Annual Report and Accounts 2019
A bigger business
bringing high quality
care to change lives
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Contents
Strategic Review
01 Financial and Operational Highlights
02 CareTech at a Glance
04 Group Chairman’s Statement
08
Group Chief Executive’s Statement and
Performance Review
12 Our Market
16 Our Strategy
18 Our Business Model
24 Our Key Performance Indicators
Principal Risks and Our Strategic
26
Response
28 Group Financial Review
Governance
32 Board of Directors
34 Corporate Governance Report
42 Directors’ Report
44 Directors’ Remuneration Report
50
Statement of Directors’ Responsibilities
Financial Statements
51
Independent Auditor’s Report to the
Members of CareTech Holdings PLC
58 Consolidated Income Statement
59 Consolidated Balance Sheet
60
Consolidated Statement of Changes
in Equity
61 Consolidated Statement of Cash Flows
62 Notes to the Financial Statements
93 Company Balance Sheet
94
Company Statement of Changes
in Equity
Notes to the Company Financial
Statements
Appendix – Alternative Performance
Measures
95
98
100 Directors and Advisers
An enlarged group offering extended care pathways
Cambian acquisition
On 19 October 2018, CareTech Holdings PLC acquired the entire share capital of Cambian Group PLC (“Cambian”).
Cambian’s services have a specific focus on children who present high severity needs with challenging behaviours
and complex care requirements. The acquisition has extended our care pathway and given the Group (Caretech
Holdings PLC and its subsidiaries) a broader geographic and acuity service offering which we will seek to capitalise
on over the coming years.
The headline consideration for the acquisition was £359.9m (of which £241.7m was paid in cash), with the net price
paid being £278.5m reflecting £81.5m of net cash held by Cambian on the date of acquisition. The acquisition was
funded by the issue of 33.2m shares and new bank facilities.
Therefore, this report shows significant increases in Revenue, EBITDA and other income statement items reflecting
the Cambian acquisition as well as presentational changes reflecting the on-going integration of the two businesses,
most notably our new outcome-based operational segments: Adults Services, Children’s Services and Foster Care.
2019 Financial and Operational Highlights
Statutory financial highlights
Revenue
£395.0m
CareTech like-for-like increased to £196.5m (2018: £185.7m)
Underlying profit before tax (ii)
£50.2m
increased by 52.5% (2018: £32.9m)
Net cash inflows from operating activities(v)
£66.3m
(2018: £39.4m)
Property portfolio valuation(iv)
£774m
with net debt(iii) of £291.1m
EBITDA(i)
£73.5m
increased by 67.4% (2018: £43.9m)
CareTech like-for-like increased to £44.3m (2018: £43.9m)
Underlying basic earnings per share(ii)
37.6p
increased by 7.2% (2018: 35.07p)
Final dividend per share
7.95p
Increased by 6% (2018: 7.5p)
Operating profit
£39.5m
Increased by 95.5% (2018: £20.2m)
Diluted earnings per share
18.31p
Increased by 30.2% (2018: 14.06p)
Operational highlights
Overall care capacity increased by 2,457(v)
5,079 places
CareTech 2,620 (2018: 2,622)
Cambian 2,459
Quality CQC Group
95%
(2018: 86%)
Ofsted Group
82%
Caretech like-for-like 93% (2018: 86%)
(i) EBITDA is operating profit stated before depreciation, share-based payments charge and non-underlying items (see page 58).
(ii) Underlying profit before tax and underlying basic earnings per share are stated before non-underlying items.
(iii) Net Debt comprises cash and cash equivalents net of all loans and borrowings (see page 85).
(iv) September 2018 market value of CareTech property portfolio of £424m and Cambian £350m.
(v) Cash flow from operations before non-underlying items and tax (and excluding capex) (see page 61).
CareTech Holdings PLC
Annual Report and Accounts 2019
1
Strategic reviewGovernanceFinancial Statements CareTech at a Glance
Extraordinary
days every day
About Us
Focusing on the high acuity special education social care population
we support children and adults through solutions that are tailor made
to each of our service users.
Our core services provide for adults with learning disabilities,
individuals who have or are recovering from mental illness, people
with autistic spectrum disorder, people who have one or more
physical impairments and provide care and rehabilitation for men with
acquired brain injury (“ABI”). We deliver support through residential
services and a wide choice of creative home-based options.
Our children’s services cover assessment, residential care, education
and fostering options, including specialist provision for very complex
young people. We carefully and professionally support any child
irrespective of their reasons for being in social care. CareTech provides
the right solution for complex and difficult situations through our
nationally recognised expertise in provision for children and young
people including those with challenging behaviours, sexually
offending behaviours or who have emotional and behavioural
disorders. Our comprehensive service includes education in Ofsted
registered schools of very high quality.
CareTech has pioneered outcomes and progression along Care
Pathways including transition services for young people leaving care
and for adults who are making the move into their own home after
a lifetime in residential or institutional settings. We remain a national
leader in the drive to enable people to live as independently as
possible in a home of their own.
We believe in career development and creating learning opportunities
and have developed an enviable reputation as a leading provider and
organiser of modern apprenticeships across the UK, to members of
staff, those we care and support for other organisations seeking to
develop their teams.
Find out more online:
www.caretech-uk.com/about-us
CareTech Holdings PLC
Annual Report and Accounts 2019
2
Strategic review
Governance
Financial Statements
Caring everyday
The CareTech Group provides education, care and support to
individuals in need. This is both children and adults who present with
special and high severity needs, challenging behaviours and who
have complex care requirements.
Since CareTech came to the AIM market 14 years ago, it has evolved
through a mix of organic and acquisitive growth that has led to our
current position as one of the best established and reputable national
specialist education and social care providers. We provide services
across England, Scotland and Wales in a highly fragmented UK social
care market, covering the majority of the social care spectrum or
care pathways.
Many of the tailor-made services are offered in specialist schools,
residential care and community based settings. All the residential
homes are registered with the UK Government regulator: Care
Quality Commission (“CQC”), Office for Standards in Education,
Children’s Services and Skills (“Ofsted”) and other relevant regulators.
CareTech also provides care and support to a significant number
of people who have their own tenancies (supported living) and in
various day or support centres.
We provide services to over 4,000 adults and children across
550 locations. We work with the majority of Local Authorities
and Clinical Commissioning Groups in England, Scotland and
Wales and employ approximately 10,000 people.
The total market value is estimated (Laing and Buisson 2017) to be
worth £7bn for children’s services and £6bn for the care of adults
(below 65 years of age) in the learning disability and specialist services
categories. The private sector share of this market has developed
through successful outsourcing of services over the last 20 years
and this trend is expected to continue. Local Authorities have largely
protected their budgets for children and complex younger adults.
The Group observes an increased political and societal awareness
concerning the funding of Social Care budget for adults and children.
We believe budgets require additional funding, given the importance
to the healthcare and social fabric of society in supporting an
increasing population of the most vulnerable.
CareTech Holdings PLC
Annual Report and Accounts 2019
3
Adults Services: 258 sites
Children’s Services: 281 sites
Foster Care: 11 registered offices
Group Chairman’s Statement
A year of delivery
and change
CareTech Holdings PLC
Annual Report and Accounts 2019
4
I am privileged to present our results for the period ending 30 September
2019. In the year we are celebrating our 25th Anniversary in care, the
Group has become a leading national social care provider to young
people and adults and is now the largest provider of care and education
services to children in the UK. This is a real milestone for CareTech. 2019
has proved to be another exceptionally busy and successful year, with
the acquisition of Cambian delivering:
– an extended care pathway and broader geographic and acuity
service offering;
– operational best practices across the Group to better service partners
and service users;
– improved Ofsted quality ratings to 80%;
– synergies of £3m PBT synergies as set out in our acquisition plan;
– margin improvement to 13.4% pre-synergies; and
– delivering a transformational business which is earnings accretive
for shareholders.
Whilst Cambian has been the largest acquisition in CareTech’s history
and significant progress has been made on its integration, our core
business continues to grow and perform well. In this regard, I am pleased
to report:
– like-for-like underlying performance in the CareTech business has
increased;
– improvement on CQC and Ofsted Quality Ratings;
– accelerated organic growth initiatives including property purchases
and reconfigurations;
– strong occupancy levels have been maintained throughout the year;
– staff retention initiatives have proven successful with retention rates
ahead of sector average; and
– exciting initiatives and partnerships launched by the CareTech
Charitable Foundation.
Management have performed extremely well to manage these various
workstreams whilst ensuring that the business moves forward on all
fronts. The Group has stood out from its peers as a company that can
successfully combine quality, integrity and sound financial acumen,
and has consistently achieved good care quality ratings. Our credibility
as the provider of choice has never been stronger and we continue our
successful growth strategy with a confident outlook.
This is only possible due to the dedication, determination and hard work
of our staff. To acknowledge their success, I was proud to celebrate their
achievements with them at our fifth National Care Awards in November
this year.
In line with our ethos of promoting the CareTech culture, the Group
announced in October 2019, the most wide-ranging share ownership
incentive plan to include c.600 individuals across the business including
home managers, back office staff and executive management. This,
together with our various training and incentive programmes, gives
us a highly committed staff team who deliver positive outcomes for
our service users.
Delivering high quality support
and care to individuals with
complex needs to achieve
positive outcomes
Financial results and position
The Group’s performance reflects the scale of the acquisition of
Cambian and delivers a substantial increase in revenue, EBITDA and
other income statement items together with the cash flows for the
period following completion on 19 October 2018.
2019
2018
Change
Revenue
CareTech like-for-like revenue
EBITDA(i)
CareTech like-for-like EBITDA
Underlying profit before tax(ii)
Underlying basic earnings per share
Statutory profit before tax
Statutory earnings per share
Cash flow from operating activities(iii)
Final dividend per share
£395.0m
£196.5m
£73.5m
£44.3m
£50.2m
37.60p
£24.3m
18.38p
£66.3m
7.95p
£185.7m
£185.7m
£43.9m
£43.9m
£32.9m
35.10p
£15.4m
14.07p
£39.4m
7.50p
113%
6%
67%
1%
53%
7%
58%
31%
68%
6%
I am pleased to report that the Group’s trading performance in the
year to date is in line with market expectations. This report includes
presentational changes first outlined in the trading update issued on
1 May 2019 to reflect the ongoing integration of the two businesses,
most notably in the reporting of operational information which is
presented as the following three outcome-based operating divisions:
Adults Services, Children’s Services and Foster Care.
Revenue increased by 112.7% to £395.0m (2018: £185.7m). The split of
revenue is £196.5m for CareTech and £198.5m for Cambian. Like-for-like
CareTech’s revenue in the period increased 5.8% from £185.7m.
Group EBITDA of £73.5m (2018: £43.9m) represents growth of 67.4%
when compared with the same period last year. The split of EBITDA is
£44.3m for CareTech and £29.3m for Cambian. Like-for-like, CareTech’s
EBITDA increased by 1% reflecting the effect of re-configurations during
the year. The EBITDA margin was 18.6% (2018: 23.6%) which reflects the
acquisition of Cambian whose margins are historically lower than the
CareTech EBITDA margins. Like-for-like, CareTech EBITDA remained
broadly flat at 22.5% reflecting business mix and timing of
re-configurations.
Cambian’s EBITDA margin before synergies was 13.4%, which reflects a
considerable increase on the last reported margin prior to the acquisition
of 10.9% and a significant step towards our medium-term target of 16%.
Underlying profit before tax increased by 52.5% to £50.2m (2018: £32.9m)
and underlying basic earnings per share was 37.60p (2018: 35.07p),
representing an improved return to shareholders following the Cambian
acquisition.
We entered into new banking facilities at the time of the acquisition of
Cambian which include term loans of £322m and an undrawn revolving
credit facility of £25m. In January 2019, the Group completed its second
ground rent transaction with Alpha Capital, raising £31m of net proceeds
on attractive terms providing further capital for investment. The Group’s
property valuation of £774m was undertaken in September 2018,
establishing a loan to value at approximately 40% whilst the net debt to
EBITDA is just under 4.0x and the Board remain committed on reducing
net debt to EBITDA in the medium term to under 3.0x.
(i) EBITDA is operating profit stated before depreciation, share-based payments
charge and non-underlying items.
(ii) Underlying profit before tax and underlying basic earnings per share are stated
before non-underlying items.
(iii) Cash flow from operating activities before non-underlying items.
CareTech Holdings PLC
Annual Report and Accounts 2019
5
Strategic reviewGovernanceFinancial Statements
We also welcome Christopher Dickinson (FCA) to the Board as Group
Chief Financial Officer on 13 January 2020. Christopher has spent the
last year as Cambian Chief Financial Officer and prior to joining CareTech
was a Managing Director at Jefferies where he acted for CareTech on
its acquisition of Cambian. On behalf of the Group, I would also like to
thank Gareth Dufton who stepped in as Interim Group Finance Director
and has supported the Group on the sad passing of Michael Hill
last December.
It is expected that an additional Non-Executive Director will be appointed
during early 2020.
Our people
Our people are our most critical asset. Nothing of what we do to
improve the lives of the adults and children placed in our care would be
achievable without the hard work and dedication of the front-line staff
and managers throughout the organisation. I am always drawn to the
achievements of our excellent front line staff, which is inevitable as we
are first and foremost a care organisation. Their care and commitment
would be much less without the dedicated support of our administrators
and support teams whose hard work and energy is critical to the success
of the Group and the care we provide. In terms of staff retention, the
Group’s retention rate sits at 74% (which is analysed as 77% for CareTech
employees and 71% for Cambian employees) and compares favourably
to the industry average of under 70%.
We continue to strive to be the employer of choice within the sector.
As part of the Group’s focus on attracting and retaining the best talent
in the sector, CareTech announced a new ExSOP and CSOP scheme
in October 2019. This is the most wide-ranging share incentive plan to
include approximately 600 individuals from across the business including
home managers, back office staff and executive management,
demonstrating our commitment to create a culture of share ownership
and to ensure our staff share in the success of our business. We plan to
introduce another CareTech Sharesave Scheme in early 2020 as part of
our staff retention strategy.
To embed our culture across our business we reward our people
throughout the year culminating in the fifth Care Awards ceremony
in November 2019. We were delighted to host a number of parents,
carers and families and also gave an opportunity for our shareholders
to experience our culture first hand.
Social responsibility
The CareTech Foundation was created in 2017 and is an independent
grant-making corporate foundation registered with the Charity
Commission. It is the first corporate foundation in the UK social care
sector, demonstrating the Company’s commitment to wider society and
to its staff and its desire to play a strong leadership role within the social
care sector. CareTech has continued its support both financially and
more widely during 2019 and I am pleased to see the Foundation
growing from strength to strength. Highlights during the year include:
– launching a new partnership with Birkbeck, University of London
in the construction and development of the world-first ToddlerLab
which will incorporate the highest quality of technology to play
a key role in the research and understanding of autism;
– recently supporting Depaul UK for their Mental Health and Wellbeing
for Homeless Young People programme in the North East; and
– a new Staff Hardship Grants fund to enable us to provide small grants
to CareTech staff was also launched.
Group Chairman’s Statement
continued
Progress on Cambian
The acquisition of Cambian was immediately followed by the CMA
placing a hold separate embargo over the combined business. Following
the unconditional clearance of the acquisition from the CMA in February
2019, the integration of the two businesses commenced. Significant
headway has been made into this.
Cambian shares CareTech’s commitment to delivering the highest
standards of care and together the Group will benefit from favourable
demographics underpinned by the growth in outsourcing to the private
sector and from the increasingly stringent regulatory environment.
Ofsted ratings increased from 77% at the date of acquisition to 80%
Good or Outstanding. Best practice is being shared across the Group
which we will seek to capitalise on over the coming years. The EBITDA
margin of the Cambian business was 13.4% before synergies which
shows considerable improvement when compared with their historic
announced margins of 10.9% pre-acquisition. This puts us in a good
position to deliver our medium-term target of 16% pre-synergies as set
out at the time of acquisition.
The Group reports that it has delivered £3m of pre-tax profit synergies for
the year and is on track and already taken action to deliver pre-tax profit
synergies of £5m for the year ended 30 September 2020. Initiatives that
have been implemented include, inter alia:
– the former CEO, CFO, COO and all Non-Executive Board members
of Cambian have left the Group;
– a number of senior management savings have been delivered;
– a number of back-office functions have been integrated and cost
savings identified;
– the Group has exercised a break clause on the lease of the Cambian
head office in Hammersmith and all employees have been relocated
to the CareTech head office;
– a number of ongoing IT costs have been streamlined and a new IT
strategy put in place; and
– a number of non-staff synergy savings such as in Procurement and
Estates have been made.
Following a year of ownership, we have established a strong operational
fit, enhanced our management team and extended our care pathways.
This provides us with a solid platform to build upon in the future.
Dividend
The Board intends to maintain a progressive dividend policy. The Board
has proposed a final dividend of 7.95p (2018: 7.5p) per share bringing the
total dividend for the year to 11.7p (2018: 11.0p) per share. This represents
a full year increase of 6.4% year on year. The final dividend will be paid,
subject to shareholder approval, on 6 May 2020, with an ex-dividend
date of 5 March 2020 and an associated record date of 6 March 2020.
Our Board
We were delighted to welcome Professor Moira Livingston to the Board
as a Non-Executive Director on 1 May 2019. Moira has been involved in
health and social care for 32 years and spent many years working initially
as a Doctor in the field of older-age psychiatry and latterly as a senior
clinical leader and manager in the NHS. Moira has held a number of
Director level leadership roles in the healthcare sector and she will
Chair the Group’s Care Quality and Governance Committee as well as
join the Remuneration Committee and the Audit Committee.
