Trading Update

CareTech Holdings PLC

("CareTech" or "the Group")

Trading Update

~  H1 2020 trading in line with expectations

~  Business remains resilient post period-end

~ 2019 Final Dividend of 7.95p to be paid on 6 May 2020

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care and education services to adults and children in the UK, today announces an unaudited half year pre-close trading update. Group performance for the half year ended 31 March 2020 is in-line with market expectations. The Group will report its unaudited half year results on Thursday 18 June 2020.

Farouq Sheikh, Executive Chairman of CareTech, commented:

"I am incredibly proud and humbled by the commitment, resilience and professionalism shown by all our employees as we face this unprecedented COVID-19 pandemic and I would like to express my sincere appreciation to all our staff.

"Operationally the performance of the Group has continued to strengthen and I am pleased to report that CareTech's trading performance for the half year is in line with market expectations.

"Despite the inevitable uncertainty created by the COVID-19 pandemic, the specialist social care services we provide remain vital in the UK and we are working closely with the Local Authority commissioners to ensure our facilities remain open and operating to our usual high-standards during the crisis. Whilst it is too early to understand the full financial implications of the crisis, we are not experiencing any significant impact to trading at this stage and remain on track to deliver our business plan. This is underpinned by the strong visibility of our cashflows. We are thankful that we entered this period of uncertainty in a strong financial position and have robust operations caring for adults and children that are relatively isolated from COVID-19."

Trading and operational performance

The overall performance of the Group was in line with market expectations with stronger revenue and EBITDA margins when compared to the same period last year.

As at 31 March, unaudited Net Debt was £287.4m compared with £291.1m at 30 September 2019, the change reflecting strong operating cash flow partially offset by the cash consideration paid for the United Arab Emirates acquisition, development opportunities and integration costs associated with the Cambian acquisition. At the 31 March 2020, the Group had cash of £35m, an undrawn revolver of £25m and significant head room under the Group's existing bank facilities and bank covenants.

CareTech continues to have a strong active pipeline of investments in new properties and bolt-on acquisition opportunities and will look to deploy free cash flow whilst remaining committed to reducing net debt/ EBITDA in the medium term to under 3.0x.

The Group confirms that it is on track to deliver a total of £5m of profit before tax synergies in the year ended 30 September 2020. The integration plan with Cambian continues with improved quality ratings, staff retention initiatives proving successful and occupancy increasing leading to enhanced margins. Further investment continues in IT systems which will lead to improved KPI monitoring.

On 4 February 2020, CareTech completed the acquisition of a 51% interest in AS Investments Holding Ltd and AS1 Investments Holding Ltd, which hold a majority equity interest in the Macani Medical Center and American Center for Psychiatry and Neurology respectively. Trading is in line with our expectations and the partnership is already discussing a number of opportunities to enhance specialist social care and education in the region.

The National Minimum and Living Wage increased from 1 April 2020. As with prior years, we do not anticipate this having a negative impact on CareTech as Local Authorities recognise the importance of front line staff and the Group expects fee increases to cover the additional costs from increases in front line staff pay.

COVID-19

In these unprecedented times, the health, safety and wellbeing of our employees and service users is paramount and remains our number one priority. The majority of service users we care for are children and adults with learning disabilities, mental health diagnoses and/or with challenging behaviours. Less than 3% of our service users fall into the formal NHS high-risk category groups for COVID-19, such as those with underlying health conditions, which is very different to that of elderly care services which have been significantly impacted by the virus. Local Authorities, the NHS and Public Health England recognise the vital role of the social care sector and are very supportive of the high quality services we provide and they are working to ensure that these services remain operational and funded. In addition, the Government announced further funding of £1.6bn for social care to help respond to COVID-19 and we are in discussions with each Local Authority in establishing a dedicated funding arrangement. As such the negative financial impact to date of COVID-19 on the Group has been minimal and we do not foresee that changing albeit there is uncertainty surrounding the pandemic.

With security of income, our focus is very much on delivering safe services and we have a COVID-19 taskforce, comprising both divisional leadership and members of the Group Executive Team, which is in place to mitigate risks with contingency plans in place at every site. This covers arrangements to provide staff cover between services and utilising extra staff as necessary. Following the latest Government and Public Health guidance, we have strict precautions in place at our sites including enhanced levels of cleaning, additional hygiene facilities and social distancing. Enhanced precautions and safety checks have also been set up and only essential visits are taking place with oversight being provided remotely where possible.

To proactively support our staff, a CareTech Covid-19 Fund has been launched, allocating up to £1m of the Group's cash to support staff and service users facing adversity due to the consequences of this pandemic.

Capacity and occupancy

The Group's net capacity as at 31 March 2020 was 5,044 places (September 2019: 5,079 places), the decrease attributable primarily to Fostering reflecting COVID-19 restrictions in places available. Adult's Services capacity was 1,967 (September 2019: 1,968), Children's Services 1,948 (September 2019: 1,933) and Fostering 1,129 (September 2019: 1,178).

Since September 2019, CareTech's organic developments have continued with the addition of 18 beds brought into service and a net three supported living capacity reduction.

At 31 March 2020, occupancy levels in the mature estate increased to 85% (September 2019: 84%) and the blended occupancy also increased to 81% (September 2019: 80%).

Favourable CQC quality ratings and staff retention

Across the Group, CQC quality ratings are 91% Good or Outstanding in adults services (September 2019: 95%) which compares favourably to the Adult social care average of 84%. This data remains substantially better than the sector standards for providers and reflects the addition of new sites that have opened. OFSTED ratings remained at 82% Good or Outstanding across the Group. Following the COVID-19 pandemic, both CQC and OFSTED have understandably suspended all routine inspections.

In terms of staff retention, the Group's annualised retention rate sits at 74%, which compares favourably to the industry average of 70%.

Group Dividend

The Group reconfirms its final dividend of 7.95p per Ordinary Share which was approved by Shareholders at the Company's AGM on 17 March 2020 will be paid on 6 May 2020 to shareholders who are on the share register at the close of business on 6 March 2020.

CareTech Charitable Foundation and issue of equity

To further support the CareTech Charitable Foundation, an independent grant-making corporate foundation in the UK social care sector, the Group intends to donate one million new ordinary CareTech shares to the Foundation ("New Shares"). This donation will provide the Foundation with additional income and demonstrates the Group's commitment to wider society, to its staff, and its desire to play a strong leadership role within the social care sector. In connection with the donation, the CareTech Foundation will enter into a lock-up undertaking not to sell the New Shares without the CareTech Board approval. A further announcement regarding the issue of the New Shares will be made in due course.

For further information, please contact: 

CareTech Holdings PLC 01707 601800

Farouq Sheikh, Executive Chairman

Christopher Dickinson, Group Finance Director

Consilium Strategic Communications 020 3709 5700

Mary-Jane Elliott

Chris Welsh

Angela Gray

Panmure Gordon (Nomad and Joint Broker) 020 7886 2500

Emma Earl

Freddy Crossley

Charles Leigh-Pemberton

WH Ireland (Joint Broker) 020 7220 1666

Adrian Hadden

Matthew Chan

About CareTech

CareTech Holdings PLC is a leading provider of specialist social care and education services, supporting around 4,500 adults and children with a wide range of complex needs in more than 550 residential facilities and specialist schools around the UK and employing approximately 10,000 staff.

Committed to the highest standards of care and care governance, CareTech provides its innovative care pathways covering; Adult learning disabilities and specialist services; Children's residential and education services; and foster care.

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.

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