Preliminary Results

CareTech Holdings PLC

("CareTech" or "the Group")

Preliminary Results for the year ended 30 September 2015

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 2015.

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) The decrease is principally attributed to an increase in other non-underlying items and amortisation.

(v) 10 million shares were issued with the Share Placement which impacts earnings per share.

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

"CareTech joined AIM in 2005 and we are therefore celebrating our 10th year in the public markets. During this time the business has transformed from being very focused on supporting adults with a learning disability through residential and day care settings to one where today we cater for young people and children with complex needs across a range of settings, be it residential, supported living or community support. We focus on the most complex and vulnerable young people and the market for this client group stands at over £10bn. There is currently an undersupply of specialist beds in the niche area and the market is growing by almost 3% per annum.

"On joining AIM the company had a capacity of 435 places, an underlying EBITDA of £2.4m with our underlying diluted EPS of 4.1p. Today our capacity has increased almost five fold to 2,116, our underlying EBITDA has grown significantly to £32.5m today whilst underlying diluted EPS has risen to 31.79 pence per share. Underlying EBITDA and diluted EPS has grown by an impressive CAGR of 30% and 25% respectively since IPO.

"With the money raised from Shareholders in March 2015 and our own free cash flow generated from the business, we have major investment plans for 2016 and beyond with key new organic developments and bolt-on acquisitions. Importantly, we have also strengthened our management team, offering a forceful blend of experience, commercial wisdom and dedication to care. I have no doubt that the next few years will see continuing growth and care excellence which will help deliver our target of double digit EPS growth going forward."

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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

Farouq Sheikh

Chairman

A busy 2015 creating a springboard for further growth

I am pleased to present our results for the year ended 30 September 2015. This has been a successful and exceptionally busy year the key highlights which have been:-

· Share placing funds raised of £21m

· Strengthening of management team

· Amend and extend banking facilities on improved terms

· Increased organic initiatives

· Completion of two acquisitions during the year and one in December 2015

Whilst the management team has been actively involved with these important initiatives it is really pleasing to note that we have continued to maintain our position as an excellent care provider with our high quality ratings across the Group. Moreover, we have extended our care pathways through successful outcomes for the people we support. As a result we have improved our occupancy rates during the year which has led to an increase in our underlying EBITDA margin.

This has produced a credible set of financial results where:-

· Underlying EBITDA has increased by 5.9% to £32.5m

· Underlying PBT has increased by 11.7% to £22m

· Underlying diluted EPS had increased by 2.5%

· Full year dividend increased by 5% to 8.40p

All of the above mentioned initiatives have assisted the team in delivering a solid performance on both the key financial and non-financial metrics and puts the Group in the strong position to target double digit underlying EPS growth going forward.

CareTech Group has stood out within its peer group of providers as a company that can successfully combine quality, integrity and sound financial acumen and has consistently achieved high care quality ratings. Our credibility as the provider of choice has never been stronger and we continue our successful growth strategy with a confident outlook.

As announced in March 2015 the Company raised £21 million (before expenses) by way of a placing with new and existing institutional investors as well as Directors and certain Senior Executives. It was pleasing that the placing was oversubscribed and our plan was to invest the money in acquisitions within 12 months. Investment of the funds has been completed earlier than planned with two acquisitions in July 2015 (Spark of Genius and Dawn Hodge Associates) and one on 1 December 2015 (ROC North West).

In July the Group completed negotiations to improve its banking facilities and to extend the facility by a further two years to January 2019, with the addition of a £30m Accordion facility.

During 2015 we closed several services for reconfiguration which impacted the growth in Revenue. Offsetting this there are better fees following our reconfiguration cost saving initiatives and the time and attendance system has improved underlying EBITDA. The Group's Organic Development Programme will continue with further reconfigurations and for 2016 we have a strong pipeline of development opportunities.