Mike Adams OBE also became an Executive Director which has enabled
him to pursue a strategic role within the Group and to push forward the
Purple business model. Purple’s vision is to transform thinking and
“change the conversation” by bringing together disabled people and
business, creating sustainable solutions for the benefit of society and
to add value to CareTech’s growing service user base.
CareTech Holdings PLC
Annual Report and Accounts 2019
6
We were also delighted to have officially supported the Special Olympics
Great Britain (Team SOGB) at the March 2019 Special Olympics World
Summer Games, held in Abu Dhabi, United Arab Emirates (UAE), with
over 190 countries participating in a truly spectacular and successful
global event. CareTech’s involvement with Team SOGB and the World
Games arose from the close pathway affinity between our national
expertise in supporting people with learning disabilities through our
living, learning and employment support services and the Special
Olympics movement using sport to build confidence, skill and
determination for athletes with intellectual and learning disabilities as
a gateway to empowerment, competence, acceptance and joy. The
Games were a real highlight on the 2019 World Sporting Humanitarian
calendar and Team SOGB excelled against the competition winning
an outstanding tally of 61 Gold, 57 Silver and 46 Bronze Medals.
Purple Tuesday was launched again on 12 November 2019 and was a
huge success. The consumer spending power of disabled people and
their families is worth £249bn and is rising by an average of 14% per
annum. Yet, less than 10% of businesses have a targeted plan to access
the disability market. Purple is driving the agenda to improve awareness
and the customer experience for disabled people.
Outlook and prospects
Our aim is to be the highest quality provider of quality support and care
for individuals who often have complex needs. I am proud of our track
record and the culture we have embedded within the organisation.
We listen to our service users, their families, to our staff and work closely
with the local authorities, independent inspectors and regulators to
continually improve and set best practice.
The next financial year will see CareTech grow through the continued
integration of the Cambian business together with organic developments
and reconfigurations. In addition, we will continue to look at bolt-on
acquisitions as part of our wider strategy to consolidate the market
in the UK, as well as an opportunity in the Gulf region where we are
in advanced discussions with a potential partner. We also continue to
invest time in how we can enhance further the use of technology as a
validation of our work as well as for diagnostic and assessment purposes.
As the business grows, we will continue to further strengthen our
management team offering a forceful blend of experience, commercial
wisdom and dedication to care. I have no doubt that the next few years
will see continuing growth in line with market expectations and care
excellence which will help deliver our target of double-digit growth in
underlying EPS.
On behalf of our Board, I would like to thank our many stakeholders and
all CareTech employees, including those joining us from Cambian during
the year, for their dedication and commitment to the Company and for
going the extra mile. Finally, I would also like to thank our shareholders
for your continued support.
Farouq Sheikh
Group Executive Chairman
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
7
Strategic reviewGovernanceFinancial Statements Group Chief Executive’s Statement
and Performance Review
Delivering
purposeful
progress
CareTech Holdings PLC
Annual Report and Accounts 2019
8
Business performance
Following the acquisition of Cambian, it was announced that the Group
has changed its reporting operating segments to more accurately reflect
the Group’s management and internal reporting structure. A review of
each operational division is set out below:
1. Adults Services Year to 30 September 2019
The Group has continued to build on our values driven, and quality
focused, approach to transforming outcomes for service users in our
care, and delivering value to commissioners. During the year we have
deepened our relationships with key stakeholders and are well
positioned to serve local authority partners and communities with
responsive and innovative service solutions. Our care priorities drive
successful outcomes for our service users and follow closely the
guidance from central Government and commissioning needs locally.
The Group also continues to realise the benefit of organisational
improvements put in place over the past few years. We have continued
to strengthen our management structure through the Cambian
acquisition and plan for further senior appointments. These along with
investment in our processes and new systems will drive efficiencies
across the Group.
Commitment to high quality
Our commitmeant is to provide high quality support and care for all
our service users. By embedding a culture of quality we have seen
our quality ratings continually improve and this year is no exception.
Our rising CQC ratings to 95% demonstrate the high standards of care
our service users receive. We have also shown improvement in our
Children’s Services blended quality rating of 82% with both CareTech
and Cambian showing improvement. This is a Key Performance Indicator
for the Group. We have built and continue to strengthen an open and
honest working relationship with our regulators and those who
commission us to deliver services.
During the year, I am delighted that our teams have received external
recognition for the quality of services we deliver. I would like to
congratulate The Oakleaf Group for winning the Health Investor Awards
2019 ‘Complex Care Provider of the Year’ award, Spark of Genius winning
the LaingBuisson ‘Public Private Partnership Award’, and Branas Isaf for
counting three winners in the National Wales Care Awards.
We are continually improving and examining ways to improve our quality
standards including investing significantly in the training and induction
of our staff and deciding to strengthen our internal compliance team.
The appointment of Professor Moira Livingston to Chair our independent
Care Quality and Governance Committee will reinforce our approach
and ensure we deliver on our strategy.
CareTech
Revenue
£123.6m
(2018: £118.7m)
EBITDA before unallocated costs
£32.7m
(2018: £31.9m)
Capacity
1,968
(2018: 1,968)
Our focus remains to provide
innovative service solutions that
transform outcomes for service users
and delivers value to commissioners
CareTech Holdings PLC
Annual Report and Accounts 2019
9
Strategic reviewGovernanceFinancial Statements Group Chief Executive’s Statement
and Performance Review
continued
Adults Services comprises the core CareTech Adult Learning Disabilities
business, the Specialist Services business and Learning Services business.
2. Children’s Services Year to 30 September 2019
The Group offers a flexible, person-centred approach with support
offered on an individual planned basis both within a registered residential
setting and in step-down supported housing. Demand remains high
across the spectrum for the support of people with learning disabilities
and the Group recognises an increasing complexity of need for referrals
to specialist services within the Group. Specialist Services comprise the
Adult Mental Health Services and Oakleaf Care (Hartwell). Specialist
Services works in partnerships with the NHS to ensure a successful
transition out of acute care, delivering pathways to independence.
We have an outstanding track record for helping people away from
acute care and supporting them in their own homes.
The market for high acuity care and the support of people with learning
disability is estimated to be £5.8bn and growing year on year due to
demographics and individuals living longer. Demand for lower acuity
support has been impacted by the cuts in Local Authority expenditure,
but this is not an area of activity in which CareTech operates. Conversely,
resources for those with the highest level of need are being maintained
and increased in some Local Authorities.
Across the Group, the focus on quality continues with CQC ratings at
95% which compares favourably to 86% the previous year and the market
average of 84%.
Revenues for the Division were £123.6m (2018: £118.7m) and EBITDA
was £32.7m (2018: £31.9m). Revenues and EBITDA increased by 4.1% and
2.5% respectively. EBITDA margins broadly remained flat at 26.5% from
26.9% reflecting the change in mix of the business as the number of
supported living beds grew. We expect to see the benefit during 2020
due to a number of reconfigurations which have come on stream during
the second half of the year.
CareTech
Revenue
Cambian
During the past year we have withdrawn four adult places in services
for reconfiguration into new care models, a further 47 supported living
contracts came to an end plus an additional 51 beds have been brought
into service.
£64.8m £165.7m
(2018: £58.7m)
EBITDA before unallocated costs
£18.2m £37.4m
The Group has continued to build
on our values driven, and quality
focused, approach to transforming
outcomes for service users in our care,
and delivering value to commissioners.
(2018: £17.0m)
Capacity
351
(2018: 353)
1,582
A number of children and young people need to live in specialised
residential services and receive specialist education. As far as practicable
we aim to help these children move into a family style environment.
This segment contains children’s residential care homes, which includes
facilities for children with learning difficulties and emotional behavioural
disorders (EBD), and specialist schools. The Group operates services that
cater for local needs but also manage certain highly specialised services
that have a national catchment. The Cambian acquisition has increased
the geographical spread of Children’s Services across the UK as well as
increasing the types of services being offered including Complex Needs,
Social, Emotional and Mental Health (SEMH) and Child and Adolescent
Mental Health Services (CAMHS).
The Ofsted ratings for the CareTech services are 93% (2018: 86%) Good
or Outstanding and 80% for the Cambian services compared with 77%
at the date of acquisition. This results in a blended 82% Good and
Outstanding ratings for Children’s Services across the Group, an
increase from 78% when compared with our half year results.
CareTech Holdings PLC
Annual Report and Accounts 2019
10
Foster Care comprises CareTech’s and Cambian’s fostering services.
Foster Care provides for both mainstream and specialist foster care in
small supportive groups across England and Wales for children with
disabilities. We also provide foster care family assessments in the home
rather than in a residential setting. Fostering is an important part of our
care pathway and considerably less expensive than residential care.
It is a generally held view that fostering in an ordinary family home
delivers better quality than any residential setting. However, the rising
tide of fostering has been constrained by the challenge of finding foster
carers with the right skill and motivation alongside preference by social
workers to place within Local Authority services rather than the
independent sector.
The acquisition of Cambian enhances our Foster Care service through
offering a more specialist therapeutic service. With a combined capacity
of 1,178 places, the Group has established one of the largest
independent fostering agencies in England and Wales.
Revenues for the Division were £40.8m analysed as CareTech £8.0m
and Cambian £32.8m. EBITDA for this Division was £7.5m analysed as
CareTech £1.5m and £6.0m Cambian.
Looking forward, we are training our foster carers with the skills required
to manage more complex work and have linked the fostering division
with our residential team for children so that we can maintain an
effective care pathway.
Summary and outlook
This has been a year of transformational change for CareTech and I am
pleased to report that we are delivering all of our key objectives including
the integration of the Cambian business.
Our strategy and the fundamentals of the markets we serve remain
sound. We are integral to providing service solutions to commissioners
to meet the specialist and complex needs of children and adults. Our
opportunity over the medium term is to drive organic revenue and
further consolidate our market position through bolt-on acquisitions
that fit with our strategic objectives and meet our financial criteria.
We are a values driven, quality focused Group and I am confident that
through the energy and commitment of all our people we will continue
to innovate and transform care pathways.
I am honoured to lead a Group that is making a real difference to so
many lives. I would like to conclude by expressing my sincere thanks to
our staff at all levels in the organisation for their hard work, commitment
and dedication to the organisation.
Haroon Sheikh
Group Chief Executive Officer
30 January 2020
Revenues and EBITDA before unallocated costs for the Division were
£230.6m and £55.6m respectively. Like-for-like, CareTech’s revenues
increased by 10.5% and EBITDA by 7.1%. During the year, we have seen
an improvement in Cambian’s EBITDA margins through increased staff
retention and improved quality ratings which lead to increased
occupancy levels which in turn lead to increased EBITDA margins.
There has been a net increase of four places in Cambian homes since
acquisition due to one new home registration occurring in August 2019.
3. Foster Care Year to 30 September 2019
CareTech
Revenue
Cambian
£8.0m £32.8m
(2018: £8.2m)
EBITDA before unallocated costs
£1.5m £6.0m
(2018: £1.9m)
Capacity
301
(2018: 301)
877
CareTech Holdings PLC
Annual Report and Accounts 2019
11
Strategic reviewGovernanceFinancial Statements Our Market
The Directors present their Strategic Report on
the Group for the year ended 30 September
2019. In preparing this report, the Directors have
complied with S414C of the Companies Act
2006. The Strategic Report should be read in
conjunction with the Strategic Review for the
Group which includes the Highlights, Group
at a glance, Chairman’s Statement, the Chief
Executive’s Statement, Strategic Report and
Performance Review and Financial Review.
1. Adults Services*
People that currently live in care
homes or NHS hospitals or are in
supported living arrangements
75,000-
80,000
UK population who have
specific mental disorders
13%
Market for residential learning
disabilities and supported
living worth an annual
£5.8bn
NHS/LA total spend on specialist
services is worth an annual
Market growth rate
£10.1bn
1.2% pa
2. Children’s Services**
Children in UK looked
after outside foster care
10,085
Children in independent sector
special schools and colleges
16,995
Residential children’s market
across UK worth
£1.39bn
Education and training in
special schools and colleges
Market growth rate
£3.7bn
1.2% pa
3. Foster Care**
People placed in foster care
in England
63,718
Foster care market across
England worth
Market growth rate
£1.95bn
5.2% pa
CareTech Holdings PLC
Annual Report and Accounts 2019
12
Our market is
driven by three
big trends: funding
for healthcare,
customer
expectations and
access to skilled
care workers
* Data from Laing and Buisson Adult Specialist Care 2nd edition 2015/2016 report.
** Data from Laing and Buisson Children’s Services Market Report 3rd edition
2017 report.
1.
Funding for
healthcare
Key market drivers
The care market in which the Group operates is a UK market worth
an estimated £13bn per annum and estimated to be growing by more
than 5% per annum.
In 2017, the total market for specialist children’s care services was
worth approximately £7.2bn. The market is growing, driven by
population growth and increasing survival rates of the current
addressable population, as well as a greater awareness and,
in certain cases, increased incidence of certain conditions
amongst the underlying population.
The UK has a well established system of public and private providers
of health and social care. Although the available resources to
purchase social care remain largely static there is a known increase
in demand across the whole spectrum, presenting purchasing bodies
with a conundrum. One response has been to move money away
from the NHS in order to allow Local Authorities greater purchasing
power. However, the most significant change has been to a system of
aggressive rationing. This has focused money on the areas of highest
need such as complex children, very disabled or complex people with
learning difficulties and hospital discharge schemes.
The principal driver for commissioners in Local Authorities and the
NHS is value. This is interpreted by them as the optimum balance
between quality and price, but has an underpinning criterion
determined by “outcomes”.
Social care funding has been prominent in the main parties’ 2019
election campaign with both Conservative and Labour pledging to
increase funding.
What this means for CareTech
Most providers of social care have fewer than three services and this
huge, fragmented range of providers represents the vast majority of
the market. However, the market has been steadily consolidating and
a very small number of large “corporate” providers have emerged,
with CareTech being one of the bigger players within the non-elderly
care sector.
The market segments served by CareTech is focused on adults and
children who present with high severity needs, challenging behaviours
and who have complex care requirements. Hence budget cuts have
a very limited impact on the Group. One of our differentiating factors
is the concept of Care Pathways to reflect our optimism that users
of our services can make progress with their lives. Our commitment
to maximise independence is great for our service users, rewarding
for our staff and strongly supported by those who commission and
support our services. Our “outcome” focused approach for our
service users has a wider impact on society including more
individuals back into work, fewer individuals returning to care facilities,
a reduction of adult prison population having been in care and
children leaving care achieving educational attainment levels.
CareTech has been aligned to Local Authorities’ purchasing principals
and we work closely with Commissioners to ensure that we stay in
tune with their approach to market management.
CareTech Holdings PLC
Annual Report and Accounts 2019
13
Strategic reviewGovernanceFinancial Statements Our Market
continued
2.
Customer
expectations
Key market drivers
The market that CareTech serves is regulated by Care Quality
Commission (CQC) and the Office for Standards in Education,
Children’s Services and Skills (Ofsted) in England and equivalent
regulatory bodies in Scotland and Wales. These bodies control and
administer the registration, inspection and complaints procedures
set out under applicable laws and regulations. In order to open a
service, it needs to be registered with CQC or Ofsted, and must pass
regular inspections to ensure it meets the minimum standards and
requirements prescribed under laws and regulation. Commissioners
placing adults or children into services expect high quality.
What this means for CareTech
We work closely with our Regulators and Commissioners across
England, Scotland and Wales. CareTech is a very well known care
company in public ownership and offers high quality services with
a strong ethical and value-based approach. We have leading quality
ratings for both CQC and Ofsted and have ambitions to improve
these. Our quality assurance is embedded within the organisation
from the Home Manager, Regional Manager, and Operations Director
through to the Chief Operational Officer and the Board. The Group
uses Acoura and NYAS as independent suppliers, to audit and report
monthly Health and Safety matters as well as all RIDDORS (Reporting
of Injuries, Diseases and Dangerous Occurrences).
CareTech Holdings PLC
Annual Report and Accounts 2019
14
3.
Access to skilled
care workers
Key market drivers
The sector has high levels of turnover and vacancies. Following the
introduction of the national living wage on 1 April 2016, care workers’
pay has increased but turnover remains high given tough working
conditions. Care workers in the sector find it rewarding but there is
perception of low pay and lack of training or promotional prospects.
What this means for CareTech
We promote our values and culture by helping our employees and
supporting them with regular supervision, training and clear career
development programmes. To embed our culture across our
business we reward our people throughout the year culminating
in the Fifth Care Awards ceremony in November 2019. These
initiatives promote staff continuity and leads to improved standards
of care quality.
Our annual Staff Engagement Survey which took place in May 2019
and involved all staff and looked at values and questions across five
engagement drivers: Trust, Teamwork, Empowering, Corporate Pride
and Career Progression. The feedback has led to a communication
plan that will lead to improved communication across the Group.
The Group continuously focuses on employee engagement and
has launched the most wide-ranging share incentive plan across the
business to include home managers, back office staff and executive
management. In addition, it is the Company’s intention to make a
Save-As-You-Earn issuance for front line staff in due course. This
scheme, along with regular senior management share option awards,
contributes to the fulfilment of our desire to reward staff for loyalty,
diligence and commitment to high standards of service.
CareTech is resilient to a hard Brexit given the Group only trades
within the UK and has limited exposure to nursing staff and the EU
labour market. Our primary recruitment is focused on the UK labour
market for support staff.
