CareTech Holdings PLC

("CareTech" or "the Group")

Preliminary Results for the year ended 30 September 2021

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care and education services to adults and children, is pleased to announce its unaudited preliminary results for the year ended 30 September 2021.

Financial Highlights

·      Robust financial performance slightly ahead of market expectations

·      Revenue increase of 13.8% to £489.1m

·      Underlying EBITDA increase of 10.5% to £100.5m

·      Underlying PBT increase of 14.6% to £68.3m

·      Underlying basic EPS increase of 13.3% to 47.87p

·      Statutory basic EPS increase of 25.9% to 28.80p

·      Net debt reduced to £258.7m, underpinned by a significantly increased new property portfolio valuation of the Group's freehold and long leasehold at £930.0m in October 2021, with leverage of 2.7x adjusted EBITDA

·    Increased final dividend by 8.6% to 9.5p. Total dividend for the year of 14.1p (2020: 12.75p)

Operational Highlights

·      Prioritised the wellbeing of our staff and those we look after throughout the pandemic

·      86% of CQC and 80% of Ofsted ratings "Good" or "Outstanding" which compares favourably with the sector   

·      Established Digital Technology division to broaden our care pathway to include digital care services

·      Post-period-end acquisition of REHAVISTA GmBH, Germany's largest provider of augmentative and alternative communication products and services

·      Completed the transfer of seven services operated by The Huntercombe Group in November 2020, offering highly specialised facilities for the treatment of complex learning disabilities, Autism and Mental Health

·      Continued organic expansion, purchasing 25 properties which will add 59 beds

·      Strengthening of the operational leadership team

·      ESG Strategy developed, and Sustainability Director appointed

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

"I am particularly pleased to report another strong set of results, which are slightly ahead of market expectations.

"This performance continues to validate our belief that we have a well-executed strategy, which meets a critical social care need and has demonstrated resilience in a challenging market environment. Our fundamentals are strong, and we remain committed to providing high quality care to those we look after.

"CareTech enters the new financial year in a positive financial position, underpinned by a significant property portfolio and strong cash generation. Alongside our successful growth initiatives and strengthening of the operational leadership team, the Group continues to see an active pipeline of bolt-on acquisition opportunities, growth in the Gulf region and exciting opportunities to develop our Digital Technology division.

"On behalf of our Board, I would like to thank all our staff who have worked tirelessly through the year, enabling us to deliver excellent quality care to individuals in our services."

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

This announcement contains inside information for the purposes of the UK Market Abuse Regulation.

For further information, please contact:

CareTech Holdings PLC                                                           01707 601800

Farouq Sheikh OBE, Group Executive Chairman

Christopher Dickinson, Group Chief Financial 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

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 day services the UK employing more than 11,000 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

Group Executive Chairman's Statement

Continued strong performance during Covid-19 showing resilience and growth prospects underpinned further

It is my pleasure to present another strong set of results for the period ending 30 September 2021.

In these unprecedented times, CareTech has continued to demonstrate the significant resilience of its business model by delivering strong growth in all of its key performance indicators. This is underpinned by a robust performance in its core activities with an emphasis on accelerated organic growth initiatives complemented by selective bolt-on acquisitions and, most importantly, delivering on the previously outlined strategy of International expansion and the creation of the Digital Technology division. Both of these initiatives have been successfully implemented and have significant further opportunities we can build upon in the coming years.                    

On behalf of the Board, I would like to thank our staff who have worked tirelessly throughout the year, enabling us to deliver excellent quality care to individuals in our services. I am enormously proud particularly of our front-line colleagues in delivering Extraordinary Days Every Day for our service users.

During a year dominated by the COVID-19 pandemic we made two important strategic moves. In October 2020, we acquired Smartbox, a market-leading creator of software, hardware and content that helps individuals without speech to have a voice and live more independently. This was an important milestone for our newly established Digital Technology division, established to broaden our Pathway offering to include digital care services. Secondly, in November 2020, we completed the transfer of seven specialist services previously operated by The Huntercombe Group and rebranded Coveberry. This broadens our specialist offer by adding facilities for the treatment of adults with complex Learning Disabilities, Autism and Mental Health diagnoses.

In the UAE we continued to see exciting prospects for our local operating brands, with further investments planned and service developments expected to establish our long-term goal of being the first whole person Care Pathway of services for people with disabilities and complex needs in the region.

Financial results and position

CareTech performed well during the year to 30 September 2021 with financial highlights as follows:

Group revenue was £489.1m, an increase of 13.8% driven by organic growth in Children's Services, the acquisition of Smartbox in October 2020 and the portfolio of assets transferred from The Huntercombe Group in December 2020 to Adults Specialist Services.