CareTech joined AIM in 2005 and we are therefore celebrating our 10th year in the public markets. During this time the business has transformed from being very focused on supporting adults with a learning disability through residential and day care settings to one where today we cater for young people and children with complex needs across a range of settings, be it residential, supported living or community support. We focus on the most complex and vulnerable young people and the market for this client group stands at over £10bn. There is currently an undersupply of specialist beds in the niche area and the market is growing by almost 3% per annum.

Over the years we have developed a range of care pathways and helped many that we support to live more independently. This is a fantastic outcome for both us and the individuals that we support and it also helps local authorities meet the ever increasing cost of social care provision.

On joining AIM in September 2005 the company had a capacity of 435 places, an underlying EBITDA of £2.4m with our underlying diluted EPS of 4.1p. Today our capacity has increased almost five fold to 2,116, our underlying EBITDA has grown significantly to £32.5m today whilst underlying diluted EPS has risen to 31.79 pence per share. Underlying EBITDA and diluted EPS has grown by an impressive CAGR of 30% and 25% respectively since IPO.

Even with significant growth we have achieved to date we still have less than 2% of this very large and fragmented market. With the increasing regulatory burden, the opportunity for further consolidation is even more attractive. Given our experienced management team, our range of care pathways focused delivering positive outcomes for the individuals we support and our long established track record within the industry we are extremely well placed to be able to continue to do this going forward. This underpins our aspirations to deliver double digit EPS going forward.

Dividend

The Group 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 2015 was 2.5% so the Board has proposed a final dividend of 5.60p (2014:5.40p) per share bringing the total dividend for the year to 8.40p (2014:8.00p) per share. This represents a full year increase of 5% year on year. The final dividend will be paid, subject to shareholder approval, on 9 May 2016, with an ex-dividend date of 3 March 2016 and an associated record date of 4 March 2016.

Our Board

There have been no changes to the Board during the year. As a foundation for growth the Senior Executive Team at CareTech has been strengthened with the appointment on 14 April 2015 of John Ivers as Chief Operating Officer. We have made several other senior appointments underpinning the growth of the business.

During the year the Remuneration Committee and the Audit Committee were unchanged whilst Michael Hill left the Care Governance and Safeguarding Committee and the Clinical Director Dr. Junaid Bajwa and the Chief Operating Officer John Ivers both joined the committee.

Our People

We have completed our planned evolution into two well defined operating divisions, Children and Adult Care, and this has generated organisational efficiencies. Simplifying the structure has also supported planning and service delivery with a more powerful approach to development.

Managers and front line colleagues have continued to deliver exceptional commitment during the year, working vigorously with commissioners to reduce costs while maintaining quality. The most striking achievement of our front line staff has been to ensure the continuing safety of our service users during a period when demands for cost reduction could have put individuals at risk. 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 always drawn to the achievements of our excellent front line staff, which is inevitable as we are first and foremost a care organisation. Their care and commitment would be much less without the dedicated support of our administrators and support teams whose hard work and energy is critical to the success of our company and the care we provide.

Outlook and Prospects

We understand the market and have anticipated shifts in social and health policy. Our understanding of the social care environment remains strong and we are positioned to take further change in our stride and have an improved platform for growth.

With the money raised from Shareholders and our own free cash flow generated from the business, we have major investment plans for 2016 and beyond with key new organic developments and bolt-on acquisitions. Importantly, we have also strengthened our management team, offering a forceful blend of experience, commercial wisdom and dedication to care. I have no doubt that the next few years will see continuing growth and care excellence which will help deliver our target of double digit EPS growth going forward.

Farouq Sheikh

Chairman

8 December 2015

Chief Executive's Statement and Performance Review

Haroon Sheikh

Chief Executive Officer

An improved Foundation for Growth

Overview

It gives me great pleasure to again report on a 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 through organic growth, and reconfigurations and with the two acquisitions in July 2015 and one acquisition in December 2015 it has made further encouraging progress during the year and has gained experienced management teams with proficient leaders. The new businesses have integrated and settled well, though our principal focus remains organic growth.

