Interim Results Six months ended 31 March 2011 Extraordinary days every day
PRESENTATION STRUCTURE PRESENTERS: Farouq Sheikh, Executive Chairman David Pugh, Group Finance Director Page AGENDA OUR BUSINESS AND THE MARKET: About CareTech 3 Group Highlights 4 Social Care in the public eye 5 Group Operations 6 Adult Learning Difficulties Adult Learning Difficulties 7 7 Young People Residential Services 8 Foster Care and Family Services 9 Mental Health 10 Financial Highlights 11 INTERIM PERFORMANCE: Income Statement Highlights 12 Adjustment Items 13 Cashflow Highlights 14 Balance Sheet Highlights 15 Bank Facility and Covenants 16 STRATEGY: Strategy 17 2
ABOUT CARETECH • The leading specialist provider of social care for children and adults with complex needs • Founded in 1993 • Floated on AIM – 2005 and progressively grown from 423 places (at float) to 1,930 on 31 March 2011 • Highly visible long term income stream with strong asset backed balance sheet • • Sharp market awareness and innovative care pathway approach • Strategy of selective acquisitions and investment in organic growth • National profile supported by a strong regional structure for service delivery • Dedicated specialists support growth 3
GROUP HIGHLIGHTS • Delivering quality services and reliable growth in a challenging market: • Turnover up 26% • EBITDA up 7% • PBT up 3% • Cash backed EBITDA • • Capacity increase of 121 places • Investing in the future: • Built the team for further growth – increasing the scope of our social care pathway • Successfully integrated acquisitions • Market driven reconfiguration of 5 homes • Good position against our peer group • Safe and dependable services • Quality reputation • Strong balance sheet 4
SOCIAL CARE IN THE PUBLIC EYE Fee rate pressure - Variable across authorities and specialisms - Annual fee review with 40 out of 127 authorities, producing an overall neutral price change Individual contract reviews at a cost of £0.7m in H1 2011, including volume for price deals Occupancy - Stable mature occupancy of 92% and blended occupancy of 87% - Volume for price and further outsourcing remain attractive solutions for local authorities Safety and Quality of Care - 87% of our services rated as good or excellent - Our No.1 commitment - Staff recruitment, training and internal quality assurance team Operating lease exposure - Predominately a freehold backed model (£229m at August 2009 valuation) H1 2011 RPI-linked sale & leaseback rental costs of only £2.1m 5
GROUP OPERATIONS CareTech Holdings plc Adult learning difficulties 6
ADULT LEARNING DIFFICULTIES OPERATIONS (31 March 2011) MARKET • 1.4m people in the UK have a learning disability • 185,000 of these cannot live independently • UK market for adult residential LD worth £3.2bn • 5.5% p.a. market growth rate • Highly fragmented, CareTech is the second largest provider with less than 2% market share STRATEGY • Care pathway • SUPPORTED COMMUNITY Capacity: 1,421 places RESIDENTIAL LIVING SUPPORT Occupancy: 86.5% Average weekly fee: £1,176 • Focus on bed fill of existing portfolio, organic Turnover: £36.7m developments and leasehold solutions • 8 homes (55 capacity) being reconfigured • Bolt-on acquisitions when compelling • National, regional and local management structure 7
YOUNG PEOPLE RESIDENTIAL SERVICES OPERATIONS (31 March 2011) MARKET • 17,000 children in England looked after outside foster care • Residential children’s market across England worth £1.0bn • 5.7% p.a. market growth rate • Highly fragmented STRATEGY • Care pathway SUPPORTED LEARNING DIFFICULTIES LIVING SPECIALIST EBD FOSTER CARE • Educational and specialist support • Capacity: 104 places • Focus on bed fill of existing LD portfolio, strategic EBD Occupancy: 80% acquisitions and organic specialist EBD developments Average weekly fee: £3,348 Turnover: £6.9m • EBD acquisitions successfully integrated and specialist teams being established • Additional capacity growth in North Wales, South Wales and Shropshire through organic developments 8
FOSTER CARE AND FAMILY SERVICES MARKET OPERATIONS (31 March 2011) • 47,000 children in England are in foster care • Foster care market across England worth £1.1bn • 7% p.a. market growth rate • CareTech is a top ten provider with less than 1% market share STRATEGY • Organic growth with current placement authorities • Tender for adjacent territories • Acquisition of quality IFA’s in new geographical regions • Turnaround of Care UK fostering operations and integration of acquisitions • I.T. systems reorganised onto common platform Capacity: 269 places Average weekly fee: £869 Turnover: £5.6m Available spaces with carers: 40 places 9
