For immediate release                                                                                                              17 June 2021

CareTech Holdings PLC

("CareTech" or the "the Group")

Interim Results for the six months ended 31 March 2021

Strong operational and financial performance

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care and education services for adults and children in the UK, is pleased to announce its interim results for the six months ended 31 March 2021.

Operational highlights

·      Continued resilience during COVID-19 pandemic with all sites remaining fully operational

·    Extended Care Pathway through acquisition of a majority holding in diagnostic assistive technology provider Smartbox in October 2020 and formation of a Digital Technology division

·   Portfolio of seven highly specialised facilities for the treatment and care of adults with complex learning disabilities, autism and mental health diagnoses, successfully transferred from The Huntercombe Group. The transfer was structured with no capital outlay and is expected to be immediately earnings accretive

·      13 new Children's Services developments opened with an active pipeline for H2 2021

·      To support and recognise the importance of our front-line staff who have been key to supporting services users during the pandemic, the Group increased the minimum hourly rate above the national minimum wage to £9 per hour

Financial results

·      Strong underlying performance of the business

·      Revenue growth of 16.5% to £243.0m (2020: £208.5m) driven by organic growth, acquisition of Smartbox, transfer of adult's specialist services sites from The Huntercombe Group and constructive fee negotiations

·      Underlying EBITDA increase of 19.1% to £49.4m (2020: £41.5m)

·      Strong balance sheet with net debt reducing to £263.1m (£268.9m at 30 September 2020) and leverage reduced to 2.8x net debt/ adjusted EBITDA

·      Net cash before non underlying operating activities of £49.2m (2020: £38.2m) and operating cash flow conversion of 99.7%

·      Write back of £11.8m provision following Supreme Court judgement regarding sleep-in shifts in March

·      Increased interim dividend of 4.6p (2020: 4.0p) declared and dividend policy reaffirmed

i.      Underlying EBITDA is operating profit stated before depreciation, share based payments charge and non underlying items (which are explained in note 3).

ii.     Underlying profit before tax and underlying basic earnings per share are stated before non underlying items (explained in note 3).

iii.    Net debt comprises Cash and cash equivalents net of bank loans and borrowings and HP leases previously accounted for under IAS17 excluding Project Teak sale and leaseback.

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

"The Group's first half performance has been strong with all operational divisions demonstrating considerable resilience during the ongoing pandemic. I am pleased to report that our trading performance is significantly ahead compared with the same period last year.

"COVID-19 has highlighted the importance of having community based, high quality social care facilities to relieve the pressures on the NHS. I am immensely proud of our staff during this period and their efforts and determination in ensuring all our service users receive high quality care in extremely challenging conditions.

"The addition of Smartbox to the portfolio has been a significant milestone and adds a new division enabling digital technology to extend our Care Pathway. Our belief is that digital adoption will play a significant role in enhancing the independence of our service users and our 100 Voices programme has reaffirmed our strategy. 

"We remain confident of our outlook, delivering further earnings and dividend growth and in the long-term prospects of the business."

Analyst briefing today

There will be a presentation of the results to analysts at 10.00am this morning via conference call. This presentation will be available after the conference call at https://www.caretech-uk.com/investors/reports-and-presentations/financial-reports.aspx.

For further information, please contact:

CareTech Holdings PLC                                                 01707 601800

Farouq Sheikh, Executive Chairman

Christopher Dickinson, Group Chief Finance Officer

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

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

About CareTech

CareTech Holdings PLC is a leading provider of specialist social care services supporting around 5,000 adults and children with a wide range of complex needs in more than 550 services across the UK employing more than 10,500 staff; and an emerging presence in international markets. 

Committed to the highest standards of care and care governance, CareTech's innovative Care Pathway covers Foster care, Children's Services, Adults Services and Technology Solutions. 

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

Chairman's Statement

CareTech delivered strong and robust operational and financial performance for the six months to 31 March 2021.

The Group has remained fully operational with all sites open throughout the pandemic, delivering high quality care. The focus has been on the delivery of safe services and ensuring the safety of our employees and service users. To support our staff during this challenging period, the Group introduced a number of welfare and wellbeing initiatives as well as setting up a taskforce to support and co-ordinate CareTech's group-wide vaccination programme encouraging that staff take up the vaccine as key workers. This programme has gone well with over 7,000 of our staff having received a first dose of the vaccine. 