Group underlying EBITDA increased by 10.5% to £100.5m (2020: £90.9m) and underlying EBITDA margin was 20.5% (2020: 21.1%).

Underlying profit before tax increased by 14.6% to £68.3m (2020: £59.7m) and underlying basic earnings per share was 47.87p (2020: 42.26p).

Operating cash conversion was strong at 96.1% (2020: 103.9%) with net debt at 30 September 2021 being £258.7m (2020: £268.9m) and net debt/adjusted EBITDA 2.7x (2020: 3.1x). Cash generated during the period was used to fund growth through the acquisition of Smartbox for £5.4m (net of acquired cash) and £11.8m on property acquisitions/developments.

Extending our Digital Technology offering

On 29 November 2021, we announced the acquisition of REHAVISTA GmBH ('REHAVISTA') and its subsidiary company LogBUK.

REHAVISTA is Germany's largest provider of augmentative and alternative communication (AAC) products and services, employing over 170 staff. The company, which has six offices across Germany, provides a range of AAC and assistive technology products and has a strong reputation for excellent service. LogBUK is a subsidiary company to REHAVISTA, providing independent speech and language therapy to help AAC users achieve the best outcomes through specialist clinical support.

REHAVISTA's reach and expertise is unparalleled in Germany, estimated to be the second largest funded AAC market globally after the USA. With its deep knowledge of assistive technology and established routes to market, this acquisition provides a significant opportunity for Smartbox to expand the products and services available in Germany, expanding on the existing partnership between Smartbox and REHAVISTA, and across Smartbox's global customer base, which spans more than 30 languages and 45 distributors.

REHAVISTA and LogBUK, headquartered in Bremen, generated revenue in excess of €16m in 2020. It is expected that the acquisition will be immediately earnings enhancing.

A progressive dividend

We continue to maintain a progressive dividend policy. The Board has proposed a final dividend of 9.5p (2020: 8.75p) per share bringing the total dividend for the year to 14.1p (2020: 12.75p) per share. This represents a full year increase of 10.6% year on year. The final dividend will be paid, subject to shareholder approval, on 4 May 2022, with an ex-dividend date of 3 March 2022 and an associated record date of 4 March 2022.

Embedding and enhancing sustainability

The Board is increasing its focus on environmental, social and governance (ESG) initiatives, which we believe represent value drivers for the Group. We have continued to make good progress with the development of our ESG strategy during a year of many challenges and I look forward to the publication of our inaugural Purpose Report in early 2022. To oversee the development of this important area of work, we have appointed Jonathan Freeman as the Group's first Sustainability Director. Jonathan will report to our CFO, and ESG will become a core part of the Board's agenda.

Strengthening Board and Operational leadership team

The search for a new Chair of the Audit Committee is well underway and once this appointment is made, Karl Monaghan will retire from CareTech's Board. In addition, we plan to appoint an additional independent Non-Executive Director during 2022 to further strengthen our Board.

With the integration of Cambian now almost complete and, given the opportunities to further grow our existing core services together with the significant opportunities both the Technology and International divisions bring we have taken the opportunity to strengthen our operational leadership team.  This sets us up well for the next phase of growth both here in the UK, International and the Digital Technology division.   

Outlook and prospects

This year has affirmed our belief that we have a well-executed investment strategy, which meets a critical social care need and has demonstrated resilience. Our fundamentals remain strong and we remain committed to providing high quality care to those we look after.

CareTech enters the new financial year in a strong financial position, underpinned by a significant property portfolio and strong cash generation. Alongside its successful growth initiatives, the Group continues to see an active pipeline of bolt-on acquisition opportunities, growth in the Gulf region and exciting opportunities to develop our Digital Technology division.

Finally, I would like to thank our shareholders for their continued support, and my fellow Board members for their commitment throughout the year.

Farouq Sheikh OBE

Group Executive Chairman

7^th December 2021

Group Chief Executive's Statement and Performance Review

As we continue to live with the effects of the global COVID-19 pandemic, CareTech has remained resolute in its purpose to deliver the highest quality of care while demonstrating the resilience of our business model. These two fundamentals are the basis for our success in delivering Extraordinary Days Every Day to transform outcomes for the people in our care and provide value for our commissioners.

Our commitment to high quality care

Delivering the highest standards in education, support and care, and striving to continually improve outcomes for children, young people and adults, are the cornerstones of our purpose as a Group. Our recipe for success, tried and tested over two decades, is an unrelenting focus on quality, which in turn drives commercial success.

