Trading Update

CareTech Holdings PLC

("CareTech" or "the Group")

Trading Update

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care and education services to adults and children in the UK, today announces a pre-close trading update for the year ended 30 September 2020. The Group intends to issue its full year financial results on Thursday, 3 December 2020.

Highlights

· Continued robust trading - results ahead of market expectations

· Strong operating cash conversion, accelerated reduction in net debt to £268.9m

· Core business performing strongly

· Staff rise to challenges of Covid-19 and deliver exceptional support to service users

· Cambian performing in line / slightly ahead of targets set out at acquisition

· Continuation of organic growth initiatives

· Acquisition of Smartbox in line with digital roadmap strategy

Farouq Sheikh, Executive Chairman of CareTech, commented:

"CareTech continues to provide a vital role as a leading provider of complex care across the UK. The Group has remained resilient throughout the COVID-19 crisis and this is a testament to the quality of our operations, staff, and to the underlying business model. The financial performance of the Group has further strengthened over the period with strong cash flow generation and continued deleveraging. Our acquisition of Smartbox is in line with our strategy to blend care and technology which will benefit our service users. Whilst these remain challenging times, we enter the new financial year in a robust position and remain confident in our outlook."

Trading and operational performance

The Group continued to perform well during the period with year-on-year revenue growth as expected in Children's and Adults services. Trading was also particularly strong in the latter part of the year in the Group's subsidiary in the United Arab Emirates. These factors, combined with the continued successful progress in the integration of Cambian and reduction in the use of agency workers during the Covid-19 pandemic, mean CareTech will announce revenue, adjusted EBITDA and cash conversion which is slightly ahead of market expectations for the year ended 30 September 2020.

The Group's priority throughout the Covid-19 crisis has been the health, safety and wellbeing of its employees and service users. At the outset of the crisis, management took immediate steps to develop a co-ordinated response to ensure safety and business continuity. Subsequently, all of the Group's operational sites have remained open throughout the pandemic.

To support staff through this unprecedented time, a CareTech Covid-19 Fund was launched in April 2020, allocating up to £1m of the Group's cash to support staff facing adversity. In addition, a discretionary one-off payment to all staff was made during August 2020 as a gesture of appreciation for their efforts.

Adult social care providers have had funding available via Local Authorities to help support the provision of additional resources and associated costs necessary to halt any transmission of Covid-19. This funding has been extremely helpful in allowing the Group to take key steps to improve prevention and infection control in our services, and to support staff financially to self-isolate where this has been necessary. As a result, the negative financial impact of these additional costs on our performance has been minimal. 

Despite the impact of Covid-19, Local Authorities have continued with fee increases to cover the additional costs resulting from increases in front line staff pay as a consequence of the National Minimum and Living Wage increase from 1 April 2020.

Strong balance sheet

Cash performance has exceeded market expectations. The Group continues to have a strong financial position with unaudited Net Debt at 30 September 2020 being £268.9m compared with £287.4m at 31 March 2020. Operating cash conversion was strong which was partially offset by the cash consideration paid for the United Arab Emirates acquisition, development opportunities and integration costs associated with the Cambian acquisition. The Board believes the Group will achieve its target of reducing net debt/ EBITDA to below 3.0x for the year ending 30 September 2021.

CareTech continues to see a strong active pipeline of organic investments and bolt-on acquisition opportunities, in particular in Adult Specialist services and across the Cambian residential portfolio.

Favourable CQC quality ratings and staff retention

Due to Covid-19, both CQC and OFSTED suspended routine inspections in March 2020. Both regulators have now resumed inspections focussed on higher risk services but are not currently publishing quality ratings and therefore we do not expect the Group's ratings to change in the short term.

For CareTech's Adult CQC registered services, quality ratings remained at 91% Good or Outstanding which compares favourably to the Adult social care average of 85%. OFSTED ratings remained at 82% Good or Outstanding across the Group.

Maintaining high levels of staff retention underpins our high service quality ratings and the Group's annualised retention rate sits at 75%, which compares favourably to the industry average of 70%. We remain committed to delivering best in class training and development to deliver the highest quality care for the individuals supported by the Group.

Capacity and occupancy

Adult's Services increased 30 places to 1,997 (March 2020: 1,967) due to 41 beds in two new residential sites in Specialist Services, a net five new supported living contracts offset by 16 beds withdrawn. Children's Services increased to 1,959 (March 2020: 1,948) mainly due to 12 development projects, 22 capacity increases, eight beds withdrawn and 15 reconfigurations. Fostering decreased to 1,028 (March 2020: 1,129) due to the blocked beds as a result of Covid-19 and some foster parents leavers.

Overall, the Group's net capacity as at 30 September 2020 decreased to 4,984 places (March 2020: 5,044 places) due to a decline in capacity within our Fostering division.

At 30 September 2020, occupancy levels in the mature estate was 83% (March 2020: 85%) reflecting the timing of the start of the educational year due to a number of CareTech's non-residential schools operating on a 38-week basis with the new education term commencing in October. Blended occupancy was 80% (March 2020: 81%).

Technology solutions

On 6 October 2020, CareTech announced the acquisition of a majority holding in Smartbox Assistive Technology Limited and associated subsidiaries, and Sensory Software International Ltd (collectively "Smartbox"). Smartbox is a market-leading creator of software and hardware that helps disabled people without speech to have a voice and live more independently. It makes communication as quick, simple and effective as possible for those service users for whom speech difficulties can be a challenge. Its solutions include communication aids, environmental control devices, computer control technology and interactive learning.

Smartbox is the clear market leader in the UK, has a presence in the US which represents a significant growth opportunity and is supplied into over 30 countries. It is estimated that more than 50 million people globally could benefit from augmentative and alternative communication (AAC).

CareTech looks after more than 4500 service users as well as has access through Purple to disabled people who have entitlement to personal disability budgets and would benefit from assistive technology. Smartbox offers a unique opportunity to introduce AAC solutions to improve outcomes for those in our care and extend Care Pathway solutions to commissioners.

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

Numis (Joint Broker) 020 7260 1000

Jonathan Wilcox

James Black

Duncan Monteith

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