MENTAL HEALTH OPERATIONS (31 March 2011) MARKET • 2.4% of the UK population will be referred to a specialist psychiatric service • NHS/LA spend on mental health is £12bn • Independent care homes for mental health in England cost £685m, with non-residential costing a further £281m • 70% of prisoners have mental health problems STRATEGY • Care pathway LOW SECURE & SUPPORTED LIVING RESIDENTIAL STEP DOWN & OUTREACH • Focus on bed fill of existing portfolio, leasehold supported living and growth in outreach services Capacity: 136 • Occupancy: 83% Bolt-on acquisitions when compelling Average Weekly fee: £1,203 • Acquisitions have been successfully integrated Turnover: £3.0m • Positive engagement with placement authorities 10
FINANCIAL HIGHLIGHTS • Revenue growth of 26% to £52.2m (2010: £41.4m) • EBITDA growth of 7% to £10.2m (2010: £9.5m) • PBT growth of 3% to 6.7m (2010: £6.5m) • Diluted EPS declined by 6% to 10.8p (2010: 11.4p), with 7% more shares in issue • • Dividend of 2.00p (2010:1.84p) representing an increase of 9% • Cash backed EBITDA (£11.2m operating cash inflow) • Net debt of £122m (19% EBITDA covenant headroom) 11
INCOME STATEMENT HIGHLIGHTS for the 6 months ended 31 March 6 months 6 months Ended Ended 31 March 31 March 2011 Acquisitions Other 2010 £m £m £m £m REVENUE 52.2 12.4 (1.6) 41.4 EBITDA (i) 10.2 3.0 (2.3) 9.5 EBITDA MARGIN 20% 2% (5%) 23% PROFIT BEFORE TAX (ii) 6.7 6.5 DILUTES EPS (ii) 10.8p 11.4p Reconfigure Fee Analysis of major ‘other’ movements: pressure homes Overheads Other Revenue (0.7) (1.2) - 0.3 (1.6) EBITDA (0.7) (0.4) (0.7) (0.5) (2.3) EBITDA margin (1.5%) (1%) (1.5%) (1%) (5%) (i) EBITDA is operating profit stated before depreciation, share-based payments charge and adjustment items (page 13) 12 (ii) Profit before tax and diluted earnings per share are stated before adjustment items (page 13)
ADJUSTMENT ITEMS • In last year’s accounts ‘Acquisition and development related staff costs’ were not charged against EBITDA (i) . The treatment has been amended such that all periods now reflect this reduction to EBITDA (i) . • The disclosure of certain current and non-current liabilities has been enhanced and more clearly demonstrates their future impact on net debt. IFRS also requires changes in acquisition fair values to be restated for the prior period. • Adjustment items charged / credited in the Income Statement are as follows: 6 months ended Year ended 31 March 2011 30 September 2010 £’m £’m ACQUISITION FEES (0.7) (3.6) POST ACQUISITION INTEGRATION AND REORGANISATION COSTS (0.7) (1.1) FAIR VALUE ADJUSTMENTS FOR PRIOR YEAR ACQUISITIONS - (0.6) Non-cash BARGAIN PURCHASE CREDIT 0.4 3.8 Non-cash ADJUSTMENTS FOR MINIMUM FUTURE LEASE PAYMENT UPLIFTS (0.7) (1.5) Non-cash EBITDA ADJUSTMENT ITEMS (1.7) (3.0) AMORTISATION OF INTANGIBLES (1.5) (0.9) Non-cash LOAN FINANCE ARRANGEMENT FEES - (1.7) CHARGES RELATING TO DERIVATIVE FINANCIAL INSTRUMENTS 0.4 (3.2) PBT ADJUSTMENT ITEMS (2.8) (8.8) (i) EBITDA is operating profit stated before depreciation, share-based payments charge and adjustment items 13 (ii) Profit before tax and diluted earnings per share are stated before adjustment items
CASHFLOW HIGHLIGHTS for the 6 months ended 31 March 6 months 6 months Ended Ended 31 March 31 March 2011 2010 £m £m OPERATING CASH FLOW BEFORE ADJUSTMENT ITEMS 11.2 9.5 EBITDA CASH CONVERSION RATIO 110% 100% SHARE ISSUE - 14.6 11.2 24.1 MAINTENANCE CAPITAL EXPENDITURE (2.0) (1.8) INTEREST, DIVIDENDS & TAX PAID (4.0) (1.1) 5.2 21.2 ADJUSTMENT ITEMS PAID (a) (4.4) (1.5) ACQUISITIONS (8.2) (2.3) DEVELOPMENT CAPITAL EXPENDITURE (1.3) (4.8) INCREASE IN NET DEBT (8.7) 12.6 OPENING NET DEBT (113.2) (93.4) CLOSING NET DEBT (121.9) (80.8) (a) Adjustment items paid comprise: Acquisition fees (2.4) - Post acquisition integration and reorganisation costs (0.5) - Charges relating to derivative financial instruments (1.5) (1.5) (4.4) (1.5) 14
BALANCE SHEET HIGHLIGHTS 31 March 30 September 2011 2010 £m £m TANGIBLE FIXED ASSETS (£229m valuation) 187.6 184.1 GOODWILL AND INTANGIBLES 61.3 53.1 248.9 237.2 NET DEBT (121.9) (113.2) DEFERRED AND CONTINGENT CONSIDERATION PAYABLE: WITHIN 1 YEAR WITHIN 1 YEAR (7.4) (7.4) (7.2) (7.2) BEYOND 1 YEAR - (0.6) (7.4) (7.8) INEFFECTIVE DERIVATIVE FINANCIAL INSTALMENTS: WITHIN 1 YEAR (2.4) (2.9) BEYOND 1 YEAR (2.0) (3.4) (4.4) (6.3) RECEIVABLES, PAYABLES AND TAX (8.9) (7.9) DEFERRED TAX AND MINIMUM FUTURE LEASE PAYMENTS (35.1) (32.0) NET ASSETS 71.2 70.0 15
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