These principles have remained particularly important during the pandemic which has caused so much disruption to society. During this time, we have remained focussed on providing certainty and assurance to the people in our care that they are our absolute priority, as well as ensuring that our staff feel safe and supported.

As the pandemic has eased, both CQC and Ofsted have re-commenced inspections. CareTech's Adult CQC registered service quality ratings at 30 September 2021 were 86% Good or Outstanding (Sep 2020: 91%) and our Ofsted ratings at 30 September 2021 were 80% (Sep 20: 82%). Whilst both our CQC and Ofsted ratings compares favourably to the national social care average, we remain committed to providing the highest quality of care across all our services and have comprehensive improvement plans in place to increase our quality ratings further.

Throughout the year our Executive-led COVID-19 taskforce has monitored sites on a daily basis and communicated to all services regularly.

Over the year we strengthened our internal Compliance and Regulation team, promoting Tom Burford to Group Executive Director - Quality Improvement. We introduced the Mind of My Own app across every children's service enabling us to capture and "listen" to the voice of the young people in our services and respond to their individual needs. We launched our Dynamic Line of Sight (DyLOS) across our portfolio of services which provides site-based KPI monitoring and added a new Management Information System across our schools.

We continue to recognise our front-line managers as the building blocks that make up a great service. During the year, we have doubled efforts to roll out the Group's Management Development Programme, which is scheduled by 2022 to have reached all frontline management colleagues.

Succession in operational leadership

As CareTech continues to evolve and grow, and to address operational leadership succession, Nasir Quraishi and Jeremy Wiles have been promoted to the positions of Group Executive Director - Adults Services and Group Executive Director - Children's Services respectively, replacing John Ivers' role as Chief Operating Officer. Both Nasir and Jeremy have many years of experience in the sector and prior to these appointments held key senior management roles within CareTech.

John Ivers will continue with the Group in a newly created strategic role supporting the Company's growth plans and working with the Executive team.

Commitment to our people

The wellbeing of our staff and those we look after is our utmost priority. The Board has continued the active engagement with our workforce, using virtual meetings where needed in line with COVID-19 protocols. We launched our COVID-19 fund last year, and continued to support staff, particularly those that have had to self-isolate and/or who faced hardship on account of the pandemic. Our Executive Committee also continued to engage extensively throughout the year, hosting a number of events to better understand how people were coping with the working environment caused by the pandemic, check in on their mental wellbeing and explore what the business could do to better support colleagues. I once again congratulate our recruitment and learning services teams who have recruited staff and on boarded them exceptionally well this year in circumstances that remain unusually challenging.

We initiated the inaugural Staff Consultative Committee during this period with representation from across the organisation to focus on the staff voice and workforce matters, with this engagement shaping our People strategy.

Over 2,500 staff were recipients of a 'Thank You', which is the formal recognition of our Applause Programme that was launched in October 2020. This is the key driver to ensure that recognition of our values and their impact on the care and support given is embedded throughout the organisation.

To celebrate the diversity within the Group, we launched our Equality, Diversity and Inclusion strategy, with work now underway to enhance our practices and culture. We are fully committed to fairness and inclusivity.

Hiring the right people, based on CareTech's values, is central to achieving our purpose. It has been widely publicised that the social care sector is facing challenges in respect of staff recruitment and cost inflation following the pandemic easing and we have seen the annualised staff retention rate fall during the year from 75% to 71%. We are well placed to navigate these sector wide challenges and continue to consider innovative methods of recruitment, investing in the careers of our staff through best-in-class training and development. Our unwavering focus remains to be the employer of choice in our sector.

We welcome the increase in National Minimum and Living Wage in April 2022. As with prior years, we would expect annual fee negotiations with Local Authorities to cover the majority of additional operational costs including increases to front line staff pay.

As a learning organisation with a culture of 'open dialogue' our most recent staff survey received over 3,000 responses, demonstrating positive engagement. Our focus for the coming year is to roll out Group wide plans to improve staff experience and act upon the feedback we received.

UK Social care market

The demand for our services remains high, with those we care for presenting needs tending to be ever greater. Despite the pandemic we have continued to extend our services through the development of new specialist residential homes and supported living. Our growth is focused on meeting the demands of the market as well as adding "spokes" to ensure optimal operating efficiency of existing services. Within the year we purchased 25 properties which will add capacity of 59. During the year, the Children's division had 11 openings which added capacity of 22 beds. We can expect to at least achieve the same additional increased capacity within the coming year.

The market remains highly fragmented and we are well positioned to pursue a strong and active pipeline of organic and bolt-on acquisitions in both Adults Services and Children's Services.

