we have made progress with EQL Solutions and the team are strongly motivated to develop its initiatives in the world of social care through Aspire.

Aspire has been developed by EQL Solutions as a unique and innovative scheme that will ensure all CareTech's support workers receive 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 their role.

CareTech apprentices have now begun their training now with a significant number to join the programme over the next twelve months. From November 2014, all newly hired support workers will also be offered an apprenticeship as part of their induction to CareTech. The Aspire programme aims to empower every colleague to display the behaviours needed to deliver the high quality, personalised care and to ensure there is a Development Pathway available to all.

Haroon Sheikh

Chief Executive Officer

10 December 2014

Financial Review

Results

The underlying operating profit remains strong at £27.3m compared with £23.2m last year. Up to 2013 the Group had been making strategic acquisitions to gain market share and extend the care pathway range of services. Since 2013 the focus has been on organic developments and cost efficiencies as well as the transaction on 4 November 2013 in respect of EQL Solutions for a total cash consideration of £1.1m to enable the Group to provide apprenticeship and pre-employment training.

Underlying diluted earnings per share increased by 13.1% to 31.01p (2013: 27.43p) per share and underlying profit after tax has risen by 14.2% to £16.1m (2013: £14.1m). Basic and diluted earnings per share decreased by 50% to 23.86p and 23.85p respectively (2013: 47.54p basic and diluted) and profit after tax decreased by £12.0m to £12.4m (2013: £24.4m).

Cash inflows from operating activities before tax and non-underlying items paid were £30.3m (2013: £23.9m), an increase of 27%. Net debt at the year end of £166.1m and has reduced by £2.3m for the year.

Consolidated Income Statement before non-underlying items.

The Consolidated Income Statement before non-underlying items for the year is summarised in table 1 below.

Table 1 -Consolidated Income Statement before non-underlying items

Revenue

Revenue of £123.3m (2013: £114.3m) was 7.9% higher than in 2013.

In the established Adult Learning Disabilities segment we continued to experience high levels of occupancy and reported 92% occupancy at 30 September 2014. When this is blended with the facilities that are being reconfigured and so are under development the overall occupancy level during the second half of the year and at 30 September 2014 was 86% of capacity (September 2013: 84%). As in recent years the demand for residential services continues to be encouraging for high acuity users.

Financial Review (continued)

As set out in the Chief Executive's statement and note 3 to the Accounts we are again reporting segmental information for the financial year and last year which includes information on client capacity and revenue for each segment with the addition of Learning Services in this year.

The continued development of our care pathways and a growing range of service options has led to the proportion of Adult Learning Disabilities revenue moving from 64.7% in 2013 to 60.2% in 2014 and EBITDA before Group costs from 59.3% in 2013 to 63.5% in 2014 as Learning Services joined the Group.

The Young People Residential services total revenue has risen by 11.7% with Mental Health rising by 12.3% and Foster Care falling by 16.1%. Their total proportion of the EBITDA before Group costs has come down from 40.7% in 2013 to 36.2% in 2014 due mainly to the higher margin generated by the Adult Learning Disabilities services following the rent savings due to the Business Combination in 2013 and also the improved margin achieved.

Table 2 - Revenue

Underlying EBITDA and total EBITDA

Underlying EBITDA has grown by 16.3% from £26.4m in 2013 to £30.7m in 2014. Underlying EBITDA margin has increased from 23.1% to 24.9% mainly due to the segment mix as the three smaller segments all grew and with a higher rate of margin.

The Adult Learning Disabilities, Mental Health and Young People Residential Services segments have higher margins but normally require considerable capital expenditure to increase capacity, whilst Foster Care operates at a lower margin in part because it does not require capital expenditure to increase capacity.

Administrative expenses, before depreciation and share-based payments charges were £15.9m (2013: £19.2m) and decreased by £3.3m during the year. In 2013 they represented 16.8% of Group revenue and in 2014 this further improved to 12.9% of Group revenue.

There has been a considerable effort in the year to reduce administrative expenses with the key element being property rental costs.

The extent to which rent savings have been reflected in the Group's profitability is reduced by the degree of reconfiguration work that the Group elects to carry out at the properties. The reconfiguration of services is a central part of the Board's strategy. It enhances average fee rates and maintains the Group's reputation as a provider of highest quality of care and the business combination in 2013 provided an opportunity which allowed reconfiguration of services.

The number of employees in management and administration has increased by 7. A new care system for Foster Care has been introduced across the Group and this has recently gone live whilst the new Time and Attendance system is being implemented across all of the residential services in the coming months which will further our back office centralisation.

Total EBITDA decreased by 29% from £39.9m in 2013 to £28.3m in 2014 as a result of a non-recurring gain in 2013.

Operating profit and profit before tax

The depreciation charge is £3.4m (2013: £3.2m) and reflects the investment in land and buildings, motor vehicles and fixtures, fittings and equipment.