A key recent strategy has been the development of the Learning Services Division which has already had a positive impact on gaining new staff, their training and retention, and the addition of Dawn Hodge Associates has further improved this strategy.

Consolidation and creating new opportunities

CareTech remains at the forefront of social care outsourcing across both Children and Adult services and in the year there has been a further increase in working closely with commissioners and regulators as the whole system is under stress from the changes that policy and financial pressure have brought.

National public policy continues to be 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 constructive 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 whom we can help on the pathway to recovery following a mental health breakdown or people with learning disability whom we can support towards 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 and we are tailoring training to assist young people and adults leaving our services to gain employment.

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 able 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.

At the end of July 2015 the Group acquired the share capital of Spark of Genius and shortly afterwards Dawn Hodge Associates so the progress has been a mixture of organic development and acquisitions.

Spark of Genius is a Scottish based provider of residential care and education services for Young People with complex needs. Dawn Hodge Associates is an Ofsted Grade 1 care sector apprenticeship training provider based in the North West.

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

Our Adult Services have added 35 beds in the year, being 13 in Supported Living and 22 in Residential.

Children Services have added 10 beds in the year in two services with six beds and four beds.

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 have gone live in the year such as the Time and Attendance system. We are seeing the benefits of new executive appointments and the Clinical Director role continues to have 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.

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 second Learning Services division business, 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, and the CareTech Aspire Programme which takes CareTech's care staff from the foundations of mandatory and statutory training to offer the opportunity to complete a Level 2 or Level 3 apprenticeship. At the year end, this programme had 460 CareTech apprentices undertaking the apprenticeship and has significant growth potential both within the Group and across the wider social care sector.

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 remains 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 including the addition of Spark of Genius, which also has properties in the North East of England, and Roc North West, which has care and educational services in the North West of England. 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 building further on the businesses which established the Care Pathways whilst introducing innovative new solutions to meet the challenges faced by care commissioners and then adding newly acquired businesses with complementary skills.

Capacity has increased by 42 places principally because we have continued to reconfigure services and acquired Spark of Genius. Occupancy levels within our mature services remain at a creditable 93%, or 86% when taking into account our services under development and transition; there is a 1% improvement on the previous year for the mature services.

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 divisions 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 underlying EBITDA of £1.9m was the reconfiguration of homes from Mental Health and their reopening late in the current financial year which improved the EBITDA overall margin from 30.5% to 32.2%.

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 and 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 35 beds through reconfiguration of existing residential services. Further new provision is under development.

2. Mental Health

The reduction in capacity, revenue and underlying EBITDA in Mental Health arises because there have been a number of services reconfigured and transferred to Adult Learning Disabilities.

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 with some transitional services transferred within the Group.

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 and the response by Government to one of the key difficulties is progressing. There has been some 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.

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 rather than in a residential setting.

The reduction in capacity, revenue and underlying EBITDA in Foster Care arises due to the competitive nature of the market as well as because of the change to family assessments in the home and also due to capacity being reported on the new basis of children that carers are able to look after rather than the number they are approved for.

"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 care 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 suggests 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, and small specialist schools.

In the year this segment benefited from two new services and which have added 10 beds. We also acquired Spark of Genius which will provide significant benefits across the divisions due to their well established education facilities across Scotland and North East England.

Young People 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.

5. Learning Services

CareTech acquired EQL Solutions in November 2013 as a national provider specialising in employment and training services to young people and adults. The necessary investment and re-structuring is now complete.

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 has also developed programmes for service users by enhancing the pathways to independent living and employment. Young People leaving care, for example, often do not 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 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 social care sector.

I am pleased to confirm that we have made good progress with EQL Solutions and the team are strongly motivated to develop their initiatives in the world of social care through the Aspire Programme.

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 with 460 CareTech support workers undertaking the apprenticeship programme.