CareTech International

Our Care Pathway, which encompasses Children's and Adults Services in the UK and addresses the needs of individuals with complex needs, continues to receive attention from Gulf markets of the Middle East, a region with significant unmet need and paucity of operator expertise.

We are well positioned to capitalise on these opportunities, having established our presence in the region two years ago with our maiden investment in the AS Group. Our UAE investment has weathered the pandemic extremely well and continues to grow its services. The business presently operates mental health services in outpatient clinics and inpatient hospital settings, and is developing a localised version of our Care Pathway, taking into account the nuances of the operating environment in the UAE.

Growth in service developments include home health and social care services, physical healthcare, and a special education needs school development. Led by Shafqat Malik, CEO of AS Group, and supported by CareTech's corporate expertise, we are well positioned to be the operator of choice for our specialisms and the first company in the region to deliver a whole person Care Pathway of services for people with disabilities and complex needs.

Next stop in the region for our growth is Saudi Arabia. This is another market with significant need for international expertise for our specialisms, a transformational policy backdrop, and expected privatisation in health and social care. We have invested in a dedicated team led by Zafar Raja, CEO CareTech MENAP, to focus on Saudi Arabia. We are confident this investment in an in-country senior team will translate into opportunities and service developments during the coming year.

Digital and innovation

Technology plays an incredibly important role in how we operate as a Group, supporting our services and staff with solutions and enabling great quality care for our service users. The pandemic has accentuated the need for innovative and scalable technology, and I am delighted our highly talented technology teams have risen to this challenge, procuring best in class solutions and developing in-house applications.

One example being the 100 Voices project, a collaborative effort to bring care and assistive technology together by blending Smartbox devices with ongoing education and care support plans for 100 service users across our Children's and Adults services. The project is already demonstrating the impact of augmentative and assistive technology in opening a world of opportunity for people in our care who previously were limited by their communication impairments.

Hill House, an outstanding school within our portfolio, is taking a whole school approach to the 100 Voices pilot and increasing participation and opportunities for communication for all students. New students are now having communication needs assessed on entry to the school, so appropriate technology can be provided to meet their needs. Similarly in the Adults Division our Selwyn services are adopting the technology at scale and along with the technology from the Rix Centre, University of East London, are trailblazing care and technology coming together in new and meaningful ways.

These pilot projects are potentially not only transformative for CareTech, but also for the wider social care sector that urgently needs to adapt technology at scale to improve outcomes and efficiency. We recognise the enormous digital innovation opportunity our sector standing presents, and for this reason are accelerating focus and investment in this area in coming years.

Summary and outlook 

The global pandemic continues to test the resilience of UK PLC and civil society across the world. I am pleased to report that our strategy in the markets we serve has proven to be durable and robust. In this 27^th year of our corporate journey the Group has demonstrated that commitment to purpose is as relevant today as it was when we opened our first small care home. I remain confident about CareTech's outlook and prospects, to reach more people with complex needs at home and overseas, through a blend of high-quality services and our extended digital capability. 

It is my enduring pleasure to lead CareTech, a business that has consistently made a lasting difference to so many lives. This year we warmly welcomed Smartbox and Huntercome Services to the Group. They, along with the rest of the CareTech family, joined in the many initiatives to celebrate the achievements of our service users across the country, holding our annual Arts and Crafts awards, Easter Spirit event and a 'Blooming Marvellous' Gardening competition.

I conclude by expressing my sincere thanks to our Board, our executive and management teams and colleagues throughout the Group for their hard work, commitment and dedication. In particular I would like to reach out to our staff to convey my heartfelt appreciation and thank them for the manner in which they resolutely provide outstanding care to our service users, and support each other.

Haroon Sheikh

Group Chief Executive Officer

7^th December 2021

Group Financial Review

Results

The Group delivered a strong set of results for the financial year ended 30 September 2021.

Following the acquisition of a majority holding in Smartbox in October 2020 and given the Group's ambitions to build its digital healthcare capabilities, we created a new Digital Technology division. Smartbox is a market-leading creator of software and hardware that helps disabled people without speech to have a voice and live more independently. Smartbox has successfully integrated into the Group, with the launch of a new 100 Voices initiative to ensure that Smartbox technology reached adults and children in CareTech care homes, specialist schools and complex needs services.

On 30 November 2020, the Group completed the transfer of seven services previously operated by The Huntercombe Group which 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.

Capacity and occupancy

Adults Services capacity increased to 2,104 (2020: 1,997) with the increase primarily due to seven services 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. During the year, one of these services was closed and will be repositioned and reopened during the new financial year.