On 6 October 2020, the Group announced the acquisition of a majority holding in Smartbox Assistive Technology Limited ('Smartbox'). This represented an important milestone towards building out a digital technology division to develop the use of technology led solutions to broaden our Care Pathway. 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 many service users for whom speech difficulties can be a challenge. Smartbox solutions include communication aids, environmental control devices, computer control technology and interactive learning.

Smartbox has successfully transitioned into the Group, with the launch of a new 100 Voices initiative to ensure that Smartbox technology reaches adults and children in CareTech care homes, specialist schools and complex needs services. The long-term aim is to establish consistent provision of the life-changing technology to anyone that needs it in both care and special education settings.

On 30 November 2020, we completed the transfer of seven services previously operated by The Huntercombe Group. This broadens our Adult specialist service pathway by adding highly specialised facilities for the treatment of adults with complex Learning Disabilities, Autism and Mental Health diagnoses. The sites have been integrated into the Group with financial performance exceeding our initial expectations.

The Group continues to have a strong, active development pipeline across the UK and is well placed to broaden our service offering and meet the needs of a growing and evolving marketplace.

Financial Results

Group revenue in the half year was £243.0m, a 16.5% increase over the corresponding period (March 2020: £208.5m) driven by organic growth, the acquisition of Smartbox in October 2020, the portfolio of assets transferred from The Huntercombe Group and fee increases.

The National Minimum and Living Wage increased to £8.91 from 1 April 2021. From 1 June 2021, the Group increased the minimum national hourly rate to £9.00 to recognise CareTech's front line staff who have been key to supporting service users during the pandemic. Annual fee negotiations with Local Authorities are progressing well and the Group expects fee increases to cover the majority of additional operational costs including increases to front line staff pay.

Divisional EBITDA before unallocated costs increased by 19.8% to £62.0m (2020: £51.8m) and Group underlying EBITDA(i) increased by 19.1% to £49.4m (2020: £41.5m). Underlying EBITDA(i) margin has increased from 19.9% to 20.3%.

Finance costs have reduced to £6.3m, reflecting the reduced margins payable as the Group has reduced its net debt/ adjusted EBITDA to 2.8x.

Underlying profit before tax(ii) increased by 31.6% to £33.6m (2020: £25.5m) and underlying basic earnings per share(ii) was 22.33p (2020: 18.11p). The Group's underlying tax charge was £7.0m, which represents an effective tax rate of 20.9%.

Underlying EBITDA to cash conversion(iii) was £49.2m which represents cash conversion rate of 99.7% for the period from 1 October 2020 to 31 March 2021. Key cash flow items during the first half include £6.6m on property acquisitions/ developments, £6.8m on maintenance capex and I.T, £5.4m on the acquisition of Smartbox, payment of the interim dividend of £4.5m, interest of £4.0m and corporation tax of £5.4m.

Non underlying items include the write back of a provision of £11.8m following the final judgement by the Supreme Court that social care staff are not entitled to the national minimum wage for sleep-in shifts and a gain on the bargain purchase of 7 sites transferred from The Huntercombe Group given the transaction was structured with no capital outlay.

The Group has continued to adopt strict precautions in line with Government and Public Health guidance at all our sites during the third national lockdown, including enhanced levels of cleaning, additional hygiene facilities and social distancing. Additional funding in the form of infection control, lateral flow testing and workforce capacity grants continue to be received by the Group for its Adults Services provision which totalled £1.2m for the period against costs of £2.0m. 

Net assets have increased to £393.7m as at 31 March 2021 (2020: £352.6m).

Operating review

The operational performance of the business in the first half is in line with the Board's expectations.

The Group's net capacity as at 31 March 2021 increased to 5,135 places (September 2020: 4,984 places). At 31 March 2021, occupancy levels in the mature estate remained at 83% (September 2020: 83%) with blended occupancy increasing to 81% (September 2020: 80%).

The Group remains committed to providing the highest quality standard of care to those it looks after and its regulatory scores remain above sector averages. Throughout the COVID-19 pandemic, CQC and Ofsted have suspended all routine inspections but undertaken a limited number of rated inspections. At March 2021, our CQC services rated good or outstanding was 88% and Ofsted at 82%. As easing continues and as CQC/ Ofsted inspections start to recommence, our aim is to achieve Good or Outstanding ratings across all of our facilities. 

During the first half, we have continued our ongoing focus to fill existing capacity, reconfigure services and develop new services across our 'Care Pathway'.