Dawn Hodge Associates was acquired due to its Ofsted Grade 1 and experience of the social care sector. The services of EQL Solutions and Dawn Hodge Associates complement each other and provide the foundations for a strong learning division within the Group.

Outlook

The coming year shows every sign of being good for health and social care providers and especially for those with an established reputation for quality and innovation.

Since the 2015 General Election there has been significant policy development in the pipeline and we see some indicators that local authorities have recognised the need to maintain, or grow their social care budgets.

In our view we are in a period in which consolidation will again feature strongly within the corporate sector and we are alert to quality opportunities that may arise. However, we are mindful about acquisition and have robust criteria which must be satisfied to ensure that any acquired company fits our strategic development objectives.

This has been another progressive year for CareTech and I am indebted to the strong management team who have managed the services in what has been a challenging environment for the care sector.

CareTech provides high quality care, support and outcomes to our service users. I remain proud to lead the Group, delivering a quality of care that makes such a difference to so many lives.

Haroon Sheikh

Chief Executive Officer

8 December 2015

Financial Review

Michael Hill

Group Finance Director

The Group has made further good progress and has a platform for further Acquisitions and Growth.

Results

The underlying operating profit remains strong at £28.8m compared with £27.3m 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 development and cost efficiencies, but with the Share Placement, improved banking facilities, the Group (following the acquisition of Spark of Genius Limited and Dawn Hodge Associates Limited) continues to be well placed to make further acquisitions.

Underlying diluted earnings per share increased by 2.5% to 31.79p (2014: 31.01p) per share and underlying profit after tax has risen by 13.7% to £18.3m (2014: £16.1m). Basic and diluted earnings per share decreased by 42% to 13.80p and 13.80p respectively (2014: 23.86p basic and 23.85p diluted) and profit after tax decreased by 35.8% to £8.0m (2014: £12.4m) due to a combination of the additional shares issued in the year and increases in amortisation and other non-underlying items.

Cash inflows from operating activities before tax and non-underlying items paid were £30.8m (2014: £30.3m), an increase of 1.3%. Net debt at the year end of £158.5m has reduced by £7.6m for the year.

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

Table 1 - Condensed Income Statement before non-underlying items

Revenue

Revenue of £124.3m (2014: £123.3m) was 0.8% higher than in 2014 mainly as a result of closing several services for reconfiguration.

In the established Adult Learning Disabilities segment we continued to experience high levels of occupancy and reported 93% occupancy at 30 September 2015. 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 2015 was 86% of capacity (September 2014: 86%). As in recent years the demand for residential services continues to be encouraging for high acuity users.

As set out in the Chief Executive's statement, 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 last 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 60.2% in 2014 to 60.9% in 2015 and EBITDA before Group costs from 63.5% in 2014 to 64.6% in 2015.

The Young People Residential services total revenue has risen by 2.3% with Mental Health falling by 12.3%, Foster Care falling by 18.3% and Learning Services rising by 26.6%. Their total proportion of the EBITDA before Group costs has come down from 36.5% in 2014 to 35.4% in 2015 due mainly to the higher margin generated by the Adult Learning Disabilities Division Services.

Table 2 - Revenue

Underlying EBITDA and total EBITDA

Underlying EBITDA has grown by 5.9% from £30.7m in 2014 to £32.5m in 2015. Underlying EBITDA margin has increased from 24.9% to 26.1% mainly due to the higher rate of margin in the Adult Learning Disabilities Services.

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 £15.2m (2014: £15.9m) and decreased by £0.7m during the year. In 2014 they represented 12.9% of Group revenue and in 2015 this further improved to 12.2% of Group revenue.

There has been a considerable effort in the year to reduce administrative expenses with further back office systems centralisation and procurement successes for the Group.

The reconfiguration of services is a central part of the Board's strategy to grow organically. It enhances average fee rates and maintains the Group's reputation as a provider of highest quality of care.