Children's Services increased to 2,000 beds (2020: 1,959), primarily due to 8 new sites opening during the year. Fostering decreased to 875 (2020: 1,028) due to a reduction in the number of foster parents and blocked beds.

As at the balance sheet date, the Group capacity remained broadly flat at 4,979 (2020: 4,984) with an increase in our residential services offset by the decline in the Fostering division.

At 30 September 2021, occupancy levels in the mature estate were 80% (2020: 83%), reflecting the timing of the start of the educational year due to a number of the Group's non-residential schools operating on a 38-week basis with the new education term commencing in October and beds being blocked due to recruitment challenges. Blended occupancy was 78% (2020: 80%).

Condensed Income Statement

Revenue and underlying EBITDA (pre unallocated costs)

Group underlying revenue increased by 13.8% to £489.1m (2020: £430.0m).

The Adults Services division saw an increase in capacity due to 7 sites transferred from The Huntercombe Group. Revenues and underlying EBITDA increased by 24.6% and 7.5% respectively. The division continues to see high levels of occupancy at 91% across the mature estate and 86% on a blended basis which includes sites that are being reconfigured and under development.

Children's Services saw an increase in capacity, and revenues and underlying EBITDA increased by 6.2% and 9.5% respectively. During the year, 25 properties were purchased and have either opened or will open during the 2021/22 year. The division benefitted from 11 new services opening adding 22 bed capacity.

Foster Care's revenue and underlying EBITDA decreased by 6.7% and 9.9% respectively, due to COVID-19 restrictions and a reduction in the number of foster parents.

The Digital Technology division ended the period with revenues at £12.9m and underlying EBITDA of £2.4m. 2,558 devices were sold during the year in 18 different countries, a significant increase to the previous year.

Group underlying EBITDA before unallocated costs increased by 9.6% to £124.7m and Group underlying EBITDA increased by 10.5% to £100.5m. Underlying EBITDA margin decreased to 20.5% reflecting the lower initial margins at the recently acquired Huntercombe services.

Operating profit and profit before tax

The Group presents operating profit and profit before tax as both underlying and statutory results. Underlying operating profit increased by 9.4% to £80.5m.

The depreciation charge is £19.5m (2020:17.0m) reflecting the investment in land and buildings, motor vehicles and fixtures, fittings and equipment and the share-based payments charge of £473k (2020: £330k) reflecting the issuance of shares under the ExSOP in November 2019.

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, a £5.8m gain on the bargain purchase of seven sites transferred from The Huntercombe Group given the transaction was structured with no capital outlay, offset by amortisation of £10.3m, restructuring costs of £4.8m relating to the integration costs associated with Cambian, Smartbox and assets transferred from The Huntercombe Group, acquisition costs of £0.8m, a net £1.5m on COVID-19 related expenditure and a £1.2m donation to the CareTech Charitable Foundation.

During the year, the Group has adopted strict precautions in line with Government and public health guidelines for all our sites which included enhanced levels of cleaning, additional hygiene facilities and social distancing. Adult social care providers have been able to access funding from local authorities to support the provision of additional resources and associated costs necessary to halt transmission of COVID-19. Funding of £2.7m was received for the year, which almost covered the additional costs associated with COVID-19 of £4.2m.

Underlying financial expenses decreased to £12.2m (2020: £13.9m) reflecting the accelerated deleveraging and reduction in banking covenants. Non-underlying financial expenses of £1.1m (2020: £1.6m) were incurred relating to the non-cash movement in derivative financial instruments.

Underlying profit before tax increased by 14.6% to £68.3m (2020: £59.7m) and statutory profit before tax increased by 75.1% to £66.2m (2020: £37.8m).

Taxation

The effective underlying tax rate was 17.4% (2020: 18.7%) and reflects management's expectations of future capital investment through organic developments and reconfigurations relative to available capital allowances.

On 24 May 2021, legislation was substantively enacted in the UK to increase the corporate tax rate to 25% with effect from 1 April 2023. As a result of the change, an exceptional tax charge of £21.7 million was recognised for the year ended 30 September in relation to the reassessment of deferred tax assets and liabilities.

Earnings per share

The weighted average number of shares in issue rose to 110.8m. Underlying basic earnings per share increased by 13.3% to 47.87p from 42.26p in 2020 and Statutory basic earnings per share increased by 25.9% to 28.80p (2020: 22.88p).

Cash flow and net debt

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

The Group continues to have a strong financial position, with net debt at 30 September 2021 being £258.7m compared with £268.9m at 30 September 2020.