(1)  Adults Services

Capacity increased by 143 places to 2,140 with the increase primarily due to 142 beds transferred from the Huntercombe Group. These services complement our Adult Specialist Services division and broaden our care pathway in offering specialised services to adults with complex learning disabilities, autism and mental health diagnoses. Despite the turnaround required at these services, occupancy and financial performance have exceeded initial expectations and the relationships with Commissioners continues to go well with progress acknowledged.

Revenue increased by 25.7% to £83.0m and EBITDA by 12.4% to £18.9m.

Adults Services has been robust and resilient throughout the pandemic with care costs being well managed and low agency usage. Developments in start-up phase, particularly in specialist services, and the lower initial margins at the recently acquired Huntercombe services has reduced the division's EBITDA margin.

Throughout the COVID-19 pandemic, CQC have suspended all routine inspections but undertaken a limited number of rated inspections. The Group has performed well in the CQC infection control inspection programme with a high number of our services achieving 'assured' from the regulator. CQC quality ratings at 31 March 2021 remained ahead of sector comparators at 88% Good or Outstanding (September 2020: 91%), the change being attributable to a limited number of services moving from Good to Requires Improvement. These sites each have a comprehensive improvement plan in place and the Group is confident they will be upgraded as the regulator returns to a more usual and regular pattern of inspections.

(2)  Children's Services

Capacity increased to 1,981 (September 2020: 1,959). The increase comprises of 37 beds introduced through new developments, 21 beds withdrawn as closed homes, 1 bed withdrawn for reconfiguration and an additional 7 places brought into service. Revenue and EBITDA grew by 10.6% and 23.3% respectively.

There was strong operational performance across the division with a strong pipeline of referrals. The Group has continued to fill existing capacity with a combination of longer stay placements and positive fee increases improving the EBITDA margin of the division. A number of new developments are in progress with the purchase of 17 new properties which will open during the year.

OFSTED ratings have remained at the high levels of 82% Good or Outstanding across the Group.

(3)  Foster Care

Due to COVID-19 restrictions, capacity decreased by 14 places to 1,014 and occupancy fell leading to a decline in revenue of 8.3%. EBITDA also reduced by 4.6% with an increase in margin to 20%.

Fostering operationally performed solidly despite a number of placements moving on due to age and transitions against a challenging backdrop due to the pandemic. The focus continues to be to maintain our presence in terms of placements and fees in a highly competitive segment.

OFSTED ratings for all our Foster Care services are 100% Good or Outstanding.

(4)  Digital Technology

Following the acquisition of a majority holding in Smartbox in October 2020 and given the Group's ambitions to build out its digital healthcare capabilities, a new Digital Technology division has been created.

Smartbox delivered strong performance in H1, ending the period with revenues at £6.4m, 36% up on the previous year. This reflects a 47% growth in system volumes with a total of 1,355 devices sold in 18 different countries around the world. The increase in volumes is attributable to an increase in NHS orders (as they work through a backlog of cases due to COVID-19), the launch of the flagship Grid Pad 15 device, as well as the positive response to CareTech's ownership.

Net debt

As at 31 March 2021, unaudited net debt was £263.1m compared with £268.9m at 30 September 2020, with net debt/unaudited adjusted EBITDA falling to 2.8x. Strong operating cash flow has been deployed to purchase 17 new developments, to acquire and integrate Smartbox and transition adult specialist service sites transferred from the Huntercombe Group in November 2020. The Group's capital allocation policy remains to deploy free cash flow to organically invest in the business, add developments to the portfolio, assess bolt-on acquisition opportunities and continue a progressive dividend policy.

The Group has completed the extension of its Term Loan A facility of £161.2m which will now mature in August 2023. The margin of the facility and covenants remain unchanged, reflecting the highly cash generative nature of the business and de-leveraging profile. In addition, arrangements have been put in place to amend the reference rate for the Group's loans and interest rate swaps to Compounded Daily SONIA.

Our People

The Group's annualised retention rate has improved and sits at 76% (September 2020: 75%). Throughout the pandemic the Group has continued to reach out to displaced sectors such as retail, hospitality and leisure which has increased the number of applications received. Using our 'values based recruitment' process coupled with 'skills profiles', we have been able to attract some excellent talent into the sector who share our values and want to make a difference.

Although always higher than the industry average, our retention rates have improved further, and this is attributed primarily to some of the exciting welfare and well-being initiatives that the Group is embracing; we have focused on #timetotalk, a Group wide programme encouraging staff to take time out to reach out to each other and normalise conversations around welfare and mental health.