CareTech Holdings PLC
Annual Report and Accounts 2019
15
Strategic reviewGovernanceFinancial Statements
1. Build the industry’s best leadership
and workforce
Employing approximately 9,000 numerous qualified and skilled care
workers, foster carers, teachers and managers, the CareTech front
line teams are supported by a wide range of high level professionals
such as social workers, nurses, therapists, psychologists with
oversight of all interventions. Their care, commitment and dedication
is critical to the success of our Company and the care we provide.
CareTech places emphasis on the provision of attractive working
conditions and staff training. Part of our recruitment process is
focused on matching the needs of the Group’s service users to the
skills values and behaviour of our staff, which necessitates a person
centred approach to recruitment and on-boarding. We offer a range
of learning and development to ensure that staff have the necessary
knowledge, skills, competencies and attitudes to provide a high
quality service of support and care in compliance with best practice,
regulatory requirements and service specifications.
Our Strategy
We have defined
three pillars to
execute our
strategic objective
CareTech’s strategic objective is to be a leading national integrated
provider of high quality social care pathways in the UK for children and
adults, with continued growth and care excellence. We aim to distinguish
ourselves from other providers by offering a bespoke range of options
which meet the needs of Commissioners and offer service users a care
pathway for the medium to long term where required. The CareTech
Group’s focus is the provision of high acuity specialist social care through
three outcome-based sectors of Adults Services, Children’s Services and
Foster Care.
We achieve our strategic objective and drive growth in the profitability
of the Group through a range of actions, including, but not limited to:
– focusing on areas of social care that have a high acuity level across
the UK where demand for services from Local Authorities is expected
to remain strong and fee rates are typically higher;
– targeting organic growth through increases in capacity and
optimisation/remodelling of existing and acquired properties to
meet market demand and to achieve enhanced fee rates;
– maintaining high occupancy through the Group’s facilities by
attracting continued high level of referrals from Local Authorities
on the back of strong regulatory ratings;
– continuing to invest in people and training to deliver social care
expertise, leadership and high quality care;
– investing in IT, systems, processes and controls to improve quality
levels, manage risks effectively and improve occupancy;
– working closely with Local Authority (“LA”) commissioners to help
them deliver their statutory duties efficiently and with care and react
to their changing demands;
– continuing to offer a strong national presence with local brands and
regional service delivery points. This supports development of local
relationships while offering the comfort, security and governance
oversight of a well-resourced and strong group; and
– continuing to identify bolt-on acquisition opportunities offering
complementary services or expanding the Group’s geographical
presence which offer the opportunity for the Group to increase
market share in a highly fragmented market.
CareTech Holdings PLC
Annual Report and Accounts 2019
16
2. Have the highest quality ratings
3. Achieve high occupancy through matching
Our strategy is to offer a strong national presence with local brands
and regional service delivery points. This supports development of
local relationships while offering the comfort and security of a well
resourced and strong Group.
Our services are in demand and occupancy has remained high
despite unrecognised fears of Local Authority austerity impacting
referrals. What’s more, the nature of referrals in recent years has
been toward the more complex end of the spectrum.
New residents arrive in a CareTech care home following a referral
from a Local Authority or a Clinical Commissioning Group care
manager. Once a referral has been received, a resident assessment
is typically followed by an assessment including a detailed matching
of the proposed resident with a known or anticipated vacancy. The
selection of new residents is undertaken with care and sensitivity to
ensure the ongoing success of the service. This sometimes means
that a home can have a short-term vacancy. Local Authorities or Care
Commissioning Groups are more likely to place a resident in a home
that seeks to match each resident’s need with those of the people
already living there. This practice is commercially advantageous and
maintains the success of an existing home and helps to ensure
continuing high referral levels.
The driver for social care is an organisation’s ability to deliver high
quality care, with reliable outcomes at a fair price. We believe that
the market has recognised that CareTech offers the best possible
balance between quality and value and understands the need for
progressive thinking and innovation to deliver ongoing results.
The CareTech brand is strong and our extensive relationships across
the UK are robust. This is reinforced by our presence at major industry
events where we have been reliable sponsors and commentators. The
most effective way that we sustain our reputation is by delivering what
we promise for the people we support and by treating our staff well.
Quality is not simply compliance with the requirements of regulation.
Our approach is to embed quality throughout the Group’s operations
and employ well-qualified and skilled professionals who operate
within a quality framework. Our quality framework and processes
include, but are not limited to:
– recruitment and retention of appropriate staff alongside
appropriate training and induction;
– regular reporting from home managers through to locality
managers, operational directors and divisional senior
management as well as the CareTech Group’s head of quality;
– “Line of sight” monitoring which looks for key performance
indicators which support high quality services. Each service is
rated internally and high potentials or early warning signs are
identified and progress monitored by senior management to
drive continuous improvement;
– an experienced internal quality and compliance team who operate
across all divisions, reporting to senior management. The team
undertake a programme of regular inspection and assessment
of facilities and services against internal quality assurance
frameworks and also carries out thematic reviews;
– A Care Quality and Governance Committee chaired by Professor
Moira Livingston. The Committee has oversight of all issues and
reports relating to the well-being of service users; commissions
enquiries into matters of concern; and strive to ensure that
CareTech operates to the highest level of professional
care standards;
– careful analysis of regulatory inspection reports from external
regulators; and
– CareTech Board oversight through monthly reporting of key
performance indicators and compliance data.
CareTech Holdings PLC
Annual Report and Accounts 2019
17
Strategic reviewGovernanceFinancial Statements
Our Business Model
Our business
model represents
how we aim to
generate revenue
and profit from
our operations
Innovative care pathways
Services segment
Specialism
Our purpose is to deliver innovative social care on behalf of Local
Authority and Health Service Commissioners throughout the UK
in three areas: Adults services, Children’s Services and Foster Care.
Our innovative care pathways and services offered
Care and support is characterised by optimism and a genuine belief in
the abilities of our service users. Everyone we support has an opportunity
to make progress in their lives and our professional teams work hard to
help those people understand how to move forward. Many years ago
we began to describe our services as a Care Pathway, making clear our
intention to break away from the old belief that care is for life. We have
delivered on this commitment and everyone we support, from young
children to profoundly disabled adults, shares our approach to maximise
their independence. This is great for service users, rewarding for our
staff and strongly supported by those who commission and support
our services.
Adults
Services
Learning
disabilities
Mental health
Autism and
Aspergers
Physical
disabilities
Brain injury
rehabilitation
Children’s
Services
Learning
disabilities
Mental health
Autism
spectrum
conditions
Complex
social,
emotional and
behavioural
difficulties
Education and
therapeutic
support
Young people
in crisis
Fostering
Therapeutic
foster
placement
Challenging
and complex
behaviour
Learning
disabilities
CareTech Holdings PLC
Annual Report and Accounts 2019
18
CareTech Holdings PLC
Annual Report and Accounts 2019
19
Adults ServicesSocial care services for adults over the age of 18 Care capacity 2019 1,968 2018: 1,968. Contribution to Group revenue 31.3% (2018: 63.9%)Quality Rating (CQC): 95%2018: 86%Learning Disabilities Supporting adults with conditions such as autism and learning difficulties including care and education needs.Specialist Services Assessment and specialised rehabilitation focus on providing active rehabilitation. Unique care programmes are developed and centre on the needs and goals of each resident, looking at short and long-term goals. Residents may also have associated complex cognitive impairments, challenging behaviours and/ or physical disabilities.Learning Services Pre-employment, development and apprenticeship programmes using public funds from the Skills Funding Agency to lay foundations to achieve their career goals whilst helping to provide businesses with the vital skills they need in their workforce. Adults with learning disabilities are increasingly being provided with direct funding to enable them to purchase their own care and support. We work actively with service users and advisory bodies to deliver self-directed support packages and see this as an increasingly important aspect of our service model, as well as offering commercial opportunity.For many people with the most complex intellectual or physical challenges, residential care will continue to be the preferred option although the services will change in their approach as we move toward a more enabling, modern type of service. An alternative to residential care is the opportunity for people to live in a home of their own, sometimes shared with others. CareTech is a leader in the provision of supported living and offers packages of individualised self-directed support to people in their own homes.Specialist Services provision continues to dominate the health and social care agenda. Good Specialist Services is a significant contributor to a healthy community and national economy, while mental ill health is devastating to individuals and their families. Most Commissioners are driven by a wish to reduce patient time in acute care and rely on creative outsourcing to dramatically cut the cost of Specialist Services care in hospital and within the criminal justice system.CareTech’s Specialist Services team works in partnership with the NHS and Social Service departments to ensure a successful transition out of acute care and the prison service, delivering pathways to an ordinary life. We also have an outstanding track record for diverting people away from acute care and supporting them in their own homes. CareTech’s highly effective care teams are developing new ways to offer community support solutions and we believe that this will be an important growth platform in years to come.Children’s ServicesSocial care services for children and young people up to the age of 18Care capacity 2019 1,933 CareTech 351 Cambian 1,5822018: 353. Contribution to Group revenue 58.4% (2018: 31.6%)Quality (Ofsted): 82%2018: 86% (CareTech only)Residential Care Supporting children and young people with a range of complex conditions such as autism, learning difficulties, challenging social circumstances or traumatic experiences such as abuse, neglect or exploitation in residential care.Education CareTech is the largest provider of education services for children in the UK. Services focus on individuals who present with high severity needs, challenging behaviours and who have complex care requirements.ResidentialFor a relatively small number of children, residential care offers a safe and helpful solution for their care needs and CareTech has developed an extensive range of highly technical care and education environments where those children will thrive. Our residential provision offers high staff ratios and highly skilled carers, capable of ensuring both safety and progression. These are high cost services where we aim for an intensive period of care and a strict timetable that delivers results at a fair price to commissioners. As far as practicable we aim to help these children through our therapeutic care approach to move into a more normalised family style environment as soon as it is practicable to do so. These services are highly integrated operations with dedicated staff ratios and may also include on site or dedicated educational facilities.EducationOur specialist education services are focused on the areas of social, emotional and mental health, further education, Asperger syndrome and across the autism spectrum, from those with severe learning difficulties to those who are gifted and talented. Teachers and assistants are trained to a high standard in order to deal with the behavioural issues that pupils present. Our schools operates a “waking day” curriculum encompassing the UK national curriculum and using modified or differentiated programmes of study to prepare students for the demands of adult life. Strategic reviewGovernanceFinancial Statements Our Business Model
continued
CareTech Holdings PLC
Annual Report and Accounts 2019
20
Foster careCare capacity 2019 1,178 (2018:301) CareTech 301 Cambian 877 Contribution to Group revenue 10.3% (2018: 4.4%)Quality: 100%2018: 100% Residential care of children and young people Family assessments in the homeMost children enter foster care because they have been abused and/or neglected at home and need a new family care environment which offers the support they need. Other children may be fostered because a family breakdown (dysfunctional or in acute stress), a family illness or disability, or a death in a family means children need an alternative care solution such as fostering. Foster Care is undoubtedly the best care solution for most “looked after” children. Most children thrive in foster care where they are supported within an ordinary family home and with trained foster carers. CareTech provides for both mainstream and specialist foster care through local agencies across the UK. We offer a highly respected service for physically and intellectually disabled children as well as support for children with sensory impairments. We provide foster care family assessments and ongoing support to children who remain with their birth families and in their family home.Our revenue modelA significant majority of CareTech’s revenue is from Local Authorities (LA) and Clinical Commissioning Group’s (CCGs) for delivery of CareTech’s specialist social care services. The Group works with over 250 Local Authorities, Clinical Commissioning groups and Health Boards. Independent providers typically receive funding for their service provision in four main ways:Framework agreementsFramework agreements are typically awarded to providers on a non-exclusive basis pursuant to a public tender. These agreements outline various service and reporting obligations as well as pricing terms. Framework agreements can be set up for any period of time, although a typical framework agreement is at least two years in length. The actual care package to be provided for an individual in a provider’s care and the pricing for such services is agreed on a case by case basis at the time an assessment of their individual needs is made.Spot contractsMost admissions and referrals remain based on “spot” contracts, which are individual placement agreements. Spot contracts generally have a four week notice period to terminate the contract and typically do not have a minimum term. Spot contracts provide greater operational flexibility and are appropriate for bespoke care packages to meet the high severity support needs of the individuals in a provider’s care. Fees are typically negotiated on a case-by-case basis.Block contractsA limited amount of specialist care funding is provided through block contracts. Such block contracts are negotiated for a specific volume of service, pre-booked over a fixed period of time, usually for a specified price. Private pay/ insurancePrivate pay services make up a very small part of our revenue as the UK publicly funded bodies will typically provide funding. Our clinical offeringCareTech has an in-house, clinically led multi-disciplinary team including doctors, psychologists, occupational therapists, speech and language therapists and nurses. The overall approach across the group is to ensure primarily a stable, secure and nurturing environment for the young people in its care then focus on individualised care plans for the young people, working closely with the care and educational teams. The strength of the clinical function in the Group is the integrated working. Our clinical team sit as part of the operations team and working very closely with our residential homes or schools and are involved in training and providing consultations and role modelling where needed to the care teams. We care about quality and safety
As a Group, our aim is to provide a safe working environment for service
users, staff and visitors. Our aim is to be the highest quality provider
across the breadth of our services.
For our Adult CQC registered services, quality ratings at 30 September
2019 were 95% “Good” or “Outstanding” (2018: 86%). For our Ofsted
registered Children’s services, ratings for the CareTech services at year
end were 93% “Good” or “Outstanding” (2018: 86%) and 80% for the
Cambian services, compared with 77% on acquisition. This performance
is against a backdrop of the continued raising of quality standards in the
sector reflected in an increasingly stringent regulatory environment. We
continue to resource our own highly experienced internal quality and
compliance teams which undertake a programme of regular inspection
and assessment and give constructive feedback backed by training and
supervision if the requirement is there. We engage the services of
outsourced expert advisers ensuring best practice and procedures are
maintained.
Our independent Care Quality and Governance Committee provides
rigorous oversight of our regulatory and safeguarding performance and
has been strengthened by the appointment of Professor Moira Livingston
as Chair.
We are continuing to evaluate ways in which we can improve our
standards of care and are investing significantly in the training and
induction of staff.
Our commitment to our service users
We believe the success of those entrusted in our care is our most
important corporate responsibility.
We have continued to strive for long-lasting improvements in our
services in a way that is consistent with the interests and concerns of
our stakeholder community. As always, the driving force underpinning
CareTech’s operation continues to be the provision of the highest quality
of care to our service users.
Service users are the reason for our existence and satisfying their needs
remains our key objective.
As our organisation grows, we strive to maintain a culture which never
forgets the important relationship we have with our service users. We
seek to nurture these relationships and see them as partnerships of
mutual interest and respect, with our person-centred approach ensuring
service user interests are safeguarded and vulnerabilities minimised.
The further expansion of our Care Pathway strategy seeks to provide our
service users with “whole of life” solutions to their needs, maximising
independence where possible by encouraging education, promoting
choice, being proactive with family members, providing training for
employment where feasible and nurturing personal ambition where
helpful. In the year we have been celebrating the achievements of our
service users across the country, including an Art Competition held in
September 2019 and a “Blooming Marvellous” gardening competition.
We are determined to preserve the dignity of those we care for and fully
support Government initiatives to this end. We see making each day as
fulfilled as possible for our service users as a vital ingredient to their, and
our, success.
How do
we operate
responsibly?
The driving force underpinning CareTech’s operation continues to be
the provision of the highest quality of care to our service users.
Our commitment to our staff
We remain committed to ensuring employees share in the success of the
Group and fully appreciate that Group performance is affected by the
relationship we have with them. We promote our values and culture by
helping our employees and supporting them with regular supervision,
training and clear career development programmes. To embed our
culture across our business we reward our people culminating in the
Fifth Care Awards ceremony in November 2019. These initiatives
promote staff continuity and lead to improved standards of care quality.
Out of a total of c.10,000 staff at the end of September 2019, 69% are
female and equal opportunity for all remains at the heart of our
recruitment policies and the diversity of our workforce bears this out.
We value our staff at all levels and work closely with them through our
robust human resources department to foster consultation in all matters,
ensure fair pay for all, maximise conditions of service and facilitate
flexible working where feasible.
The Staff Engagement Survey which took place in May 2019 and involved
all staff and looked at values and questions across five engagement
drivers: Trust, Teamwork, Empowering, Corporate Pride and Career
Progression. The feedback has led to a Communication Plan that will
lead to improved communication across the Group.
We have a team of in-house training staff delivering courses on all
relevant subjects, enabling our workforce to gain the skills, knowledge
and confidence to provide the care and support to our service users
on a daily basis.
The Group continuously focuses on employee engagement and has
launched the most wide-ranging share incentive plan across the
business to include home managers, back office staff and executive
management. In addition, it is the Company’s intention to make a
Save-As-You-Earn issuance for front line staff in due course. This
scheme, along with regular senior management share option awards,
contributes to the fulfilment of our desire to reward staff for loyalty,
diligence and commitment to high standards of service.
We paid £1m into the Apprenticeship Levy scheme in FY 18/19 and
currently have 804 apprentices working across our business. All
CareTech apprentices benefit from permanent employment contracts
and are fully embedded in business activities to maximise learning.