Strong operating cash flow has been deployed to purchase 25 new properties, to acquire Smartbox for £5.4m (net of cash acquired), payment of contingent consideration in relation to the AS Group of £1.5m, integration and restructuring costs of £4.2m associated with the acquisition of Smartbox, the restructuring of assets transferred from The Huntercombe Group and integration costs associated with Cambian.

Capital expenditure was £31.5m which includes £11.8m to purchase and develop new sites, £16.8m maintenance capex and software development of £2.9m.

The Group dividend payments was £17.3m (2020: £13.0m) and corporation tax payments of £6.0m (2020: £3.9m) were paid during the year.

Bank facilities

At 30 September 2021, the Group has bank borrowings of £322.4m, drawn under facilities which mature in August 2023. During the course of the year, the Group completed the extension of the 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 deleveraging profile. In addition, both the Group's loan and interest rate swaps have migrated to Compounded Daily SONIA as the reference rate.

CareTech's three key covenant ratios are leverage (ratio of net debt to covenant EBITDA to be no more than 4.5), interest cover (ratio of covenant EBITDA to net finance costs to be no less than 4x) and LTV (ratio of property value to net debt to be no more than 62.5%). As at 30 September 2021, we were operating comfortably within these ratios at 2.7x (2020: 3.1x), 9.5x (2020: 7.8x) and 42% (2020: 42%) respectively.

Property valuation

The Group has a significant property portfolio, consisting of 407 freehold and long leasehold sites. The Company has undertaken a scheduled property revaluation, which Knight Frank has valued at £930 million, an increase of 20% since its last valuation in September 2018 of £774 million.

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 rise broadly in line with the increase in underlying earnings per share and increase to 9.5p per share (2020: 8.75p), bringing the total dividend for the year to 14.1p (2020: 12.75p), a growth of 10.6%. Dividend cover for 2021, based upon diluted earnings per share before non-underlying items is 3.3 times (2020: 3.3 times).

Christopher Dickinson

Group Chief Financial Officer

7^th December 2021

Consolidated Income Statement

for the year ended 30 September 2021

(i)    EBITDA is operating profit stated before interest, tax, depreciation, amortisation, ExSOP share-based payments charge and non-underlying items

(ii)    Non-underlying items comprise: amortisation, acquisition expenses, reversal of sleep-in provision, gain on bargain purchase, integration and restructuring costs, donations to the CareTech Foundation and COVID-19 income and costs.

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2021

Consolidated Statement of Financial Position   

as at 30 September 2021

These financial statements were approved by the Board of Directors and authorised for issue on 7 December 2021 and were signed on its behalf by:

Farouq Sheikh OBE                                                                             Christopher Dickinson

Group Executive Chairman                                                                     Group Chief Financial Officer

Company number: 04457287
 

Consolidated Statement of Changes in Equity

 as at 30 September 2021

Consolidated Statement of Cash Flows

 for the year ended 30 September 2021

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 2021 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 2021 or 30 September 2020. The results for the year ended 30 September 2021 are unaudited. The statutory accounts for the year ended 30 September 2021 are expected to 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. The statutory accounts for the year ended 30 September 2020 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's 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.

Statement under s498 - publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory financial statements for the years ended 30 September 2021 or 2020, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2021, on which the Group's auditors have given an unqualified report does not contain statements under Section 498(2) or (3) of the Companies Act 2006. Statutory financial statements for 2020 have been filed with the Registrar of Companies. The Group's auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

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 Group 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 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. EBITDA is a consistent measure within the Group.

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

The Group's reporting segments have been determined based on the services that are summarised as follows:

·      Adults Services - the provision of care and residential services for adults with learning disabilities, individuals recovering from mental health disorders, adults with autistic spectrum disorder, those with one or more physical impairment and adults with acquired brain injury.

·      Children's Services - the provision of assessment, residential care and education for young people with challenging behaviours, and those with behavioural and emotional disorders.

·      Foster Care - the provision of foster care for both mainstream and specialist foster care in small supportive groups across England and Wales for children with disabilities.

·      Digital Technology - the provision of diagnostic assistive technology to enhance communication and the independence of disabled users.

The Group has aggregated its Middle East operating segment in the Adults Services and Children's Services

reporting segments in accordance with IFRS 8. The economic indicators assessed are the nature of the services

provided, the nature of the production processes, the close similarity of the class of customers, the distribution

methods of the services, and the government regulatory environments in which both the segments operate within.

The results as at the balance sheet date report segmental information on the Group's four reporting segments.