Throughout the COVID-19 vaccination window we have provided colleagues with extensive information on the vaccine and have encouraged staff to take up the vaccine as key workers. This has been widely welcomed by staff and we continue to provide them with regular updates on the vaccine and have offered discussions with trained Physicians through webinars. This programme has exceeded our expectations and over 7,000 of our staff have now received a first dose of the vaccine.

To support and recognise the importance of our front-line staff who have been key to supporting services users during the pandemic, the Group increased the minimum hourly rate above the national minimum wage to £9 per hour. To continue with staff engagement, we are in the process of setting up a staff consultative committee, which will be employee led and will focus on 'workforce matters'. Reports and updates from staff will be provided directly to Professor Moira Livingston, the Board's People Sponsor. It is our desire to continue to build a strong supportive culture by giving the staff a stronger voice on how they would like to see the future shape and direction of CareTech.

As part of the Groups on-going commitment to reward and recognise our Senior Leaders, the Group launched the 2020 Long Term Incentive Plan ('LTIP') in December 2020. We have over 20 participants in the plan and believe that an annual LTIP will further align the interests of award holders with shareholders with the continued focus on Quality outcomes for the people that we support. 

Social Responsibility

As we adjust our business to a post-Covid world we are taking the opportunity to formalise and embed our inherent culture of responsibility and care through development of a comprehensive sustainability programme that encompasses environmental and social issues. This will help us to futureproof against climate related risks and enable us to respond to social shifts in important topics such as diversity equity & inclusion, meeting the expectations of all our stakeholders, in particular the brilliant people who work so hard to deliver outstanding results for those in our care.

In 2021 we will launch our first set of targets in an ESG report using the World Economic Forum's newly developed ESG framework. We will also launch a set of KPIs that demonstrates CareTech's significant social impact and delivery of our purpose; to enable children, young people and adults with complex needs to gain independence, to live, work, learn and engage in their communities.

During the first half, the CareTech Charitable Foundation has continued to broaden its range of partnerships, including:

·      Support for the Open University for its Carers Scholarships Fund, a unique initiative that supports unpaid carers to gain access to free OU education and wraparound careers support

·      The first grant provided from the social care sector for The Prince's Trust's Health and Social Care programmes, which is working in partnership with the Department of Health and Social Care and Health Education England, to secure careers for 10,000 young people in the health and social care sector across England

·      Headline partner for the new Social Care Action Fund, seeking to find evidence-based improvements to the social care provision for autistic adults, delivered by leading UK autism research charity Autistica and supported by the National Institute of Health Research.

Dividend

Our policy to increase the dividend broadly in line with the movement in underlying diluted earnings per share continues. In line with this policy, the Board recommend an interim dividend of 4.6p (2020: 4.0p) per share, to be paid on 19 November 2021 to shareholders on the register at the close of business on 22 October 2021.

Outlook and prospects

Underlying trends remain positive for the Group and we are well placed to offer high quality care to our service users which represents good value to Commissioners. We are confident in meeting market expectations for the full year.

Looking ahead and as COVID-19 restrictions start to ease, the Group is in a strong position to broaden our Care Pathway. This will be achieved through expanding our offering in the UK, enhancing our services in the Gulf region and broadening our digital technology platform in order to deliver an innovative approach focussed on improving outcomes for individuals.

Farouq Sheikh

Chairman 

17 June 2021

(i)   Underlying EBITDA is operating profit before depreciation, share-based payments charge and non underlying items (explained in note 3);

(ii)  Underlying profit before tax and underlying diluted earnings per share are stated before non underlying items (explained in note 3).

(iii)  EBITDA to cash conversion is calculated as operating cash flows before non underlying items divided by underlying EBITDA

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 31 March 2021

 (i)  Underlying EBITDA is operating profit before depreciation, share-based payments charge and non underlying items (explained in note 3).

Condensed Consolidated Statement of Changes in Equity at 31 March 2021

Condensed Consolidated Balance Sheet at 31 March 2021

Consolidated Cash Flow Statement for the six months ended 31 March 2020

Net debt as defined by the Group's banking facilities comprises:

(i) Net debt includes vehicle finance leases included in lease liabilities.
 

Notes

1.   Accounting policies

This interim report has been prepared on the basis of the accounting policies expected to be adopted for the year ending 30 September 2021. These are anticipated to be in accordance with the Group's accounting policies as set out in the latest annual financial statements for the year ended 30 September 2020.