2019 staff count
Female to male ratio
10,000+
69%
Female
CareTech Holdings PLC
Annual Report and Accounts 2019
21
Strategic reviewGovernanceFinancial Statements Our Business Model
continued
Our commitment to the UK social care sector – the CareTech Foundation
Established during 2017, the CareTech Foundation is an independent
grant-making corporate foundation registered with the Charity
Commission. Funded and founded by the Group, the Foundation has an
independent Board of Trustees responsible for delivering its Charitable
Objects. The Foundation has ambitious and clear-sighted objectives to
deliver meaningful impact to communities in the UK and Overseas about
which the staff of the Group and its service users feel proud and strongly
engaged, providing a unique contribution to the charitable marketplace
consistent with the Group’s values and approach.
In the year to September 2019 the Group made charitable donations
through the Caretech Foundation of £736,000 (2018: £380,000).
The CareTech Foundation is the first corporate foundation in the UK
social care sector, demonstrating the Company’s commitment to wider
society and to its staff and its desire to play a strong leadership role within
the social care sector.
The CareTech Foundation’s work is focused on the following three
key objectives:
1. Physical and learning disabilities and Specialist Services. Supporting
disabled people and those with long-term health difficulties, including
those with Specialist Services conditions and complex physical and
learning disabilities.
2. Skills development for the care sector. Skills development for those
from deprived and disadvantaged backgrounds for careers in the
care sector.
3. Supporting our communities and the CareTech family. Developing an
ambitious corporate social responsibility programme in partnership
with the Group, supporting the family and friends of the Group’s staff
facing significant financial, health or similar challenges.
The Foundation’s focus is devoted to supporting those in need in the
UK and in developing countries overseas.
The CareTech Foundation delivers its key objectives through the
following key approaches:
Partnership grant-giving
The CareTech Foundation supports a small number of significant
partnerships with credible and high quality charities and social
enterprises consistent with its three key objectives. To be considered
for the Foundation’s support, any partnership must:
– Involve medium to long-term investments in innovative and
high-impact programmes that will deliver one or more of the
Foundation’s objectives.
– Demonstrate and be contingent upon any investment by the
Foundation leveraging additional investment.
– Enable the Foundation to provide wider in-kind support through
the expertise of the Group’s staff, supply chain and wider network.
The Foundation has grown its Partnerships to include seven major
programmes. During the year, the Foundation has launched a new
partnership with Birkbeck, University of London in the construction
and development of the world-first ToddlerLab. The ToddlerLab will
incorporate the highest quality of technology to play a key role in the
research and understanding of Autism. The Foundation has also recently
supported Depaul UK for their Mental Health and Wellbeing for
Homeless Young People programme in the North East.
Community grants
The Foundation delivers a small grants programme to support the
communities, families and friends of CareTech staff facing significant
financial hardship or for issues affecting local communities in which
CareTech plc operates. These grants are open to staff members of
CareTech Holdings plc to support the positive contributions they
make to their communities and through volunteering.
Match-funding
The Foundation provides match-funding to CareTech staff’s individual
fundraising efforts for charitable causes in line with the Foundation’s
Charitable Objects. During the year, the Foundation supported 26 match
funding grants to support CareTech staff’s charitable fundraising activities.
Staff hardship grants fund
During 2018/19, the Foundation launched a new Staff Hardship Grants
Fund to enable us to provide small grants to CareTech staff and those
who may recently have left the Company who find themselves
in significant financial hardship or at serious risk of becoming in
significant financial hardship.
We care about our communities
Doing business the right way is of fundamental importance to us.
A successful business needs to operate in healthy, thriving communities
and needs to be seen as a good neighbour to those communities.
We have direct involvement in a variety of community-based
programmes further improving our service reputation and helping
to foster a strengthened relationship with Local Authorities.
Being a socially responsible organisation with a focus on developing our
ethical standards aligned with our economic objectives remains a core
aim and we strive to identify the real value of our organisation, beyond
its financial bottom line. Considering non-financial values such as
reputation, employee commitment and service user fulfilment helps
us develop longer-term opportunities, ultimately adding to the financial
bottom line.
Behaving responsibly and maximising the benefits of a strong
relationship with our stakeholders is an integral part of a continuing
process of building long-term value.
CareTech is delighted to have officially supported Special Olympics Great
Britain (Team SOGB) at the March 2019 Special Olympics World Summer
Games, held in Abu Dhabi, United Arab Emirates (UAE), with over 190
countries participating in a truly spectacular and successful global event.
CareTech’s involvement with Team SOGB and the World Games arose
from the close pathway affinity between our national expertise in
supporting people with learning disabilities through our living, learning
and employment support services and the Special Olympics movement
using sport to build confidence, skill and determination for athletes with
intellectual and learning disabilities as a gateway to empowerment,
competence, acceptance and joy. The Games were a real highlight
on the 2019 World Sporting Humanitarian calendar and Team SOGB
excelled against the competition winning an outstanding tally of 61
Gold, 57 Silver and 46 Bronze Medals.
CareTech Holdings PLC
Annual Report and Accounts 2019
22
Bringing disabled people and business together
There are more than 12 million disabled people in the UK who have a
combined spending power of £249 billion. Purple, led by Mike Adams
OBE, has been highly influential at a national level in shaping a new
vision for disability designed to tackle the issues around employment
and opportunities. The Purple vision is to be the catalyst for change
in creating opportunities that transform futures by bringing together
disabled people and business for a single purpose. On 12 November
2019, Mike Adams launched Purple Tuesday.
Our commitment to the environment
We seek to maximise environmental standards in all areas of our
organisation. Energy costs are now more closely monitored centrally and
with the installation of smart meters in our services we are encouraging
more efficient consumption of energy, without compromising service
user care.
Clinical waste management has an environmental impact and we are
focused on ways to make this more effective whilst still adhering to
statutory requirements.
We aim for minimal waste production and waste-free processes.
Encouraging the involvement of our workforce in seeking new ways
to “be green” is important and we are striving to reduce our carbon
footprint in all commercial areas including promoting recycling initiatives,
developing a carbon offset scheme for paper usage, using public
transport where feasible and improving our energy efficiency.
CareTech vehicles typically operate on a rolling four-year contract hire
agreement from our strategic partner, Fleet Alliance. By outsourcing fleet
management, CareTech aims to take advantage of the most efficient
technology when it becomes available.
Modern Slavery Act 2015
The Modern Slavery Act 2015 came into force in October 2015
consolidating legislation surrounding modern slavery and human
trafficking. We have a zero tolerance approach towards modern slavery
or human trafficking across all areas of our organisation including in our
supply chain and are committed to acting ethically and with integrity
throughout all of our dealings.
Anti-bribery and corruption
The Company maintains a policy for anti-bribery and corruption and
has a zero tolerance towards such activities. The Company requires
compliance with the laws of the UK, including the Bribery Act 2010
in respect of its conduct both in the UK and overseas.
Internally we operate a suite of policies that are embedded into our
culture and help govern our activities. Examples of these include:
– Code of Conduct Policy – this sets out the behaviours we expect
of our employees when acting for CareTech.
– Recruitment Policy – all of our employees are recruited after a robust
recruitment process in line with UK employment laws and are
required to undertake appropriate CRB checks.
– Whistleblowing Policy – we want colleagues to feel confident and
empowered to raise any issues or concerns they may have; however,
we have a whistleblowing policy in place. Our whistleblowing policy
helpline is managed by a third-party provider, enabling colleagues to
raise concerns they may have about issues of safety or wrongdoing,
anonymously if necessary. All such concerns received through the
helpline are sent to the Head of Compliance for review, and to ensure
that they are appropriately investigated and concluded.
We also continue to regularly monitor the risks we face. All risks are
reviewed by either our Audit Committee or our Care Quality and
Governance Committee.
General Data Protection Regulations (GDPR)
CareTech takes its responsibilities as a data controller/processor very
seriously and is committed to operating within the boundaries of any
necessary data security regulations to include the Data Protection Act.
CareTech is conversant with the requirements of both the GDPR and
Data Protection Bill and is constantly updating its information
governance practices.
By order of the Board
We aim to work in partnerships with all of our contractors, suppliers
and other business partners to ensure that they share and work towards
the same values we hold against slavery and human trafficking.
Haroon Sheikh
30 January 2020
A full version of our Anti-Slavery and Trafficking Statement can be found
on our website.
CareTech Holdings PLC
Annual Report and Accounts 2019
23
Strategic reviewGovernanceFinancial Statements Our Key Performance Indicators
KPIs help us
to measure
the Group’s
performance
against its
strategy and
objectives
CareTech Holdings PLC
Annual Report and Accounts 2019
24
Financial
Revenue
£395.0m
(2018: £185.7m)
How this is calculated
Revenue measures how we have filled our capacity, the fees we have charged,
together with the impact of acquisitions.
Performance this year
Revenue has improved by £209.3m – 112.7% year on year. This reflects the
acquisition of Cambian in October 2018 and organic growth achieved by the
core business which has been in part reduced by the reconfiguration work on
some properties, improved margins and acquisitions. Like-for-like, CareTech
increased
by 5.8% to £196.5m (2018: £185.7m).
Underlying basic EPS
37.60p
(2018: 35.07p)
How this is calculated
Underlying basic earnings per share is the profit after tax divided by the
weighted number of ordinary shares which are fully described in notes 11 and
12 to the Financial Statements.
Performance this year
The underlying basic earnings per share has increased by 2.53p in the year.
Operating cash conversion
90.2%
(2018: 89.9%)
How this is calculated
Cash flow from operations before non-underlying items and tax (and excluding
capex) divided by EBITDA.
Performance this year
Operating cash flow increased to 90.2% for the year. Cambian was acquired
mid-October and in the pre-acquisition period (from 1 October to 18 October
2018) there were particularly strong cash receipts. The mid-month acquisition
resulted in the Group being unable to count these receipts in the conversion
calculation, whilst the payrolls, which typically go out at the end of the month,
are counted in the combined Group cash flows. Excluding this, for the period
1 October 2018 to 30 September 2019, Cambian has a 100% EBITDA to cash
conversion and CareTech has a 101% cash conversion.
EBITDA
£73.5m
(2018: £43.9m)
How this is calculated
EBITDA is operating profit stated before Interest, Tax, Depreciation,
Amortisation, share-based payments charge and non-underlying items which
are described in note 4 to the Financial Statements.
Performance this year
The EBITDA has improved by £29.6m – 67.4% year on year. This reflects the
EBITDA contribution from the Cambian acquisition and organic growth
achieved by the core business which has been in part reduced by the
reconfiguration work on some properties, improved margins and acquisitions.
CareTech like-for-like EBITDA increased by 1.0% to £44.3m (2018 £43.9m).
Underlying profit after tax and non-controlling interest
Blended occupancy
CareTech
Cambian
£40.3m
(2018: £26.5m)
How this is calculated
Underlying profit after tax and non-controlling interest is the Group’s profit after
provision for taxation excluding non-underlying items such as amortisation of
intangible assets after tax which are fully described in note 6 to the Financial
Statements.
Performance this year
The profit after tax is 51.9% more than 2018 representing an improved return to
shareholders following the Cambian acquisition.
Net Debt
£291.1m
(2018: £147.0m)
How this is calculated
Net Debt comprises the balance at the year-end for cash and cash equivalents
net of bank loans outstanding and finance lease and hire purchase contracts.
Performance this year
Bank debt at 30 September 2019 was £291.1m which is an increase of
£144.1m from 30 September 2018 of £147.0m. The change reflecting the
cash consideration and the associated financing necessary for the Cambian
acquisition together with the receipt from the ground rent transaction.
Operational
Capacity
80% 87% 73%
(2018: 86%)
How this is calculated
Blended occupancy is the total number of Adult and Children Service Users
actually placed as a percentage of the Group’s total capacity and so reflects
facilities undergoing development and reconfiguration.
Performance this year
The ratio decreased overall reflecting the Cambian business which has a
lower occupancy level and is also impacted by the timing of the start of the
educational year because a number of non-residential Cambian schools
operate on a 38-week basis with the new education term commencing in
October.
Mature Estate Occupancy CareTech
Cambian
85% 92% 74%
(2018: 93%)
How this is calculated
The Mature Estate Occupancy is the total number of Adult and Children
Service Users placed in services that were open throughout the year.
Performance this year
CareTech’s ratio has remained broadly unchanged at 92% and reflects the long
length of stay that the majority of service users have in our services.
The occupancy of the Cambian business as at 30 September each year is
affected by the timing of the start of the educational year because a number
of non-residential Cambian schools operate on a 38-week basis with the new
education term commencing in October.
Quality
Regulatory rating (%) – facilities rated “Good” or “Outstanding”
Ofsted CareTech
CQC Adult
Cambian
95% 93% 80%
(2018: 86%)
(2018: 86%)
(2018: 77%)
How this is calculated
The market that CareTech operates in is regulated by Ofsted and the Care
Quality Commission and their equivalents in Scotland and Wales. Each facility
is inspected and given a score, with a range of outcomes from “Outstanding”,
“Good”, “Requires Improvement” to “Inadequate” (or equivalent).
Performance this year
Quality ratings continue to improve across the Group.
CareTech
5,079
2,620
2,459
Cambian
(2018: 2,622 places)
How this is calculated
The Group’s capacity is the total number of Adults Services (1,968), Children’s
Services (1,933) and Foster Care (1,178) places that the Group is able to offer at
that date. It is a total including residential care beds, independent supported
living accommodation, community support service users and children that
foster carers can currently look after.
Performance this year
Overall capacity has increased by 2,457 which is a 93.7% increase.
CareTech added 56 new beds whilst reconfigurations reduced capacity by a
net 11 beds. A further 47 supported living contracts came to an end, resulting
in a net decrease of two places for CareTech. There has been a net increase
of four places in Cambian homes since acquisition due to one new home
registration occurring in August 2019.
CareTech Holdings PLC
Annual Report and Accounts 2019
25
Strategic reviewGovernanceFinancial Statements
Principal Risks and Our Strategic Response
Social care is a long-term contract with the public sector and is inherently
free of risk so long as quality is maintained, outcomes are achieved and
the price is right. However, social care does carry risks that will always
be at the forefront of our minds. The most obvious risk is that a tragedy
will occur and that the Company will be held to blame. We take the risk
very seriously. Our principal risk management strategy is to ensure that
our staff are recruited well, are trained and supervised properly and are
subject to rigorous quality oversight. In addition we know from experience
that processes and documentation must be very carefully observed and
constantly reviewed to ensure that it protects service users and provides
the Company with a defendable position in the case of tragedy.
These matters, along with general safeguarding, are subject to intense
scrutiny by our in-house compliance and quality teams and Board-
level oversight.
Managing and mitigating risk
Social care is not a high risk business proposition but there are several
unique factors that could cause difficulties. These centre on the way in
which care and support are provided and the reliability of those front line
staff who provide it. CareTech approaches these issues with considerable
care and diligence, building in quality and training wherever it is required
but also through its established scrutiny protocols and firm leadership.
We care a great deal about what we do and have established a reputation
for careful management of all those processes that could expose us
to risk.
We have thoroughly reviewed our operations. The Group currently trades
only within the UK and has no foreign exchange exposure. We have
limited exposure to nursing staff and the EU labour market. Our primary
recruitment is focused on the UK labour market for support staff and
the recruitment of new staff is the factor that we are managing and we
continue to monitor closely.
Our risks
All providers of health and social care are conscious of the need
for management vigilance and the requirement to have a thorough
commitment to delivering care that is safe and of a high quality.
CareTech’s approach to quality and safe service delivery is characterised by
a mixture of a dedicated compliance team carrying out regular audits of
inspection and a commitment to building quality into everything we do.
The market for the provision of social care services continues to be
dynamic, presenting both risks and opportunities. The overall number of
people needing support will increase, and a smaller proportion of them
will be placed into residential services. Those who do need a residential
care solution will have more complex needs and are likely to require
a wider range of services, including clinical and therapeutic support.
Our operational management teams are already focusing on the delivery
of high quality care. As we move forward this will become increasingly
specialised with the benefit of professional qualified care co-ordinators
who will prepare and direct personalised care plans within the services.
Most service users will be supported in their own homes through
domiciliary care or in more formal supported living arrangements. This is
a major growth area for care providers and CareTech already has a solid
reputation for its high quality and flexible solutions. We are building this
to a higher level and refining our organisational structure to build more
rapidly on our successes to date.
Principal Risks
Service offer and user needs
We have to create and staff a service offering
which matches the needs of the service user
and can be communicated to Commissioners
so it is carefully recorded locally at every service
in order to reduce the risk of service users
moving to other service providers.
Service value
The service offer has to be provided to meet
the needs of the Commissioners at a fair price
and this is coming under increased scrutiny
as Commissioners regularly review value for
money so the Group communicates frequently
with its Commissioners locally.
Quality and safety
A health and safety breach would impact
reputation, brand and compromise the safety
of those in our care. This could impact on
the demand for our business as well as incur
costs to rectify. We have to provide and deliver
safe care of a high quality and the Group
utilises Acoura, an independent supplier, to
audit and report monthly on Health and Safety
matters as well as all RIDDORS (Reporting of
Injuries, Diseases and Dangerous Occurrences
Regulations) so that all incidents are recorded
and acted upon.
Reputation
The Group has to have a reputation for
delivering a service that is good value and
takes account of all risks. The Group maintains
a Risk Register which includes all key risks,
including reputational risk, and how they
are mitigated though quality of service and
good communication with service users and
Local Authorities and this Risk Register is
reviewed monthly.
Growth funding
So that the Group can keep growing, adequate
funding has to be anticipated and put in place,
and the Group ensures that all of its facilities are
monitored and reviewed regularly in particular
during its Budget and forecasting processes.