The number of employees in management and administration has increased by 21. The Time and Attendance system has been implemented across all of the residential services in the year which will further our back office centralisation and ensure that staff are paid more accurately and quickly, as well as giving reliable data on staff rotas and attendance in each service.

Total EBITDA has decreased from £28.3m in 2014 to £26.8m in 2015.

Operating profit and financial expenses

The depreciation charge is £3.6m (2014: £3.4m) 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 5.5% to £28.8m (2014: £27.3m).

Total operating profit decreased by 13.2% to £17.8m (2014: £20.5m).

Net underlying financial expenses of £6.8m (2014: £7.5m) decreased over the previous year due to the effects of the share placement monies and the new banking facilities, although there were additional finance leases taken out on new home vehicles during the year.

Underlying profit before tax was £22.0m (2014: £19.7m) which is an increase of 11.7%.

Taxation and diluted earnings per share

The effective underlying tax rate was 16.4% (2014: 18.2%) 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 11% due to the share placement whilst the underlying diluted earnings per share rose to 31.79p in 2015 from 31.01p in 2014.

Basic and diluted earnings per share decreased by 42.2% to 13.80p and 13.80p respectively (2014: 23.86p basic and 23.85p 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 5.60p per share (2014: 5.40p), bringing the total dividend for the year to 8.40p (2014: 8.00p), a growth of 5.0%. Dividend cover for 2015, based upon diluted earnings per share before non-underlying items is 3.78 times (2014: 3.87 times).

Non-underlying items

The Directors have separately disclosed a number of non-underlying items in order to improve understanding of the underlying trading performance achieved by the Group. Total non-underlying items represent a charge of £10.9m (2014: £6.8m) and the principal items are the amortisation of intangible assets and integration and reorganisation costs plus costs associated with the new banking facilities.

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 2015 of £158.5m (2014: £166.1m) has decreased by £7.6m during the financial year, with an investment of £16.6m in acquisitions and capital improvements during the year.

Non-underlying items had a cash outflow effect of £14.2m (2014: £8.0m) being payment of acquisition and integration costs and payments made under onerous contracts.

Underlying cash inflows from operating activities

The £30.8m (2014: £30.3m) cash inflow from operating activities, before non-underlying items, represents a 95% (2014: 98%) underlying EBITDA cash conversion ratio.

Interest and dividend cash flows

Interest paid of £6.7m (2014: £7.1m) 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.

Share Placement

The Group raised Gross Funds of £21m through a placing of 10,000,000 shares at a price of £2.10 pence per share in March 2015. Existing shareholders and new shareholders plus the management team subscribed to the placing. The intention is to use the placing proceeds would be deployed on acquisitions within approximately twelve months of the issue.

Acquisitions and capital expenditure

During the year we invested total funds of £16.6m (2014: £10.3m). The Group acquired Spark of Genius for a total consideration which may rise to £9.23m comprising an initial payment of £7.48m in cash and an earn out of up to £1.75m. It also acquired Dawn Hodge Associates for an aggregate consideration of £1.1m. After the year end we acquired ROC North West Limited for a total consideration of £11.425m, which utilises the whole of the placement proceeds.

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 £9.9m includes £6.0m 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 since the last refinancing in 2012. In July 2015, the Group agreed improvements to its banking facilities. The previous facility was due to expire in January 2017 and this has now been extended to January 2019. The cost of borrowing has been reduced through a reduction to the interest rate and four loan repayments, which were due between 2015 and October 2016 amounting to £21.6m, have been deferred. In addition, there is a new uncommitted accordion facility of up to £30m which, together with the deferral of loan repayments, gives further support to the Group's acquisition strategy.

As part of the additional financing the Group's current freehold property portfolio was valued independently at £294m in October 2015.

At 30 September 2015 the Group has available bank facilities totaling £195m which are sufficient, with cash flow from operating activities, 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

8 December 2015

Unaudited Consolidated Statement of Comprehensive Income

for the year ended 30 September 2015

(i) Non underlying items comprise: amortisation of intangibles, acquisition expenses, 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 5.