The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS") and those parts of the Companies Act 2006 as required to be adopted by AIM-listed companies. AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

In the current year, the following new and revised standards and interpretations have been adopted:

The amendments and interpretations listed above which were adopted did not affect the amounts reported in these interim financial statements.

The financial information in this interim report does not constitute statutory accounts for the six months ended 31 March 2021 and should be read in conjunction with the Group's annual financial statements for the year ended 30 September 2020. Financial information for the year ended 30 September 2020 has been derived from the consolidated audited accounts for that period which were unqualified.

The condensed consolidated interim financial statements for the six months to 31 March 2021 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

This unaudited interim report was approved by the Board on 16 June 2021.

Going concern

The Group is financed by bank loan facilities that mature in August 2023. The Directors have considered the Group's forecasts and projections, and the risks associated with their delivery, and are satisfied that the Group will be able to operate within the covenants imposed by bank loan facilities for at least twelve months from the date of approval of the condensed consolidated financial information. In relation to available cash resources, the Directors have had regard to both cash at bank and a £25m committed undrawn revolving credit facility. The Group has undertaken extensive activity to identify and mitigate its exposure to plausible risks which may arise from COVID-19. Based on the Directors' current assessment of the likelihood of the COVID-19 risks arising together with their assessment of the planned mitigating actions being successful, the Directors have concluded it is appropriate to prepare the accounts on a going concern basis.

2.   Segmental information

IFRS 8 requires operating segments to be determined based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Chief Executive Officer as he is primarily responsible for the allocation of resources to segments and the assessment of the performance of each of the segments.

The CODM uses underlying EBITDA as reviewed at monthly Executive Committee meetings as the key measure of the segments' results as it reflects the segments' underlying trading performance for the period under evaluation. Underlying EBITDA is a consistent measure within the Group.

Inter-segment turnover between the operating segments is not material.

The interim results report segmental information on the Group's four operating divisions (and the comparative information has been represented on this basis):

·      Adults Services;

·      Children's Services;

·      Foster Care; and

·      Digital Technology

The condensed segmental results for the six months ended 31 March 2021, six months ended 31 March 2020 and year ended 30 September 2020 and the reconciliation of the segment measures to the respective statutory items included in the consolidated financial information are as follows:

Reconciliation of EBITDA to profit after tax

Operations of the Group are primarily carried out in the UK, the Company's country of domicile. The AS Group, registered in the United Arab Emirates ("UAE") has generated revenue in the UAE (£12.9m). On 5 October 2021 the Group acquired a majority shareholding in Smartbox Assistive Technology Limited and associated subsidiaries. Revenue by Smartbox has been generated in Europe (£2.2m), North and Central America (£0.9M), Australasia (£0.3m) and Middle East and Africa (£0.3m). All other revenues arise within the UK.

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 CODM and are not measures used by the CODM to assess performance and to make resource allocation decisions.

3.   Non underlying items

Non underlying items are those items of financial performance which, in the opinion of the Directors, should be disclosed separately in order to improve the readers understanding of the trading performance of the Group. Non underlying items comprise the following:

(i)   In accordance with IFRS 3 (as revised) items associated with business combinations have been taken to the income statement as incurred

(ii)   The Group incurred a number of costs relating to the integration of the Cambian acquisition and reorganisation of the internal operating, finance and management structures as outlined in the Scheme of Arrangement dated 19 September 2018.

(iii)  These charges represent charitable donations made to the Caretech Charitable Foundation ("Foundation"), an independent grant- making corporate foundation registered with the Charity Commission. Funded and founded by Caretech Holdings plc, the Foundation has an independent Board of Trustees responsible for delivering its Charitable Objects. The Trustees include Haroon Sheikh, Farouq Sheikh, Christopher Dickinson and Michael Adams, Directors of the Group.

(iv)  The Group held a sleep-in provision of £11.8m for the 2020 financial year end. On 24 March 2021, the Supreme Court made a final judgement that social care staff are not entitled to the national minimum wage for sleep-in shifts and the provision of £11.8m has been written back.

(v)  Gain on bargain purchase arising from the Huntercombe acquisition, see note 7.

(vi)  Non underlying items relating to the 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 settlements and accrual thereof.

(vii) Imputed interest recognised as a result of the ground rent transaction with Alpha Real Capital LLP in 2019.

(viii)Represents the current tax on items (ii) and (vi) above.

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