Manage debt
The level of debt obtained to fund operations
and ensure that growth can occur has to be
carefully managed and the different forms of
leasing and debt are reviewed quarterly when
all of the covenants are also reviewed.
By order of the Board
Farouq Sheikh
Group Executive Chairman
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
26
Group Financial Review
Strategic review
Governance
Financial Statements
CareTech Holdings PLC
Annual Report and Accounts 2019
27
The Group reports certain non-IFRS performance measures, known as
Alternative Performance Measures (APMs). The Directors believe that APMs
provide useful supplemental information for the readers of the annual
report and, when read in conjunction with the IFRS financial information,
assist in providing a balanced view of the Group’s financial performance
and financial position.
In assessing its performance, the Group has adopted a number of APMs
because, statutory measures can have limitations as analytical tools
and are necessary to readers of the accounts when understanding
our performance relative to other companies in our sector and in the
wider economy.
Our APMs referred to in this report and in the financial statements as a
whole include EBITDA, non-underlying items, underlying earnings and
non-financial measures such as capacity, occupancy and regulator quality
ratings. You can read more about APMs on page 98.
Capacity and occupancy
As at the balance sheet, date Group capacity was 5,079. CareTech’s
capacity was 2,620 with blended occupancy 87% and mature occupancy
92%. CareTech’s organic developments have continued during the year
ended 30 September 2019 with the addition of 56 new beds whilst
reconfigurations reduced capacity by a net 11 beds. A further 47 supported
living contracts came to an end, resulting in a net decrease of two places
for CareTech.
The occupancy of the Cambian business as at 30 September each year
is affected by the timing of the start of the educational year because
a number of non-residential Cambian schools operate on a 38-week
basis with the new educational term commencing in October, with
total capacity at 2,459 with blended occupancy 73% and mature
occupancy 74%.
Group Financial Review
continued
Highlights
– 2019 has been transformational for CareTech following the £359.9m
acquisition of Cambian in October 2018
– 2019 results reported reflect the enlarged Group including the Cambian
operations since acquisition
– Integration plan for the combined business is well underway
– Pre-tax profit synergies of £3m have been delivered
– Revenue: £395.0m
– EBITDA: £73.5m
– Non-underlying items of £23.3m comprising predominantly £10.3m
acquisition expenses and £10.2m non-cash amortisation, reflecting the
acquisition of Cambian in the year
– Statutory profit before tax: £24.3m
– Diluted underlying EPS: 37.48p and statutory EPS: 18.31p representing
real value growth for shareholders
– Net debt: £291.1m
– Freehold portfolio valued at £774m on acquisition
– 90% EBITDA to operating cash conversion(i).
– Net assets: £335.4m
(i)
Cambian was acquired mid-October and in the pre-acquisition period (from 1 October to
18 October 2018) there were particularly strong cash receipts. The mid-month acquisition
resulted in the Group being unable to count these receipts in the conversion calculation,
whilst the payrolls, which typically go out at the end of the month, are counted in
the combined Group cash flows. Excluding this, for the period 1 October 2018 to
30 September 2019 Cambian has a 100% EBITDA to cash conversion and CareTech
has a 101% cash conversion.
Results
Included in the Group consolidated results for the year ended
30 September 2019 are Cambian’s revenue, EBITDA and other income
statement items together with cash flows for the period following
completion on 19 October 2018.
Following the acquisition of Cambian and to reflect the ongoing
integration of the two businesses, we are reporting three
operating segments:
– Adults Services, comprising the core CareTech Adult Learning Disabilities
business (ALD) as well as the Specialist Services business (SS) and
Learning Services;
– Children’s Services, comprising CareTech’s and Cambian’s children’s
services; and
– Foster Care, comprising CareTech’s and Cambian’s fostering services
For the year to 30 September 2019, we have also provided segmental
data in Note 4 for the historic CareTech and Cambian businesses to
enable a like-for-like analysis in the first year following the acquisition.
For subsequent financial years, the results of the Group will be combined
on the basis of the operating segments described above. The change
in reporting segments reflects the way the business is managed
and reported.
CareTech Holdings PLC
Annual Report and Accounts 2019
28
Condensed Income Statement before non-underlying items
Revenue
Gross profit
Administrative expenses excluding
depreciation and share-based payments charge
EBITDA
EBITDA margin
Depreciation
Share-based payments charge
Underlying operating profit
Net financial expenses
Underlying profit before tax
Underlying taxation
Underlying effective tax rate
Underlying profit for the year
Non-controlling interest
Weighted average number of diluted shares (millions)
Underlying basic earnings per share
Full year dividend per share
Growth
112.7%
67.4%
66.4%
52.6%
2019
£m
395.0
133.0
(59.4)
73.5
2018
£m
185.7
65.3
(21.4)
43.9
18.6%
23.6%
(10.6)
(0.1)
62.9
(12.7)
50.2
(9.4)
(5.9)
(0.2)
37.8
(4.9)
32.9
(5.8)
18.7%
17.6%
40.7
(0.4)
107.6
37.60p
11.7p
27.1
(0.6)
75.7
35.07p
11.0p
Revenue
Group revenue increased by 112.7% to £395.0m (2018: £185.7m) with like-for-like revenues increasing by 5.8% year on year.
In the established Adults Services segment we continued to experience high levels of occupancy and reported 93% occupancy at 30 September 2019.
When this is blended with the facilities that are being reconfigured and so are under development, the blended occupancy level at 30 September 2019
was 89% of capacity (September 2018: 86%). As in recent years the demand for residential services continues to be encouraging for high acuity users.
Annual fee rate negotiations with Local Authorities across the Group have received a favourable response. The National Minimum Wage increased from
1 April 2019, as did increases to both employer and employee pension contributions. The Group believe this has positively influenced its discussions with
Local Authorities, who recognise that front line staff are an integral part of quality of delivery.
In Children’s Services, total revenue has risen by 292.9% reflecting that Cambian was the largest provider of specialist education and behavioural health
services for children in the UK.
Revenue and EBITDA by division
Adults Services
CareTech
Cambian
Children’s Services
CareTech
Cambian
Foster Care
CareTech
Cambian
Total
CareTech
Cambian
CareTech Holdings PLC
Annual Report and Accounts 2019
29
2019
Revenue
£m
2019
EBITDA
£m
2018
Revenue
£m
2018
EBITDA
£m
123.6
–
123.6
64.9
165.7
230.6
8.0
32.8
40.8
196.5
198.5
395.0
32.7
–
32.7
18.2
37.5
55.7
1.5
6.0
7.5
52.4
43.5
95.9
118.7
–
118.7
58.7
–
58.7
8.2
–
8.2
185.7
–
185.7
31.9
–
31.9
17.0
–
17.0
1.9
–
1.9
50.8
–
50.8
Strategic reviewGovernanceFinancial Statements EBITDA margin has decreased from 23.6% to 18.6% as a consequence
of the Cambian EBITDA margin being at a lower rate than the CareTech
business prior to acquisition.
EBITDA
Increase in working capital
Cash flow and net debt
The cash flow statement and movement in Net Debt for the year is
summarised below:
Cash inflows from operating activities before
non-underlying items
Tax paid
Interest paid
Dividends paid
Capital expenditure
Proceeds from disposal of fixed assets
Acquisition of Cambian net of cash
Non-underlying cash flows
New HP arrangements
Movement in Net Debt
Opening Net Debt
Net Debt as at 30 September 2019
2019
£m
73.5
(7.2)
66.3
(5.9)
(10.9)
(10.8)
(31.5)
31.8
(160.3)
(20.4)
(2.4)
(144.1)
(147.0)
(291.1)
2018
£m
43.9
(4.4)
39.5
(4.1)
(4.7)
(7.5)
(17.1)
–
–
(6.1)
–
0.1
(147.1)
(147.0)
A key feature of this business is its strong cash generation. Cash inflows
from operating activities before non-underlying items were £66.3m
(2018: £39.1m). Cash inflows from operating activities including the
payment of integration and restructuring costs of £5.6m and acquisition
costs of £14.4m were £45.4m (2018: £34.2m).
For the period 1 October 2018 to 30 September 2019 Cambian has
a 100% EBITDA to cash conversion and CareTech has a 101% cash
conversion. Cambian was acquired mid-October and in the pre-
acquisition period (from 1 October to 18 October 2018) there were
particularly strong cash receipts. The mid-month acquisition resulted in
the Group being unable to recognise these receipts in the conversion
calculation, whilst the payrolls, which typically go out at the end of the
month, are recognised in the combined Group cash flows. Taking this into
account, the EBITDA to operating cash conversion for the consolidated
Group is 90%.
Capital expenditure was £31.5m (2018: £17.1m) which includes software
development of £2.7m (2018: £3.9m) and payments of deferred
consideration of £1.0m (2018: £Nil).
Other key cash flows in this period include payment of integration
costs of £6.5m (2018: £4.3m), payment of acquisition costs of £14.4m
(2018: £0.9m), bank fees paid on the new facility of £4.7m (2018: £nil),
dividend payments of £10.8m (2018: £7.5m) and corporation tax payments
of £5.9m (2019: £4.1m).
Net Debt at 30 September 2019 was £291.1m (2018: £147.0m), the
increase reflecting the cash consideration of £160.1m and the associated
financing necessary for the Cambian acquisition together with the
£31m receipt of the ground rent transaction and the other cash flows
identified above.
Group Financial Review
continued
EBITDA
Divisional EBITDA before unallocated overheads was £95.9m which
comprises £52.4m for CareTech (and represents an increase of 3.3% year
on year) and Cambian of £43.5m. Total unallocated corporate overheads
are £22.3m resulting in EBITDA of £73.5m.
The EBITDA margin of the Cambian business was 13.4%, before synergies,
showing improvement when compared with their historic announced
margins (which, in June 2018, were announced at 11%). The medium-term
margin target for the Cambian business is 16%.
Operating profit and profit before tax
The Group presents operating profit and profit before tax as both
underlying and statutory results. Underlying operating profit of £62.9m
is EBITDA after depreciation and share-based payments charge.
The depreciation charge is £10.6m (2018: £5.9m) reflecting the investment
in land and buildings, motor vehicles and fixtures, fittings and equipment
and the share-based payments charge of £60k (2018: £197k).
Statutory operating profit of £39.5m is underlying operating profit less
amortisation of £10.2m (2018: £7.4m), acquisition costs of £10.3m
(2018: £4.5m), reflecting the costs incurred in acquiring Cambian in
October 2018 and other non-underlying items of £2.9m (2018: 5.6m).
Underlying financial expenses increased to £12.7m (2018: £4.9m) due
to additional bank financing to fund the cash consideration of the
acquisition of Cambian with non-underlying financial expenses of £2.4m
(2018: £0.1m) relating to the non-cash movement in derivative financial
instruments (£1.5m) which do not qualify for hedge accounting and
£0.4m relating to the write-off of finance fees on facilities extinguished in
the year.
Underlying profit before tax improved to £50.2m (2018: £32.9m) and
statutory profit before tax increased to £24.3m (2018: £15.4m).
Taxation
The effective underlying tax rate was 18.7% (2018: 17.5%) and reflects
management’s expectations of future capital investment through organic
developments and reconfigurations relative to available capital allowances
and the impact of the reduction in the main rate of corporation tax in
the year.
Earnings per share
The weighted average number of shares in issue rose to 107.6m mainly
due to the issue of 33.2m as consideration shares as part of the Cambian
acquisition in October 2018.
Underlying basic earnings per share increased by 7.2% to 37.60p from
35.07p in 2018.
Statutory earnings per share increased by 30.6% to 18.38p (2018: 14.07p).
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 7.95p per share (2018: 7.50p), bringing
the total dividend for the year to 11.7p (2018: 11.0p), a growth of 6.4%.
Dividend cover for 2019, based upon diluted earnings per share before
non-underlying items is 3.18 times (2018: 3.19 times).
CareTech Holdings PLC
Annual Report and Accounts 2019
30
Acquisitions, share issue and bank facilities
On 19 October 2018, CareTech Holdings plc acquired the entire share
capital of Cambian Group plc, a leading children’s specialist education
and behavioural health service provider. The headline consideration for the
acquisition was £359.9m (of which £241.7m was paid in cash), with the net
price paid being £278.5m reflecting £81.5m of net cash held by Cambian
on the date of acquisition. The acquisition was funded by the issue of
33.2m shares and new bank facilities.
The Group entered into new Banking facilities of £322m and a revolving
credit facility of £25m to a group of banks comprising Barclays Bank PLC,
HSBC UK Banks plc, Santander UK plc, AIB Group (UK) plc, Clydesdale
Bank PLC, Credit Suisse AG, Lloyds Bank plc and National Westminster
Bank plc.
As part of the acquisition, in September 2018 the Group’s property
portfolio was revalued by Cushman and Wakefield and the market value
was £424m and the Cambian Group plc property portfolio was revalued
by Knight Frank and the market value was £350m, a total of £774m.
CareTech’s three key covenant ratios are leverage (ratio of net debt
to covenant EBITDA to be no more than 4.9x), 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 2019, we were operating comfortably within these ratios
at 3.9x, 6.45 and 42% respectively. The Board are committed to reducing
Net Debt to under 3.0x in the medium term.
Ground rent transaction
In January 2019, the Group announced that it had completed a ground
rent transaction with funds managed by Alpha Real Capital LLP (“Alpha”)
at a net initial yield of 2.85%. This transaction builds on the previous
transaction with Alpha in February 2016.
Under the terms of the agreement, the freehold interest in 24 CareTech
properties (“the Properties”) were transferred to Alpha in exchange for
a net cash sum of £31m and security of tenure with a 150-year lease
term returning to CareTech a virtual freehold interest in each property.
The commencing rent was £1.0m per annum which will rise with the
Retail Price Index on a yearly basis between 0% and 5% per annum.
The properties are located across England and Scotland, representing
less than 8% of the aggregate number of freehold properties owned by
the Group.
New accounting standards
IFRS 9
IFRS 9 ‘Financial instruments’ became effective for the Group starting
1 October 2018 and replaced the requirements of IAS 39 ‘Financial
Instruments: recognition and measurement’. The main changes
introduced by the new standard are a new classification and measurement
requirements for certain financial assets and a new Expected Credit Loss
(ECL) model for the impairment of financials assets.
The Group has determined that the transition to IFRS 9 resulted in an
additional charge of £0.5m. The chosen transition method is to make an
adjustment against opening reserves and not to restate 2018 comparative
information. There has been no other impact on the classification of
assets and liabilities as a result of adopting this standard.
IFRS 15
IFRS 15 ‘Revenue from contracts with Customers’ became effective for
the Group starting from 1 October 2018 and provides a single, principles-
based approach to the recognition of revenue from all contracts with
customers. It focuses on the identification of performance obligations
in a contract and requires revenue to be recognised when or as those
performance obligations are satisfied.
The Group has determined that the transition to IFRS 15 has not resulted
in any significant adjustments to the Group’s reported revenue.
Future accounting standards – IFRS 16
IFRS 16 ‘Leases’ became effective for the Group from 1 October 2019
and replaces the requirement of IAS 17 ‘Leases’. An asset representing
the Group’s right as a lessee to use a leased item, and a liability for
future lease payments will be recognised for all leases, subject to limited
exemptions for short-term leases and low-value lease assets. The costs
of leases will be recognised in the consolidated income statement split
between depreciation of the lease asset and a finance charge on the lease
liability. This is similar to the accounting for finance leases under IAS 17,
but substantially different to the accounting of operating leases (under
which no lease asset or liability was recognised, and rentals payable were
charged to the consolidated income statement on a straight-line basis).
As a result of adopting the new rules, for the year ended 30 September
2020, the Group anticipate recognising an additional right of use asset of
£72m and corresponding lease liability of £72m. The Group expects net
profit before tax to decrease by £0.5m. EBITDA is estimated to increase
by £8.0m as the operating lease rentals which were previously included in
operating profit are excluded, with this increase being offset by additional
estimated depreciation of £6.3m as the right-of-use assets are depreciated
and estimated a £2.3m of finance charge relating to the lease liability.
IFRS 16 will not have any impact on the underlying commercial terms of
each lease, our banking covenants and will not have any impact on the
commercial performance of the Group, nor the cash flow generated in
the year.
Christopher Dickinson
Chief Financial Officer
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
31
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Board of Directors
Farouq Sheikh
Group Executive Chairman
Aged 61
Haroon Sheikh BSc
Group Chief Executive Officer
Aged 63
Karl Monaghan
Non-Executive Director
Aged 57
Mike Adams OBE
Executive Director
Aged 48
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Farouq has been a key architect
in CareTech’s growth, having
been co-founder of the Group
and involved in the vision and
strategy from the outset in 1993.
With a background in law and a
good understanding of finance
and commerce, Farouq has been
instrumental in securing debt and
equity funding for the Group as
well as leading the management
team in winning a number of
long-term contracts from local
and health authorities.
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Farouq is a leading business
entrepreneur, philanthropist
and investor within the UK.
Farouq has initiated and overseen
the successful equity investments
and the subsequent exits for
3i Group PLC (in 1996 and 2002)
and Barclays Private Equity (in
2002 and 2005). His intimate
knowledge of the marketplace,
and his commercial and
negotiating expertise assisted
in the Group’s growth.
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Farouq has been presented with a
number of Entrepreneur of the Year
awards by prestigious organisations
including Laing and Buisson, Coutts
Bank and Ernst & Young. He also
presents widely at healthcare
conferences, raising awareness
of the learning disability sector.