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

Unaudited Consolidated Balance Sheet 

at 30 September 2015

Unaudited Consolidated Statement of Changes in Equity

 as at 30 September 2015

Unaudited Consolidated Cash Flow Statement

 for the year ended 30 September 2015

Unaudited Consolidated Cash Flow Statement

 for the year ended 30 September 2015 (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 2015 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 2015 or 30 September 2014. The results for the year ended 30 September 2015 are unaudited. The statutory accounts for the year ended 30 September 2015 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 2014 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditors report on those accounts was unqualified and 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 2015 was approved by the Board for release on 8 December 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 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 (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).

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

The segment results for the year ended 30 September 2015, for the 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:

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 as these are one off significant costs which are not part of the ordinary course of the business. Non underlying items comprise the following:

(i) The Group incurred a number of exceptional costs relating to the integration of recent acquisitions and reorganisation of the internal operating and management structure and redundancy costs totalling £4,403,000 (2014: £2,127,000). Included in the cash flow statement are acquisition expenses of £1,000,000 (2014: £250,000) and integration and reorganisation costs of £1,604,000 (2014: £1,633,000), which were paid in the year.

(ii) 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 £304,000 (2014: £Nil) being the present value of any onerous element of the remaining lease life. At the balance sheet date the balance on the provision was £nil (2014: £420,000) arising on a business combination.

(iii) 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.

(iv) Represents the current tax on items (i), (ii), (iii) and (iv), above and an adjustment of £nil (2014:£1,000,000) in respect of an exceptional adjustment in respect of prior year corporation tax.

(v) 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

The main rate of corporation tax is set to reduce from 20% to 18% by 2020/2021. The legislation relating to the reduction had not been substantively enacted at the balance sheet date and as such the deferred tax balances have been recognised at a corporation tax rate of 20.5%.

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 8.40p per share, £5,226,404 (2014: 5.40p per share, £2,808,878).

8 Business Combinations

(a) Acquisitions 2015

The Group made two acquisitions in the year which have been accounted for as business combinations under IFRS3 (revised). In view of the overall value of acquisitions in the financial year, the Directors consider it appropriate to present the acquisitions information in aggregate.

The following table of fair values summarises the acquisitions made during the financial year:

On 28 July 2015 the Group acquired 100% of the equity of Spark of Genius Limited, an educational and residential provider for Young People. The book values attributable to the acquisition were £692,000 net assets and fair value adjustments were £5,529,000 resulting in goodwill arising on acquisition of £1,589,000.

On 31 July 2015 the Group acquired 100% of the equity of Dawn Hodge Associates Limited, an educational training provider. The book values attributable to the acquisition were £35,000 net assets and fair value adjustments were £275,000 resulting in goodwill arising on acquisition of £1,025,000.

Each acquisition was undertaken to enhance the Group's position in the respective industries. In each case control was obtained through the acquisition of share capital.

The book values of the assets and liabilities were extracted from the underlying accounting records of the acquired entities on the date of acquisition. The book value of receivables represents the gross contractual amounts receivable, all of which are considered recoverable. The fair value adjustments made to intangible assets and creditors are to reflect their value on a going concern market value basis. The fair value adjustment to deferred tax arises due to the requirement to recognise deferred tax and goodwill on the fair value uplifts to intangible assets and property, plant and equipment. The remaining goodwill of £2,614,000 relates to the assembled workforce and customer relationships acquired on acquisition.

Goodwill which is not expected to be tax deductible arises due to the requirement to recognise deferred tax in respect of the fair value adjustments to intangible assets and property, plant and equipment, together with synergies expected to arise from combining operations, workforce in place and other intangible assets which do not qualify for separate recognition.

(b) Reconciliation to Group Cash Flow

Deferred and contingent consideration payable is analysed as follows:-

 (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.