The segmental results for the current financial year ending 30 September 2021 and prior year ending 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 (£25.1m) (2020: £15.5m). On 5 October 2020 the Group acquired a majority shareholding in Smartbox Assistive Technology Limited and associated subsidiaries. Revenue by Smartbox has been generated in Europe (£4.5m), North and Central America (£2.1M), Australasia (£0.6m) and Middle East and Africa (£0.7m). 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          Business Combinations

(a) Acquisition of "Smartbox"

On the 5 October 2020, the Group acquired a majority holding in Smartbox Assistive Technology Limited and associated subsidiaries, and Sensory Software International Limited (Collectively "Smartbox") a creator of augmentative and alternative communication (AAC) solutions (the "Investment").

To facilitate the acquisition, the Group has established a new subsidiary, Smartbox Holdings Ltd, which is 70% owned by the Group, with the remaining minority ownership held by the Smartbox management team. Smartbox Holdings Ltd acquired 100% of Smartbox.

The Group will pay up to £12.0m comprising of an aggregate initial purchase price £9.1m, funded through cash and loan note from the Group and cash from the minority holders of Smartbox Holdings Limited. Earn-outs of up to £3.6m payable over a two-year period from completion. The Group expects this amount to be paid over a two-year period from the date of completion and has valued the contingent consideration at the fair value on acquisition date. The expected range of the amount payable is between £0 to £3.6m. The Group's contribution will be funded from existing cash resources.

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, headquartered in Malvern, UK with offices in Bristol and Pennsylvania US, was acquired by Tobii AB in 2018. Following a full inquiry from the UK Competition and Markets Authority, Tobii was required to sell Smartbox on competition grounds, providing the Group an opportunity to secure a majority equity stake in the innovative tech firm.

The acquisition table is as follows:

Costs relating to this acquisition are expensed in the Income Statement in accordance with IFRS3 and are identified in note 4 non underlying items.

Judgement is required in determining the fair value adjustments as part of business combinations and for the fair value of intangible assets a third party specialist has been engaged. Intangible assets of £5.2m were recognised on acquisition related to digital technology, £3.4m, customer relationships, £0.9m and trade name, £0.9m. A respective deferred tax liabilities of £1m was raised.

Goodwill is attributable to the future economic benefits arising from assets which are not capable of being individually identified and separately recognised, these include value of the assembled workforce within the business acquired. Other intangible assets acquired comprise technology, customer relationships and the Smartbox trade name.

Goodwill arises as a result the surplus of consideration over the fair value of the separately identifiable assets acquired.

Smartbox contributed revenue of £12.9m and £4.8m to the Group's profit after tax for the year between the date of acquisition and the balance sheet date. Had the acquisition of Smartbox been completed on the first day of the financial year there would have been no material change to the group revenues and profit after tax for the year.

(b) Acquisition of "The Huntercombe Group"

On 30 November 2020, the Group completed the transfer of seven services previously operated by The Huntercombe Group. These services are highly specialised facilities for the treatment and care of adults with complex learning disabilities, autism and mental health diagnoses. They consist of three hospitals, two care homes with nursing, a number of single accommodation units with residential care registration and the support of people in their own tenancies in a step-down facility. The capacity of the services today is 142 beds. The transfer was structured with no capital outlay and is expected to be immediately earnings accretive.

The provisional acquisition table is as follows:

The Huntercombe Group contributed revenue of £20.8m and £0.7m to the Group's profit after tax for the year between the date of acquisition and the balance sheet date. The Huntercombe Group revenues for the year would have been higher by £4.4m and Group profit after tax would have been higher by £0.3m for the current year ended.

Judgement is required in determining the fair value adjustments as part of business combinations and for the fair value of intangible assets a third party specialist has been engaged. An intangible asset of £6.6m was recognised on acquisition as a result of acquired customer relationships and a respective deferred tax liability of £1.3m was raised. A right of use asset was recognised for its long terms leases and a corresponding lease liability and dilapidation provision. The fair value of owned property was £0.4m.

The previous operator was going through difficulties and wanted to dispose the lease liabilities associated with these properties. Accordingly, CareTech was able to obtain ownership of the existing leases and operations with no capital outlay which resulted in a bargain purchase.

(c) Acquisition after the balance sheet date

Non-adjusting subsequent event

Acquisition of Rehavista GMBH ('REHAVISTA')

On 29 November 2021, Smartbox Holdings Ltd ('Smartbox') announced the acquisition of REHAVISTA and its subsidiary company LogBUK. REHAVISTA is Germany's largest provider of augmentative and alternative communication (AAC) products and services. LogBUK is a subsidiary company to REHAVISTA, providing independent speech and language therapy to help AAC users achieve the best outcomes through specialist clinical support. Smartbox paid €10m in cash on completion, funded by the Group's debt facility and post completion, CareTech will own 83% of Smartbox with the remaining minority ownership held by the Smartbox management team.