As Patron and Enterprise Fellow
of the prestigious Prince’s Trust
and as a member of the Mosaic
National Advisory Board, Farouq
supports young people by passing
on his experience and expertise
to inspire the next generation
of entrepreneurs.
Farouq was a Founder Trustee
of the CareTech Charitable
Foundation formed in 2017.
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CareTech Holdings PLC
Annual Report and Accounts 2019
32
After graduating from University
College Dublin with a Bachelor of
Commerce Degree, Karl trained
as a chartered accountant with
KPMG in Dublin. He has worked in
the corporate finance departments
at a number of merchant banks
and stockbrokers, latterly at Credit
Lyonnais Securities for seven years
and Robert W. Baird for two years
until June 2002. Karl set up Ashling
Capital LLP in December 2002 to
provide consultancy services to
quoted and private companies.
He sits on a number of AIM quoted
and private company boards.
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Haroon, a London University
graduate, is one of the UK’s leading
entrepreneurs, philanthropists
and community figureheads
and one of the founders of
CareTech. Haroon brings
commercial acumen, related
industry experience and property
knowledge which has been
essential in the growth of the
business. As Group Chief Executive
Officer, he is actively involved
in the day-to-day running of the
business and over time has been
instrumental in nurturing and
supporting the senior management
team, bringing together disciplines
in care, commerce and property.
He has a deep commitment and
passion to delivering high-quality
care and support to people with a
learning disability.
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Haroon is Patron and Enterprise
Fellow of the Prince’s Trust and is
also Vice Chair of the UK Advisory
Council of the British Asian Trust
under the patronage of HRH
The Prince of Wales. He is also
a Member of the Court of the
University of Hertfordshire.
In 2008, Haroon and his brother
Farouq were winners of the highly
valued Coutts Family Business
Prize and widely applauded for the
quality and social integrity of the
company they created. In 2009
they were both finalists in the Ernst
& Young Entrepreneur of the Year
Awards and in 2016 they received
the Outstanding Contribution
Award at the Laing & Buisson
Annual Healthcare Awards. In 2019
Haroon and Farouq were winners
of the “Asian Business of the Year”.
Haroon was a Founder Trustee
of the CareTech Charitable
Foundation formed in 2017 and is
Chairman of the Trustees, working
closely with the Group’s Executive
and independent Trustees.
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Mike has a significant track record
in the social care, health and
disability sectors. He is currently
CEO of Purple Zest Limited,
a disability organisation that
supports both disabled people
and businesses. In previous roles
he was Director of the National
Disability Team, responsible for
policy and practice for disabled
students in higher education;
Director of Operations for the
Disability Rights Commission for
two years; and Chief Executive
Officer of ecdp, an Essex-based
user-led disability organisation.
Mike spent nine months as acting
Chair of a large acute hospital
trust in Essex and has previously
chaired an expert panel on Access
to Work, the Government’s flagship
disability employment programme.
Mike has been awarded an
Honorary Doctor of Education for
disability leadership from Anglia
Ruskin University.
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Mike was honoured with an OBE
in 2012 for his services to disability.
Mike became a Trustee of the
CareTech Charitable Foundation
in 2017.
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Jamie Cumming
Non-Executive Director
Aged 69
Gareth Dufton FCA
Interim Group Finance Director
Aged 43
Christopher Dickinson
Chief Financial Officer
Aged 41
Professor Moira Livingston
Non-Executive Director
Aged 57
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Chris has spent the past year as
Chief Financial Officer of Cambian
and prior to joining CareTech was
a Managing Director at Jefferies
where he acted for the Group on
its acquisition of Cambian. Prior to
Jefferies, Chris spent 14 years at
J.P. Morgan advising on many
significant M&A transactions and
debt and equity raises. Chris is
a chartered accountant, having
been admitted as a member
of the ICAEW in 2004 and as a
Fellow in 2014, and has a degree
in Computer and Management
Science from the University
of Warwick.
Moira has been involved in health
and social care for 34 years.
Moira spent many years working
initially as a Doctor in the field of
older-age psychiatry and latterly
as a senior clinical leader and
manager in the NHS.
Moira has held a number of
Director level leadership roles in
the healthcare sector. Moira has
led national programmes for the
Department of Health and was
a specialist advisor with the Care
Quality Commission. Currently,
Moira is the Managing Director
of the healthcare consultancy,
Dr Livingston Limited. Moira is
also a Non-Executive Director at
Leeds Teaching Hospitals NHS
Trust, where she is a member of
the Audit Committee and chairs
the Quality Assurance Committee.
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Jamie joined the Board as a
Non-Executive Director in 2013.
Following a long career in
corporate advisory and broking in
the City, including acting as Chief
Executive Officer of N+1Brewin
LLP, and latterly as Senior Adviser
to Canter Fitzgerald Europe,
Jamie has significant experience in
working with small and mid-sized
UK companies. Jamie currently
utilises his commercial experience
in supporting growth companies in
non-executive roles, is an associate
of Ruffena Capital and has qualified
as a fellow of the Chartered
Institute of Securities & Investment.
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Gareth is a graduate of the
University of Hertfordshire with
a first class honours degree in
accounting. He is a qualified
chartered accountant who was
admitted as a member of the
ICAEW in 2001 and as a Fellow
in 2013. He is a former partner of
Moore Stephens LLP, the top 10
City-based accountants where he
played a key role in client liaison,
undertaking a mix of audit, tax
and corporate finance where
he worked between 2000 and
2007. Gareth has experience
working with both privately owned
businesses and public companies
assisting in raising finance,
acquisitions and disposals.
Gareth has been involved in
CareTech since 2000, initially
advising as part of Moore Stephens
and from 2007 working directly
PB_Board_Jamie-47_prv
with the Company in a variety of
roles, including acting as Associate
Finance Director between 2009
and 2016. He has provided support
to CareTech at a senior level
with finance matters including
acquisitions, equity raising, renewal
of debt facilities, share placement
and disposals of properties.
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CareTech Holdings PLC
Annual Report and Accounts 2019
33
Strategic reviewGovernanceFinancial Statements Corporate Governance Report
Introduction
The Board believes that an effective corporate governance framework
is essential to underpin the success of the business, supporting
management while ensuring an appropriate level of challenge and
exercising proper oversight while facilitating decision making.
The Board is focused on taking steps to enhance standards of
governance and disclosure towards the levels required for Premium
Listed companies, should the Board ultimately decide to take that step.
Board composition has been reviewed with the aim of achieving an
appropriate level of independence and ensuring appropriate skillsets
within the Non-Executive Director group, and meeting diversity goals.
A first step in this process was completed in May 2019, with the
appointment of Professor Moira Livingston as an Non-Executive Director
and Chair of the Care Quality and Governance Committee. I am pleased
to welcome Moira and I am confident that her commercial expertise will
benefit the Board and the Company enormously.
Section of the UK Corporate Governance Code
The role of the Board
Every company should be headed by an effective board which is
collectively responsible for the long-term success of the company
Details of CareTech’s Board are set out on page 39. The CareTech
Board has collective responsibility for the management, strategic
The CareTech Board remains committed to achieving the highest
standards of integrity, ethics, professionalism and business practice
throughout its operations. Therefore, the Company has aligned its
governance with best practice and is reporting against the provisions
of the UK Corporate Governance Code on a comply or explain basis.
The Code and associated guidance are available on the Financial
Reporting Council website at www.frc.org.uk. A revised Code was
published in July 2018 (the 2018 Code), which will become effective
for accounting periods beginning on or after 1 January 2019. We have
commenced our preparations for the key changes and will be examining
current practices in relation to the requirements of the 2018 Code and
will report in relation to them at the appropriate time. We have noted the
Code provisions below where the Company does not comply with the
Corporate Governance Code in full.
direction and performance of the Company. The CareTech
Board provides leadership within a framework of prudent and
effective controls seeking to enable risk to be appropriately
assessed and managed.
How the Company complies with the UK Corporate Governance Code
The CareTech Board has delivered sustainable and reliable growth
since its Admission to trading on AIM. CareTech has aimed to be
a defensible stock even in difficult times and has adopted a progressive
dividend policy to return 11.7 pence per ordinary share to Shareholders.
The CareTech Group has also had direct involvement in a variety of
community-based programmes further improving the CareTech
Group’s service reputation and helping to foster a strengthened
relationship with local authorities.
development of a communication plan. The CareTech Board believe
that its workforce policies, including its in-house training and HR
systems support the CareTech Group’s focus on the provision of quality
services and allow for sustainable growth. The CareTech Board believe
the effectiveness of its staff engagement procedures is reflected in its
staff turnover levels, which are below the industry average and in the
CareTech Group’s quality ratings, which are above the industry average.
The CareTech Board also believe the CareTech Group’s sales and
marketing function have established strong relationships with care
commissioners and regulators and actively strives to maintain these
relationships. Being a socially responsible organisation with a focus on
ethical standards aligned with economic objectives remains a core aim.
The CareTech Directors believe that behaving responsibly and
maximising the benefits of a strong relationship with its stakeholders
is an integral part of a continuing process of building long-term value.
The CareTech Group’s framework of controls includes identification
and management of any conflicts of interests. The CareTech Board
follows specific procedures to identify potential conflicts of interest,
including those in relation to significant shareholders. Firstly, only
independent Directors (i.e. those that have no interest in the matter
under consideration) are able to take relevant decisions. Secondly,
in taking the decision the Directors must act in a way they consider,
in good faith, will be most likely to promote CareTech’s success.
In addition, the CareTech Directors can impose limits or conditions
when giving authorisation if they think this is appropriate. It remains
the CareTech Board’s intention to report annually on the Company’s
procedures for ensuring that the CareTech Board’s power of
authorisation in respect of conflicts is operated effectively and
that procedures have been followed.
CareTech’s key strategic priorities include a continual focus on
improving the quality and scope of its business, increasing market share
and growing shareholder value. The CareTech Board recognises that
key to achieving its strategy is the attraction and retention of talented
and committed personnel at every level of the organisational hierarchy
and the CareTech Board have put in place policies and procedures to
achieve this. The CareTech Board ensures that the CareTech Group is
appropriately funded to deliver its strategy. The CareTech Board
appreciates that effective communication and engagement with the
Company’s shareholders and the investment community as a whole is
a key objective. The views of both institutional and private shareholders
are important. The Group Executive Chairman has overall responsibility
for ensuring this communication is effectively conveyed and for making
the CareTech Board fully aware of key shareholders’ views, comments
and opinions. Contact with investors throughout the year is a priority
and the CareTech Board strives to look after their interests. General
presentations to major shareholders following the publication of the
CareTech Group’s annual and interim results are conducted by the
Group Executive Chairman and the Group Finance Director as are
regular meetings through the year with fund managers and
investment analysts.
Effective communication with employees and care commissioners
is also vital to achievement of the CareTech Group’s strategy. The
CareTech Group has a number of initiatives and policies to engage its
employees through training and development, supervision, recognition
of achievement through staff awards, staff engagement surveys and
CareTech Holdings PLC
Annual Report and Accounts 2019
34
Section of the UK Corporate Governance Code
Division of Responsibilities
There should be a clear division of responsibilities at the head of the
company between the running of the board and the executive
responsibility for the running of the company’s business. No one
individual should have unfettered powers of decision.
The chairman is responsible for leadership of the board and ensuring
its effectiveness on all aspects of its role.
As part of their role as members of a unitary board, non-executive
directors should constructively challenge and help develop proposals
on strategy.
How the Company complies with the UK Corporate Governance Code
As Group Executive Chairman, Farouq Sheikh leads the CareTech Board
and is responsible for its effective running.
The roles and responsibilities of certain members of the CareTech
Board and Company Secretary are explained and their respective
responsibilities summarised below:
The Group Chief Executive is Haroon Sheikh (brother of Farouq Sheikh)
and Karl Monaghan, the Senior Independent Director, Professor Moira
Livingston and Jamie Cumming are the CareTech Group’s three
Non-Executive Directors. Karl Monaghan, Professor Moira Livingston
and Jamie Cumming are considered to be independent. Although Karl
Monaghan has served on the CareTech Board for more than nine years,
the CareTech Board are satisfied that there are no matters which affects
the independence of his judgement and as such that Karl continues to
act independently.
The CareTech Board has identified areas around Board composition
whereby it currently does not comply with the UK Corporate
Governance Code:
Group Executive Chairman
– Overall leadership of the Board;
– Ensuring the Board as a whole plays a full part in the development
and determination of the CareTech Group’s strategic objectives;
– Ensuring the effectiveness of the CareTech Board;
– Setting the agenda and tone for the CareTech Board;
– Ensuring the Board receives accurate, timely and clear information;
– Responsibility for reviewing and agreeing the training and
development needs of CareTech Board members; and
– Promoting the highest standards of integrity, probity and corporate
governance throughout the Company and particularly at CareTech
Board level.
1. The Group Executive Chairman of the Board is not independent
(A.3.1); and
Group Chief Executive Officer
– Executive leadership of the Company’s business on a
2. At least half the Board, excluding the Group Executive Chairman,
day-to-day basis;
are not independent Non-Executive Directors (B.1.1)
3. The Chairman did not hold formal meetings with the Non-Executive
Directors independently of the Executive Directors, and thus has
chosen not to comply with this provision of the Code (A.4.2)
Collectively, the Non-Executive Directors bring a valuable range of
expertise and experience in assisting the CareTech Group to achieve
its strategic aims and provide constructive challenge and strategic
guidance. In the furtherance of their duties, all CareTech Directors
are able to take independent professional advice at the expense of
the Company and those newly-appointed are made aware of their
responsibilities by the Company Secretary. The CareTech Board
approves the appointment and removal of the Company Secretary.
The CareTech Board have identified areas where it intends to
strengthen its corporate governance. In particular the CareTech
Board intends to appoint at least one additional Non-Executive.
– Developing the overall commercial objectives of the CareTech
Group and proposing and developing the strategy of the CareTech
Group in conjunction with the Board as a whole;
– Responsibility, together with the senior management team, for the
execution of the CareTech Group’s strategy and implementation
of CareTech Board decisions;
– Recommendations on senior appointments and development
of the management team; and
– Ensuring that the affairs of the CareTech Group are conducted
with the highest standards of integrity, probity and corporate
governance.
Senior Independent Non-Executive Director
– Acting as a sounding board for the Group Executive Chairman;
– Being available to shareholders if they have concerns which
cannot be resolved through the Group Executive Chairman
or other executive management; and
– Acting as an intermediary for the Directors where necessary.
Non-Executive Directors collectively
– Constructively challenging the Executive Directors; and
– Oversight of the delivery of the Company’s strategy within the risk
and control frameworks.
Company Secretary
– Ensuring all Board and Committee meetings are properly held;
– Assisting the Group Executive Chairman and Group Chief Executive
Officer in ensuring the Directors are provided with all relevant
information;
– Organising Directors’ training requirements; and
– Maintaining the Group’s governance and compliance with the AIM
Rules for Companies.
– Details of the CareTech Board’s Committees, including the Audit
Committee, Remuneration Committee and the Care Quality and
Governance Committee are set out on pages 39 and 40.
Directors’ and officers’ liability insurance
The Company provides its Directors and officers with the benefit
of appropriate insurance, which is renewed annually.
CareTech Holdings PLC
Annual Report and Accounts 2019
35
Strategic reviewGovernanceFinancial Statements Corporate Governance Report
continued
Section of the UK Corporate Governance Code
Effectiveness
The board and its committees should have the appropriate balance of
skills, experience, independence and knowledge of the company to
enable them to discharge their respective duties and responsibilities
effectively.
There should be a formal, rigorous and transparent procedure for the
appointment of new directors to the board.
All directors should be able to allocate sufficient time to the company
to discharge their responsibilities effectively.
All directors should receive induction on joining the board and should
regularly update and refresh their skills and knowledge.
The board should be supplied in a timely manner with information in
a form and of a quality appropriate to enable it to discharge its duties.
The board should undertake a formal and rigorous annual evaluation
of its own performance and that of its committees and individual
directors.
All directors should be submitted for re-election at regular intervals,
subject to continued satisfactory performance.
How the Company complies with the UK Corporate Governance Code
Matters are delegated to Board Committees, individual Directors or
executive management where appropriate. To date, given the stage of
the CareTech Group’s development, it has been felt the functions of a
Nominations Committee can be adequately fulfilled by deliberation of
the full CareTech Board; this will nevertheless be kept under review.
When the need for additional Non-Executive Directors are identified,
the CareTech Board appoints advisers to nominate experienced
relevant and appropriate candidates. Currently CareTech Board
members meet the candidates and come to a collective view
on appointments.
Currently all CareTech Directors are required to submit themselves
for re-election at least every three years and new Directors are
subject to election by shareholders at the first opportunity following
their appointment.
Whilst the performance of each the CareTech Directors is kept under
review, no formal evaluation is currently conducted by CareTech.
CareTech does not comply with the Code provision B.6. This will
nevertheless be kept under review.
CareTech Holdings PLC
Annual Report and Accounts 2019
36
Section of the UK Corporate Governance Code
Accountability
The board should present a fair, balanced and understandable
assessment of the company’s position and prospects.
The board is responsible for determining the nature and extent of the
principal risks it is willing to take in achieving its strategic objectives.
The board should maintain sound risk management and internal
control systems.
The board should establish formal and transparent arrangements
for considering how they should apply the corporate reporting and
risk management and internal control principles and for maintaining
an appropriate relationship with the company’s auditors.