After this charge and the share-based payments, underlying operating profit grew 18% to £27.2m (2013: £23.2m).

Total operating profit decreased by 38% to £20.5m to £19.9m (2013: £32.9m).

Net underlying financial expenses of £7.5m (2013: £5.7m) increased over the previous year due to the continued use of the secured bank loans which had reduced following loan repayments, although there were additional finance leases taken out on new home vehicles during the year.

Underlying profit before tax was £19.7m (2013: £17.5m) which is an increase of 13%.

Total profit before tax decreased by 56% to £12.5m (2013: £28.1m).

Taxation and diluted earnings per share

The effective underlying tax rate was 18.2% (2013: 20.0%) and reflects management's expectations of future capital investment through organic developments and reconfigurations relative to available capital allowances and also reflects the impact of the reduction in the main rate of corporation tax in the year.

The weighted number of shares in issue rose by 1.5% whilst the underlying diluted earnings per share rose to 31.01p in 2014 from 27.43p in 2013.

Basic and diluted earnings per share decreased by 50% to 23.86p and 23.85p respectively (2013: 47.54p basic and diluted)

Dividends

Our policy has been to increase the total dividend per year broadly in line with the movement in underlying diluted earnings per share. The final dividend will therefore increase to 5.40p per share (2013: 4.68p), bringing the total dividend for the year to 8.00p (2013: 7.00p), a growth of 14.3%. Dividend cover for 2014, based upon diluted earnings per share before non-underlying items is 3.87 times (2013: 3.92 times).

Non-underlying items

As more fully explained on the face of the Consolidated Statement of Comprehensive Income and in note 4 to the Accounts, the Directors have separately disclosed a number of non-underlying items in order to improve understanding of the trading performance achieved by the Group. Total non-underlying items represent a charge of £3.7m (2013: credit of £10.3m) and the principal items are the amortisation of intangible assets and integration and reorganisation costs. In the prior year, the credit was a result of the business combination.

Financial Review (continued)

Cash flow and net debt

The cash flow statement and movement in net debt for the year is summarised below:

Net debt at 30 September 2014 of £166.1m (2013: £168.5m) has decreased by £2.4m during the financial year, with an investment of £10.3m in acquisitions and capital improvements during the year.

Non-underlying items had a cash outflow effect of £4.2m (2013: £2.3m) being payment of acquisition and integration costs and payments made under onerous contracts.

Underlying cash inflows from operating activities

The £30.3m (2013: £23.9m) cash inflow from operating activities, before non-underlying items, represents a 98% (2013: 90%) underlying EBITDA cash conversion ratio.

Interest and dividend cash flows

Interest paid of £7.1m (2013: £5.5m) is reflective of the net financial expenses per the Consolidated Statement of Comprehensive Income, whilst dividends paid are consistent with the relevant section earlier in the review.

Acquisitions and capital expenditure

During the year we invested total funds of £10.3m (2013: £44.0m). On 4 November 2013, the Group acquired the majority of the business and assets of Elmfield Training Limited, a provider of apprenticeship and vocational training funded either directly by the Skills Funding Agency or indirectly through client's own Skills Funding Agency contracts.

The acquisition had been completed for a total cash consideration of £1.1m. The acquisition and the ongoing working capital costs of the business have been funded from the Group's current bank facilities.

The acquisition will enable the Group to provide apprenticeship and pre-employment training in the Care sector. The acquired business has been rebranded EQL Solutions Limited. The necessary investment and re-structuring will be completed shortly.

Further details of the acquisition are explained in the Chief Executive's Statement and Performance Review as well as in the notes to the financial statements.

Capital Expenditure of £10.1m includes £7.0m to update our portfolio of assets.

Banking arrangements

The Group is pleased to have continued its strong relationships with Royal Bank of Scotland, Lloyds TSB, Santander and Allied Irish following the refinancing in July 2012. That facility was for a total of £149.4m comprising a term loan, a revolving credit facility and an overdraft facility. The term was 4 ½ years, expiring in January 2017 and the Group had taken new hedging instruments to reduce its interest rate risk.

Additional banking facilities were provided in August 2013 on the same competitive terms as the banking facility announced in 2012, with debt service cost after hedging at less than 4.5%, to fund the business combination in that year. The facility has certain covenants attached to it which are mostly EBITDA related and were set with sufficient facility headroom.

As part of the additional financing the Group's new freehold property portfolio was valued independently at £50m. The remainder of the Group's freehold properties were valued at £225m in July 2012 giving a total of £275m (as shown in note 11 to the accounts).

At 30 September 2014 the Group has available bank facilities totaling £171.2m which are sufficient, with cash flow from operating activities, to fund present commitments.

Going Concern

This Financial Review has covered the cash flows, liquidity position and borrowing facilities of the Group and in the Accounts there is additional information on the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk, interest rate risk and liquidity risk. The Group meets its day-to-day working capital requirements through a mixture of bank facilities which are sufficient, with cash flow from profits, to fund present commitments.