Given the proximity of the announcement to the completion date of the transaction it is not possible to give a preliminary acquisition table at this time. 

4          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 reader's understanding of the trading performance of the Group. Non-underlying items comprise the following:

(i)    The Group has incurred additional costs as a result of COVID-19 in relation to higher sickness absence rates, personal protective equipment (PPE) costs, infection control and higher administration costs. The Group has received additional funding by way of Government grants through local authorities to assist in dealing with this. The Group has worked closely with all local authorities in establishing a dedicated funding arrangement to support our services which has been collected to offset the additional costs, as noted above, that the Group has incurred in relation to COVID-19.

(ii)   Amortisation relates primarily to acquisition related intangible assets which are considered unique to a specific acquisition, whereas other development costs amortisation commences when system is launched. These costs, by their nature, can vary by size and amount each year. As a result, amortisation of intangibles is added back to assist with the understanding of the underlying trading performance of the business and to allow comparability.

(iii)  In accordance with IFRS 3 (as revised) items associated with business combinations have been taken to the income statement as incurred. These items are considered specific one of costs that occur for an acquisition that will not continue following completion and therefore are added back to allow for comparability.

(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. The provision was primarily as a result of the acquisition of the Cambian Group in October 2018. This reversal has been adjusted for due to the size, nature and occurrence.

(v)   Gain on bargain purchase arises from assets transferred from The Huntercombe Group. An adjustment is made as this will not recur due to its size, nature and occurrence to ensure comparability.

(vi)   In the prior financial year, to further support the CareTech Foundation, the Group donated one million new ordinary Company shares to the Foundation. 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 has entered into a lock-up undertaking not to sell the new shares without the Company Board's approval.

(vii) The Group incurred a number of costs relating to the integration of the Cambian acquisition as previously outlined in the Scheme of Arrangement dated 19 September 2018 which has been completed during the financial year. Additionally the integration costs of sites transferred from The Huntercombe Group, the Smartbox acquisition, and start-up costs in the Middle East have been incurred. Additionally, a reorganisation of the Specialist Services division following transfer of assets from The Huntercombe Group and the costs associated with the closure of one of its larger hospitals have been incurred. The items relate to specific projects and due to the size and nature of these are adjusted for to allow for comparability.

(viii)                These charges represent charitable donations made to the CareTech Foundation, an independent grant-making corporate foundation registered with the Charity Commission. Funded and founded by the Group, the Foundation has a number of independent Trustees responsible for delivering its Charitable Objects. The Trustees also include Haroon and Farouq Sheikh and Christopher Dickinson, Directors of the Group. The Group is not obliged to make these donations and this does not represent its underlying operations and consequently adjusted due to its nature.

(ix)  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.

(x)   Deferred consideration of £3.5m was recognised following the acquisition of Smartbox. This was discounted back to present value and as a result a recognition of interest on deferred consideration was recognised. Additionally a put option was recognised at its present value. Interest on the put option will be recognised as a result. These are both considered costs of the acquisition and consequently adjusted for due to their nature.

(xi)  Represents the current tax on items (i), (iii) and (vii) above.

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

Derivative financial instruments are explained in note (ix) and intangible assets adjustment arises from the amortisation charge as noted in (ii).

Change in rate is predominantly to non-underlying items.

5          Taxation

(a) Recognised in the consolidated income statement  

 (b) Reconciliation of effective tax rate

Sleep-in provisions have been reversed following the Supreme Court ruling in favour of Mencap and a credit of £13.6m has been treated as non-taxable in accordance with this.  The gain on bargain purchase of £5.7m arising on the acquisition of Huntercombe has also been treated as non-taxable.

Deferred tax assets and liabilities have been measured in line with IAS 12 using the tax rates and laws that have been enacted or substantively enacted by the reporting date that are expected to apply when the asset is realised or the liability is settled. On 10 June 2021 the Finance Act 2021 received Royal Assent thereby increasing the rate of corporation tax to 25% with effect from 1 April 2023.  As a result of this change a non-underlying tax charge of £22.1m was recognised for the year ended 30 September 2021 in relation to the re-measurement of deferred tax assets and liabilities (2020: 19%).

6          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.

7          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.

8          Dividends

The aggregate amount of dividends comprises:

The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 14.41p per share, £10,482,790 (2020: 12.75p per share, £14,000,000).

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.