How the Company complies with the UK Corporate Governance Code
– The CareTech Board has established an Audit Committee, details
– A process of control and hierarchical reporting provides for a
of which are set out on pages 39 and 40.
– The Committee meets at least twice each year and receives reports
from the Company’s management and external auditor relating to
the annual and interim accounts and the accounting and internal
control systems throughout the Group. The Committee has direct
and unrestricted access to the external auditor and reviews all
services being provided by them to evaluate their independence
and objectivity, taking into consideration relevant professional and
regulatory requirements in order to ensure that said independence
and objectivity are not impaired by the provision of permissible,
non-audit services. The Committee has carefully considered the
level of non-audit services and has concluded that this does not
impact on the independence of the auditors.
– The CareTech Board is ultimately responsible for the CareTech
Group’s system of internal controls and for reviewing its
effectiveness. The role of management is to implement Board
policies on risk and control. The system of internal controls is
designed to manage rather than eliminate the risk of failure of the
achievement of business objectives. In pursuing these objectives,
internal controls can only provide reasonable and not an absolute
assurance against material misstatement or loss.
– The CareTech Directors consider robust risk management to be
crucial to the CareTech Group’s success and give a high priority to
ensuring that adequate systems are in place to evaluate and limit risk
exposure. They have overseen the further development of
processes and procedures for identifying, analysing and managing
the significant risks faced by the CareTech Group. Risks facing the
CareTech Group are described on page 26 in this report. These
processes have been implemented during the year under review
and up to the date of approval of this annual report and financial
statements. The processes and procedures are regularly reviewed
by the CareTech Board.
documented and auditable trail of accountability. These procedures
are relevant across all CareTech Group operations: they provide for
successive assurances to be given at increasingly higher levels of
management and, finally, to the Board.
– The new General Data Protection Regulations (GDPR) have
changed how the Group manages, protects and administers data.
A team of Senior Managers are responsible for how data flows in
and out, and where it is stored throughout the CareTech Group.
– The processes used by the CareTech Board to review the
effectiveness of the system of internal controls include the
following:
– annual budgets are prepared for each operating business.
Monthly management reporting focuses on actual performance
against these budgets for each operating business;
– management reports and external audit reports on the system
of internal controls and any material control weaknesses that
are identified;
– whistleblowing helpline is managed by a third-party provider,
enabling colleagues to raise concerns they may have about
issues of safety or wrongdoing, anonymously if necessary.
All such concerns received through the helpline are sent to
the Head of Compliance for review, and to ensure that they are
appropriate investigated and concluded;
– discussions with management including those on the actions
taken on problem areas identified by CareTech Board members
or in the external audit reports;
– policies and procedures for such matters as delegation of
authorities, capital expenditure and treasury management
as well as regular updates; and
– review of the adequacy of the level of experienced and
professional staff throughout the business and the expertise of
individual staff members so that they are capable of carrying out
their individual delegated responsibilities; and
– review of the external audit work plans.
CareTech Holdings PLC
Annual Report and Accounts 2019
37
Strategic reviewGovernanceFinancial Statements Corporate Governance Report
continued
Section of the UK Corporate Governance Code
Remuneration
Executive directors’ remuneration should be designed to promote the
long-term success of the company. Performance-related elements
should be transparent, stretching and rigorously applied.
There should be a formal and transparent procedure for developing
policy on executive remuneration and for fixing the remuneration
packages of individual directors. No director should be involved in
deciding his or her own remuneration.
How the Company complies with the UK Corporate Governance Code
The composition and role of the Remuneration Committee is
described below on page 40 and includes details of CareTech
Directors’ remuneration, shareholdings and share options scheme
information. A key CareTech Group strategy is to attract and retain
talented and committed personnel at every level of the organisational
hierarchy and the Remuneration Committee aims to foster
remuneration philosophy, policies and procedures to achieve this.
The Remuneration Committee’s principal duties are to review the scale
and structure of the remuneration and service contracts for Executive
Directors and Senior Management and it also administers the
Company’s share option schemes. The Committee takes into
consideration environmental, social and governance (“ESG”) issues,
in relation to corporate performance, when setting the remuneration
of Executive Directors and takes steps to ensure that the incentive
structure for Senior Management does not raise ESG risks by
inadvertently motivating irresponsible behaviour. The remuneration
for Non-Executive Directors is set by the full Board on the
recommendation of the Executive Directors. In line with the UK
Corporate Governance Code, remuneration for Non-Executive
Directors does not include share options or other performance-
related elements.
Pensions for Executive Directors are based on their basic salary but
pension contribution rates are not aligned with those available to
the workforce.
The CareTech Group operates in a highly competitive environment.
For the CareTech Group to continue to compete successfully, it is
essential that the level of remuneration and benefits offered achieve
the objectives of attracting, retaining, motivating and rewarding the
necessary high calibre of individuals at all levels across the CareTech
Group. In 2019, Deloitte LLP were commissioned to prepare a
benchmarking report which has been used to provide a useful analysis
of the market for each element of pay. The CareTech Group therefore
sets out to provide competitive remuneration to all its employees,
appropriate to the business environment in the market in which it
operates. To achieve this, the remuneration package is based upon
the following principles: total rewards should be set to provide a fair
and attractive remuneration package; appropriate elements of the
remuneration package should be designed to reinforce the link
between performance and reward; and Executive Directors’ incentives
should be aligned with the interests of shareholders. The remuneration
strategy is designed to be in line with the CareTech Group’s
fundamental values of fairness, competitiveness and to support the
CareTech Group’s corporate strategy. A cohesive reward structure
consistently applied and with links to corporate performance, is seen as
critical in ensuring attainment of the CareTech Group’s strategic goals.
At every board meeting the CareTech Board covers an AIM continuing
obligations questionnaire and declaration of connected party
transactions. This sets the tone for corporate behaviour and helps
make CareTech’s governance meaningful and focused on improving
the business and protecting shareholder value.
The CareTech Board meets in formal session regularly, usually once
each month, and members are supplied with financial and operational
information in good time for scrutiny in advance of these meetings.
The CareTech Board holds other board meetings specifically for
significant transactions involving raising money like a ground rent
transaction, or spending money like a significant acquisition.
– financial reporting and controls including statutory matters such
as the approval of final and interim financial statements and
dividend declarations;
– Board membership and other senior, key personnel, appointments;
– review of corporate governance arrangements;
– Group strategy matters including the approval of annual budgets,
acquisitions and disposals;
– review of the processes for monitoring and evaluating risk and the
effectiveness of the Group’s system of internal control and
operational efficiency;
– review and supervision of treasury and financial policies; and
– shareholder communications.
The CareTech Board delegates certain of its responsibilities to Board
Committees, individual Directors or executive management where
appropriate. However, there are certain matters that are considered
to be so important to the long-term success of CareTech that they
are reserved to the CareTech Board for specific consideration and
decision including:
CareTech Holdings PLC
Annual Report and Accounts 2019
38
Who is on our Board?
As Group Executive Chairman, Farouq Sheikh leads the Board and
is responsible for its effective running. The Group Chief Executive is
Haroon Sheikh. The Directors’ biographies appear on pages 32 to 33
and detail their experience and suitability for leading and managing
the Group.
Farouq Sheikh as Group Executive Chairman leads the Company’s
strategic development and takes a special responsibility in respect
of acquisitions and investor relations.
Haroon Sheikh is the Group Chief Executive and accountable to
the Board for the day-to-day running of the Company as well as
management of the strategic plan.
Mike Adams, Executive Director, is a champion of disability and the needs
of disabled people, adding to the Board a wealth of knowledge around
the sector with responsibility for policy and practice. In addition, Mike
is CEO of Purple Zest Limited, a disability organisation, wholly owned
by the Group, which supports both disabled people and businesses.
Karl Monaghan, the Senior Non-Executive Director, Professor Moira
Livingston and Jamie Cumming are the three Non-Executive Directors
and the Board considers each of them as independent. Collectively,
the Non-Executive Directors bring a valuable range of expertise and
experience in assisting the Group to achieve its strategic aims.
Karl Monaghan is the Chair of the Audit Committee and a member
of the Care Quality and Governance Committee and the
Remuneration Committee.
Professor Moira Livingston is the Chair of Care Quality and Governance
Committee and a member of the Audit Committee and the
Remuneration Committee.
Jamie Cumming is the Chair of the Remuneration Committee
and a member of the Audit Committee and Care Quality and
Governance Committee.
Gareth Dufton was appointed the Interim Group Finance Director
following the death of Michael Hill. Gareth was accountable to
the Board for all financial matters. Following the appointment of
Christopher Dickinson as Chief Financial Officer, Gareth resigned
on 13 January 2020.
Christopher Dickinson was appointed Chief Financial Officer on
13 January 2020. Christopher is accountable to the Board for all
financial matters.
In the furtherance of their duties, all Directors are able to take
independent professional advice at the expense of the Company and
those newly-appointed are made aware of their responsibilities by the
Company Secretary. The Board approves the appointment and removal
of the Company Secretary.
All Directors are required to submit themselves for re-election at
least every three years and new Directors are subject to election by
shareholders at the first opportunity following their appointment.
How do we deal with conflicts of interest?
Following amendments to the Company’s Articles of Association in 2008
to reflect certain provisions of the Companies Act 2006 relating to
conflicts of interest that came into force on 1 October 2008, the Board
will follow a specific procedure when deciding whether to authorise a
conflict or potential conflict of interest. Firstly, only independent Directors
(i.e. those that have no interest in the matter under consideration) will be
able to take the relevant decision. Secondly, in taking the decision the
Directors must act in a way they consider, in good faith, will be most
likely to promote the Company’s success. In addition, the Directors will
be able to impose limits or conditions when giving authorisation if they
think this is appropriate. It remains the Board’s intention to report annually
on the Company’s procedures for ensuring that the Board’s power of
authorisation in respect of conflicts is operated effectively and that
procedures have been followed.
Board and Committee meetings
The Board meets in formal session regularly, usually once each month,
and members are supplied with financial and operational information
in good time for scrutiny in advance of these meetings.
The Directors attended the following meetings in the year to
30 September 2019:
Board
Audit
Committee
Remuneration
Committee
Care Quality
and
Governance
Committee
Farouq Sheikh
Haroon Sheikh
Michael Hill
Karl Monaghan
Mike Adams
Jamie Cumming
Gareth Dufton
Professor Moira
Livingston
* by invitation.
11
11
3
11
11
11
7
3
–
–
1
2
1
2
–
–
–
–
*1
3
3
3
*2
–
–
–
–
3
3
3
–
–
The Board holds other Board Meetings specifically for significant
transactions like the Cambian acquisition and its financing.
What decision-making responsibilities does the Board have?
Matters which are reserved to the Board for specific consideration and
decision include:
– financial reporting and controls including statutory matters such as
the approval of final and interim financial statements and dividend
declarations;
– Board membership and other senior, key personnel, appointments;
– review of corporate governance arrangements;
– Group strategy matters including the approval of annual budgets,
acquisitions and disposals;
– review of the processes for monitoring and evaluating risk and the
effectiveness of the Group’s system of internal control and
operational efficiency;
– review and supervision of treasury and financial policies; and
– shareholder communications.
Matters are delegated to Board Committees, individual Directors or
executive management where appropriate.
CareTech does not comply with the Code provision B.2 as it does not
have a Nomination’s Committee. The Directors believe the Board is
soundly constituted although, at this stage of the Group’s development,
it is felt the functions of a Nominations Committee can be adequately
fulfilled by deliberation of the full Board; this will nevertheless be kept
under review. When the need for an additional Non-Executive Director
is identified the Board appoints advisors to nominate experienced
relevant and appropriate candidates. Board members meet the
candidates and come to a collective view on appointments.
Who is on the Audit Committee and what do they do?
The Audit Committee comprises Karl Monaghan (Chairman), Professor
Moira Livingston and Jamie Cumming. The Interim Group Finance
Director and representatives of the external auditor attend meetings by
invitation as required. The Committee meets at least twice each year and
is responsible for the following:
– monitor the integrity of the financial statements of the Company
including results and other announcements of financial performance;
– review significant financial reporting issues and judgements;
– review and, where necessary, challenge the consistency of
accounting policies and whether appropriate accounting standards
have been used;
– review the contents of the annual report and Group financial
statements and advise the Board on whether it is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Group’s position, performance, business
model and strategy;
CareTech Holdings PLC
Annual Report and Accounts 2019
39
Strategic reviewGovernanceFinancial Statements Corporate Governance Report
continued
– review the effectiveness of the Company’s internal controls and risk
management systems;
– consider the need for an internal audit function and make a
John Ivers and the Director of Compliance and Regulation
Amanda Sherlock.
recommendation to the Board (there is currently no internal audit
function given the Group’s size and business model; this will be
reviewed for future years);
The Committee will closely examine and pursue improvement to
all matters relating to care governance and the safeguarding of those
we support.
– review the Company’s whistleblowing system and procedures for
detecting fraud;
– review the Company’s procedures for the prevention of bribery
and receive reports on non-compliance;
– oversee the relationship with the external auditor, including
assessing their independence and objectivity, and approval of
auditor remuneration including the level of audit and non-audit
fees’. Details of the amount paid to the external auditor during the
year, for audit and other services, are set out in note 7 to the
financial statements.
– review and approve the annual audit plan, and review the
effectiveness and findings of the audit; and
– reporting to the Board on the proceedings of the Committee and
make recommendations to the Board on any area within the
Committee’s remit.
As a new adopter of the Code, CareTech has elected not to comply
with the Code provision C.3.8, this will nevertheless be kept under
review as the Company continues to expand its compliance.
Who is on the Remuneration Committee and what do they do?
The composition and role of the Remuneration Committee is set out
in the Remuneration Report on pages 44 to 49. Also detailed in that
report are Directors’ remuneration, shareholdings and share options
scheme information.
The Committee will review the performance of executive directors and
set the scale and structure of their remuneration. The committee will
review the basis of the executive service agreements with due regard
to the interests of shareholders and determine from time to time the
allocation of share options to employees.
A key Group strategy is to attract and retain talented and committed
personnel, at every level of the organisational hierarchy and the
Committee aims to foster remuneration philosophy, policies and
procedures to achieve this.
The Committee was formed because the Board is sensitive to the
public’s increased awareness and anxiety about care governance
and safeguarding.
The Group has always been regarded as a careful and thoughtful
provider of care and the Committee was formed to closely examine
and pursue improvements to all matters relating to the care
governance and the safeguarding of those we support, including health
and safety, across the Group. Last year it included external attendees to
its meetings such as the Head of Safeguarding for Hertfordshire County
Council and received external presentations such as Conflict
Management from Maybo to help the Committee understand best
practice and in 2017 met with CQC.
We have held several useful meetings with regulators and also invited
key regulation managers to attend our Care Quality and Governance
Committee. The Committee is seen as a pioneering initiative that has
won friends and encouragement from regulators and commissioners
alike. The Committee brings Non-Executive Directors into a much
closer relationship with our everyday work and they have adopted a
robust scrutiny approach to care practice. This in itself has had a
positive impact on care quality and the executive team has been
encouraged to introduce quality initiatives across the Company.
The Group’s Adults Services are regulated by the Care Quality
Commission (CQC) who assess the services against approved essential
standards of quality and safety. The regulators test and publicly record
whether services are compliant or non-compliant against those
standards.
The new monitoring system has four levels of CQC reporting
outcomes and has been applied so far by CQC to all of our Adults
Services. The National distribution across the four outcomes is shown
in the table below with 95% of our services being either “Outstanding”
or “Good”. For the Group’s services the published reports are as follows
with the services in the outcomes as set out:
The Group operates in a highly competitive environment. For the
Group to continue to compete successfully, it is essential that the level
of remuneration and benefits offered achieve the objectives of
attracting, retaining, motivating and rewarding the necessary high
calibre of individuals at all levels across the Group. In 2019 Deloitte LLP
were commissioned to prepare a Benchmarking report which has been
used to provide a useful analysis of the market for each element of pay.
CQC
Ratings
National
Group
Outstanding
4%
3%
Good
80%
92%
Requires
Improvement
Inadequate
15%
4%
1%
1%
The Group therefore sets out to provide competitive remuneration
to all its employees, appropriate to the business environment in the
market in which it operates. To achieve this, the remuneration package
is based upon the following principles:
– total rewards should be set to provide a fair and attractive
remuneration package;
– appropriate elements of the remuneration package should
be designed to reinforce the link between performance and
reward; and
– Executive Directors’ incentives should be aligned with the interests
of shareholders.
The remuneration strategy is designed to be in line with the Group’s
fundamental values of fairness, competitiveness and to support the
Group’s corporate strategy. A cohesive reward structure, consistently
applied and with links to corporate performance, is seen as critical in
ensuring attainment of the Group’s strategic goals.
Who is on the Care Quality and Governance Committee and what
do they do?
The Care Quality and Governance Committee is chaired by Professor
Moira Livingston and the other members of the Board Committee are
Karl Monaghan and Jamie Cumming plus the Chief Operating Officer
CareTech Holdings PLC
Annual Report and Accounts 2019
40
Adults Services in Wales are regulated under different national
legislation and are not currently rated on any form of scale, though
all are compliant.
Our Children’s Services division is regulated by the Office for Standards
in Education (Ofsted) in England and these services are rated as
Outstanding, Good, Requires Improvement or Inadequate. 82% of our
services are either “Outstanding” or “Good”. For the Group’s services
the published reports are as follows with the services in the outcomes
as set out:
Ofsted
Ratings
National*
Group
Outstanding
17%
3%
Good
62%
79%
Requires
Improvement
Inadequate
20%
14%
1%
4%
* Ofsted statistics refer to residential children’s homes
(excludes Education).