Outlook

The Group is now in an even stronger position to continue as a pioneering provider of specialist social care services in a fragmented, large and growing UK market.

Michael Hill

Group Finance Director

10 December 2014

Unaudited Consolidated Statement of Comprehensive Income

for the year ended 30 September 2014

(i) Non underlying items comprise: amortisation of intangibles, acquisition expenses, bargain purchase credits, fair value adjustments on prior year acquisitions, changes in value and additional finance payments in respect of derivative financial instruments, integration, reorganisation and redundancy costs and provision for onerous leases. See note 3.

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

Unaudited Consolidated Balance Sheet

at 30 September 2014

Unaudited Consolidated Statement of Changes in Equity

as at 30 September 2014

Unaudited Consolidated Cash Flow Statement

for the year ended 30 September 2014

Unaudited Consolidated Cash Flow Statement

 for the year ended 30 September 2014 (continued)

Notes to the Financial Statements

1 Background and basis of preparation

CareTech Holdings PLC (the 'Company') is a company registered and domiciled in England and Wales. The consolidated financial statements of the Company for the year ended 30 September 2014 comprise the Company and its subsidiaries (together referred to as the 'Group').

The unaudited summary financial information set out in this announcement does not constitute the Company's consolidated statutory accounts for the years ended 30 September 2014 or 30 September 2013. The results for the year ended 30 September 2014 are unaudited. The statutory accounts for the year ended 30 September 2014 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement, and will be delivered to the registrar of companies in due course. The statutory accounts are subject to completion of the audit and may change should a significant adjusting event occur before the approval of the Annual Report.

The statutory accounts for the year ended 30 September 2013 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified, did not include references to any matter which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The preliminary announcement for the year ended 30 September 2014 was approved by the Board for release on 10 December 2014.

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 and Performance 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 revenue between the operating segments is not material.

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

There has been no aggregation of the operating segments in arriving at these reportable segments.

The segment results for the year ended 30 September 2014, for the year ended 30 September 2013 and the reconciliation of the segment measures to the respective statutory items included in the consolidated financial information are as follows:

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 is not a measure 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 that, in the opinion of the Directors, should be disclosed separately in order to improve a reader's understanding of the underlying trading performance achieved by the Group. Non underlying items comprise the following:

(i) The Group incurred a number of costs relating to the integration of recent acquisitions and reorganisation of the internal operating and management structure and redundancy costs totalling £2,127,000 (2013: £1,441,000). Included in the cash flow statement are acquisition expenses of £862,000 (2013: £2,130,000) and integration and reorganisation costs of £1,633,000 (2013: £2,263,000), which were paid in the year.

(ii) During 2013 year the Group entered into a Business Combination which resulted in a credit to the non underlying earnings of £18,532,000.

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

(iv) The present value of the future cash flows receivable from the operation of certain leased assets has been assessed as being lower than the present value of the rental payments to which the Group is committed. Therefore the Group has provided for £nil (2013: £73,000) being the present value of any onerous element of the remaining lease life. At the balance sheet date the balance on the provision was £420,000 arising on a business combination.

(v) 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 settlement, and accrual thereof.

(vi) Represents the current tax on items (i), (iii), (iv), and (v) above and an adjustment of £1,000,000 exceptional adjustment in respect of prior year corporation tax.

(vii) Deferred tax arises in respect of the following:

4 Taxation

(a) Recognised in the consolidated statements of comprehensive income

(b) Reconciliation of effective tax rate

In the 2014 Budget it was announced that the main rate of corporation tax will fall to 21% with effect from 1 April 2014 and to 20% from 1 April 2015.

5 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.

6 Underlying earnings per share

A measure of underlying earnings and underlying earnings per share has been presented in order to present the earnings of the Group after adjusting for non-underlying items which are not considered to reflect the underlying trading performance of the Group.

7 Dividends

The aggregate amount of dividends comprises:

The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 5.40p per share, £2,808,878 (2013: 4.68p per share, £2,433,943).

8 Business Combinations

(a) Acquisitions 2014

On 4 November 2013 CareTech acquired a Learning Services business now operating as EQL Solutions Limited.

The Directors have considered whether there are any identifiable intangible assets within the assets acquired and none have been identified.

Goodwill represents the excess of price paid over the net assets acquired as per the table above. Refer to Learning Division in note 2 for the results since acquisition.

(b) Reconciliation to Group Cash Flow

Deferred and contingent consideration payable

 (c) Proforma results

The underlying result for the combined entity for the year as though the acquisition date for all business combinations had been the beginning of the year is as follows:

9 Copies of the Annual Report and Accounts

Copies of the Annual Report and Accounts will be sent to Shareholders in due course and will be available to members of the public from the Company's registered office located at 5th Floor, Metropolitan House, 3 Darkes Lane, Potters Bar, Herts, EN6 1AG and on the Company's website: www.caretech-uk.com.