A process of control and hierarchical reporting provides for a
documented and auditable trail of accountability. These procedures
are relevant across all Group operations: they provide for successive
assurances to be given at increasingly higher levels of management
and, finally, to the Board.
In 2019 there have been changes to the governance of data and the
new General Data Protection Regulations (GDPR) changed how the
Group manages, protects and administers data. A team of Senior
Managers looked at how data flows in and out, and where it is stored
throughout the Group.
Long-term viability of the Group
The Group does not comply with provision C2.2 to produce a viability
statement in the form required by the Code. As an AIM listed company,
it is not required to produce a formal viability statement and has chosen
not to, given the Group’s size and business model, though the Group
will keep this under review for future years. However, the Board has
considered the general viability of the Group, using a period of three
years for their assessment. The assessment conducted considered
the Group’s revenue, EBITDA, operating profit, cash flows, risk
management controls and loan covenants over the three-year period.
The longer-term prospects of the Group are driven by its strategy and
business model, as outlined on pages 12 to 26.
These metrics were subject to downside stress testing over the
assessment period, taking account of the Group’s current position,
the Group’s experience of managing adverse conditions in the past and
the impact of a number of severe yet plausible scenarios based on the
principal risks set out in the Strategic Report.
This review included the following key assumptions:
– No change in capital structure given the Group entered into new
banking facilities in August 2018 to mature in 2022 and 2023.
– The Government will not change its existing policy towards utilising
private provision of social care services to supplement the Local
Authority offering.
Based on the results of this analysis, the Directors confirm that they
have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the next
three years.
By order of the Board
Farouq Sheikh
Group Executive Chairman
30 January 2020
The Foster Care services in England are regulated by Ofsted and all
services are rated Good. In Wales the services are regulated by the Care
and Social Services Inspectorate Wales (CSSIW) and are not currently
rated on any form of scale. The Care Inspectorate of Scotland who
regulate both Adults and Children’s Services have the majority of the
Group’s rated Residential Services as Excellent or Very Good for both
the established services and the acquired services in Scotland.
The Care Quality and Governance Committee has oversight of all
issues and reports relating to the well-being of service users,
commissions enquiries into matters of concern and ensures that the
Executive Team operates to the highest possible level of professional
care standards. Throughout the past year the Care Quality and
Governance Committee has invited operational managers, regulators
and local safeguarding lead officers to attend its meetings.
The Care Quality and Governance Committee works in close
association with the Group’s internal regulatory compliance team
who operate across all divisions, reporting direct to the CEO.
Have we maintained an effective relationship with our Shareholders?
The Board appreciates that effective communication with the
Company’s shareholders and the investment community as a
whole is a key objective.
The views of both institutional and private shareholders are important,
and these can be varied and wide-ranging, as is their interest in the
Company’s strategy, reputation and performance.
The Group Executive Chairman has overall responsibility for ensuring
this communication is effectively conveyed and for making the Board
fully aware of key shareholders’ views, comments and opinions.
Contact with investors throughout the year is a priority and the Board
strives to look after their interests. General presentations to major
shareholders following the publication of the Group’s annual and
interim results are conducted by the Executive Chairman and the
Group Finance Director as are regular meetings through the year
with fund managers and investment analysts.
Robust year-on-year dividend growth is an objective and all
shareholders are encouraged to attend the Company’s Annual
General Meeting, which all Board members attend, as this provides
an opportunity to address questions to the Directors.
The Group’s annual and interim reports are sent to all shareholders and
all results, Company announcements and related investor information
can be accessed via the Group’s website, www.caretech-uk.com.
The website is under constant review in an effort to maximise the
effectiveness of information made available to shareholders.
How do we manage our internal controls and risks?
The Board is ultimately responsible for the Group’s system of internal
controls and for reviewing its effectiveness. The role of management is
to implement Board policies on risk and control. The system of internal
controls is designed to manage rather than eliminate the risk of failure
of the achievement of business objectives. In pursuing these objectives,
internal controls can only provide reasonable and not absolute
assurance against material misstatement or loss.
The recent challenging business climate has resulted in a sustained
focus on the approach to risk. The Directors consider robust risk
management to be crucial to the Group’s success and give a high
priority to ensuring that adequate systems are in place to evaluate and
limit risk exposure. They have overseen the further development of
processes and procedures for identifying, analysing and managing
the significant risks faced by the Group. These risks have been
discussed in the Strategic Report on page 26. These processes have
been implemented during the year under review and up to the date
of approval of this annual report and financial statements. The
processes and procedures are regularly reviewed by the Board.
CareTech Holdings PLC
Annual Report and Accounts 2019
41
Strategic reviewGovernanceFinancial Statements Directors’ Report
The Directors present their report and the audited Group financial
statements for the year ended 30 September 2019.
Principal activities
The principal activity of the Company is the provision of high quality
support and care for individuals who often have complex needs.
Business review and future developments
The results for the financial year ended 30 September 2019 are set out
in the consolidated statement of comprehensive income detailed on
page 58. Revenues for the year amount to £395.0m, operating profit
for the year before non-underlying items amounted to £62.9m and
operating profit after non-underlying items amounted to £39.5m.
On 19 October 2018, CareTech Holdings plc acquired the entire
share capital of Cambian, a leading children’s specialist education and
behavioural health service provider. The headline consideration for the
acquisition was £360m (of which £241.7m was paid in cash) with the
net price being £278.5m reflecting £81.5m of net cash held by
Cambian on the date of acquisition.
Key performance indicators are set out in the “Highlights” on page 1.
Key risks and uncertainties
There are a number of risks and uncertainties which could impact on
the Group’s long-term performance. These are set out in the Strategic
Report on page 26.
Dividends
Dividends of £10.8m have been paid during the year. The Directors
propose a final dividend of 11.7p per share (2018: 7.5p) subject to the
approval at the forthcoming Annual General Meeting.
Share listing
The Company’s ordinary shares are admitted to and traded on AIM, a
market operated by the London Stock Exchange. Further information
regarding the Company’s share capital, including movements during
the year are set out in note 22 to the financial statements.
Directors
The names of the current Directors together with brief biographical
details are shown on pages 32 to 33.
In accordance with the articles of association, Farouq Sheikh, Haroon
Sheikh and Moira Livingston retire by rotation and, being eligible, offer
themselves for re-election.
The names of all Directors who held office in the year are as follows:
Director’s name
Farouq Sheikh
Haroon Sheikh
Gareth Dufton
Mike Adams
Karl Monaghan
Jamie Cumming
Title
Group Executive Chairman
Group Chief Executive Officer
Interim Group Finance Director
Executive Director
Non-Executive Director
Non-Executive Director
Professor Moira Livingston
Non-Executive Director
Professor Moira Livingston was appointed as a Non-Executive Director
in June 2019. Professor Livingston chairs the Group’s Care Quality and
Governance Committee. Also in June 2019, Mike Adams OBE, who
was formerly a Non-Executive Director, became an Executive Director
to enable him to pursue a strategic role within the Group.
Gareth Dufton was appointed as Interim Group Finance Director in
January 2019 following the sad passing of Michael Hill. Christopher
Dickinson (FCA) joined CareTech plc in January 2019 as Cambian
Chief Financial Officer having previously been a Managing Director of
Jefferies where he acted for CareTech plc on its merger with Cambian.
Prior to Jefferies, Chris spent 14 years in the investment banking
division of J.P. Morgan and three years at Deloitte, qualifying as a
Chartered Accountant. With effect from 13 January 2020, Christopher
Dickinson has been appointed as Chief Financial Officer and has joined
the Board.
The terms of the Directors’ service contracts and details of the
Directors’ interests in the shares of the Company, together with details
of share options granted and any other awards made to the Directors,
are disclosed in the Remuneration Report commencing on page 44.
Directors’ insurance
The Company maintains appropriate Directors’ and Officers’ liability
insurance, as permitted by the Companies Act 2006.
Share capital
Substantial shareholdings
As at 12 December 2019, being the date of the preliminary results
announcement, the Company had been notified of, or was otherwise
aware of, the following substantial interests of 3% or more in the
ordinary share capital of the Company, other than those in respect
of the Directors which are set out in the Remuneration Report on
page 48.
No. of ordinary
shares of 0.5p
Percentage %
Liontrust Asset Management
Lombard Odier Asset Management
Richard I Griffiths (Guernsey)
Hof Hoorneman Bankiers (Netherlands)
Canaccord Genuity Wealth
Management (London)
16,095,333
14,512,689
9,521,409
9,403,288
6,750,000
14.4
12.9
8.5
8.4
6.0
Capital structure
As at 30 September 2019, the Company had 109,144,369 issued
ordinary shares of 0.05p each. The company has, and as at
30 September 2019 had, one class of ordinary shares and each share
carries the right to one vote at general meetings of the Company and
to participate in any dividends declared in accordance with the articles
of association. No person has any special rights of control over the
Company’s share capital.
Financial instruments
The Group is exposed to a combination of price, credit, interest rate
and cash flow risks. The Group uses financial instruments including
cash, borrowings and interest rate swaps, the main purpose of which
are to raise finance for the Group’s activities and to manage interest rate
risks. Disclosures in respect of these instruments are set out in note 25
to the financial statements.
Employees
The Directors recognise the benefits which arise from keeping
employees informed of the Group’s progress and plans and through
their participation in the Group’s performance. The Group is therefore
committed to providing its employees with information on a regular
basis, to consulting with them on a regular basis so that their views and/
or concerns may be taken into account in taking decisions which may
affect their interests, and to encouraging their participation in schemes
through which they will benefit from the Group’s progress and
profitability. CareTech aims to foster a working environment in which
all employees are treated with courtesy and respect and seeks at all
times to provide opportunities to develop and reach their full potential.
The Group established Sharesave share option schemes for eligible
employees in both 2016 and 2017, details of which can be found in
note 21 along with options remaining on previous schemes. The Board
feels that share ownership among employees fosters team spirit and
motivation and will contribute to the ultimate success of the Group.
It is the Group’s policy to ensure that disabled persons are treated fairly
and consistently in terms of recruitment, training, career development
and promotion and that their employment opportunities should be
based on a realistic assessment of their aptitudes and abilities.
Wherever possible, the Group will continue the employment of
CareTech Holdings PLC
Annual Report and Accounts 2019
42
persons who become disabled during the course of their employment
through retraining, acquisition of special aids and/or equipment or the
provision of suitable alternative employment.
Authority to allot shares
Pursuant to resolutions approved at the Annual General Meeting on
5 March 2019 the Directors were granted authority to allot shares with
an aggregate nominal value of up to the value of one third of the share
capital of the Company.
Resolutions for the renewal of the above will be proposed at the
forthcoming Annual General Meeting and also a resolution to give the
Directors authority to allot equity securities for cash to the holders of
ordinary shares as the Directors may determine on the register on a
fixed record date in proportion (as nearly as may be) to their respective
shareholding or in accordance with the rights attached thereto.
Further details of which, together with explanations of the resolutions
to be proposed at the meeting, appear in the “Notice of AGM and
explanatory circular to shareholders” which will be sent to shareholders
in good time prior to the meeting.
Post balance sheet events
On 21 November 2019 an interim dividend of 3.75p per share was paid
to shareholders.
On 8 November 2019, the Group issued 2,504,475 new ordinary
shares of 0.5p in the Company (the “New Ordinary Shares”) under the
Executive Shared Ownership Plan (“ExSOP”) to 30 members of the
senior and executive management team. An award under the ExSOP
enables the participant to benefit only from the future growth in the
value of the New Ordinary Shares above their market value on the
award date, in excess of a “carrying cost” of 3% per annum.
The vesting of the ExSOP requires specific performance conditions
being satisfied. As with the previous issuance of the ExSOP, the
target is an EPS Target which requires the growth in the Company’s
underlying Diluted EPS over the three-year period beginning on the
date of issue of the awards to be at least 15% (being an average 5%
annual growth rate, calculated without compounding). Participants
may not normally realise any such benefit from the ExSOP awards
before 8 November 2022.
Going concern
The Group’s business activities together with the factors likely to affect
its future development, performance and position are set out in the
Group Chairman’s Statement and Group Chief Executive’s Statement
and Performance Review on pages 4 to 7 and pages 8 to 11. The
financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the Financial Review on pages
27 to 31. In addition, note 25 to the financial statements includes the
Group’s objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial instruments
and hedging activities and its exposures to credit risk, interest rate risk
and liquidity risk. As highlighted in that note, the Group meets its
day-to-day working capital requirements through cash flow from
profits which together with existing bank facilities are sufficient to
fund present commitments. Term facilities are utilised to fund capital
expenditure and short-term flexibility is achieved by the utilisation of
cash resources in respect of financial liabilities, which are shown in the
table in note 25 and indicates their contractual cash flow maturities.
During the year, the Group entered into new banking facilities with
a consortium of eight banks (Barclays Bank plc, HSBC UK Bank plc,
Santander UK plc, AIB Group (UK) plc, Clydesdale Bank plc, Credit
Suisse AG, Lloyds Bank plc and National Westminster Bank plc) for
committed financing by way of term loans of between 3.5 to 5 years up
to £322m. In addition to the term loans, a £25m revolving credit facility
is available to provide working capital for the Enlarged Group together
with a day-to-day overdraft facility of £2m. There are a number of
Banking Covenants which ratchet depending on time and Group
performance. The Directors forecast that they are able to meet all
Banking Covenants which are reviewed regularly.
As part of the acquisition of Cambian 2018 the Group’s property
portfolio was revalued by Knight Frank and Cushman and Wakefield
and the market value was £774m. These valuations are not reflected
in the Consolidated Statement of Financial Position. The ground-rent
transaction during the year raised £31m of net cash on less than 10%
of the Group’s freehold asset portfolio.
The Group’s underlying operating business is cash generative, much
of the business has a long-term profile with both debtor days and
creditor days comparatively low. Non-underlying costs arising from the
acquisition of Cambian together with the integration costs and costs
in realising synergies have substantially been settled during the year.
As at the balance sheet date, the Group had cash balances of £29m.
The Directors have prepared a cash flow forecast taking into account
all expected cash flows for 12 months from the date of signing these
financial statements. After making due enquiries, the Directors have
a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern basis
of accounting for the Group and parent Company in preparing the
consolidated financial statements.
Auditor
Grant Thornton UK LLP have expressed their willingness to continue
in office and, in accordance with section 489 of the Companies Act
2006, a resolution for their reappointment will be proposed at the
forthcoming Annual General Meeting.
By order of the Board
Farouq Sheikh
Group Executive Chairman
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
43
Strategic reviewGovernanceFinancial Statements Directors’ Remuneration Report
Statement from the Chairman of the Remuneration Committee
Jamie Cumming
Chairman of the Remuneration Committee
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report (DRR) for the year ended 30 September 2019.
CareTech is listed on the AIM market of the London Stock Exchange
and the information provided is disclosed to fulfil the requirements
of AIM Rule 19. This report is split into two main parts:
– This statement to shareholders which includes a summary of our
approach to pay, our policy, remuneration outcomes for the year
just ended and how we intend to operate remuneration
arrangements for the year ahead; and
– The Annual Report on Remuneration which provides more detail
on the above, as well as setting out other remuneration-related
disclosures.
CareTech is not required to comply with Schedule 8 of the Large
and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2013 but as you will read, we have made a number
of enhancements to our disclosures this year, which we intend to
continue to provide in future years. We hope you will welcome the
additional information.
Remuneration Committee
The Remuneration Committee currently comprises three Non-
Executive Directors, Jamie Cumming (Chairman), Karl Monaghan
and Professor Moira Livingston, and meets at least twice each year.
The Committee members have no personal financial interest, other
than as shareholders, in the matters to be decided and all are
considered to be independent Directors of the Company. They
have no conflicts of interest arising from cross-directorships or from
being involved in the day-to-day business of the Group. They do not
participate in any bonus, share option or pension arrangements.
Professor Moira Livingston was appointed during this financial year
to augment our number of Non-Executive Directors following the
appointment of Mike Adams as an Executive Director of the Company.
The Committee’s principal duties are to review the scale and structure
of the remuneration and service contracts for Executive Board
Directors and it also administers the Company’s share option schemes.
The Committee takes into consideration environmental, social and
governance (ESG) issues, in relation to corporate performance, when
setting the remuneration of Executive Directors and takes steps to
ensure that the incentive structure for Senior Management does not
raise ESG risks by inadvertently motivating irresponsible behaviour.
The following comprised the principal elements of remuneration for
Executive Directors for the year under review: base salary; annual
bonus; benefits; and pension.
CareTech did not grant any long-term incentive awards to Executive
Directors in the year ending 30 September 2019. Executive Directors
have subsisting options under the Group’s Executive Shared Ownership
Plan (ExSOP). In October 2019, the Remuneration Committee did make
awards to the Executive Directors and other employees. Further details
are provided in the Annual Report on Remuneration.
The remuneration for Non-Executive Directors is set by the full Board
on the recommendation of the Executive Directors. Non-Executive
Directors are not eligible to participate in any of the Company’s bonus
or share option schemes.
Directors’ service agreements
All Executive Directors’ service contracts are subject to a 6 or 12
months’ notice (period) of termination on either side.
The Non-Executive Directors have each been appointed under
contracts, which are subject to three months’ notice of termination
on either side.
Business context
CareTech have 25 years of experience in the care sector and 13 years
on the public markets. In that time, the business has grown from a
single home to 550 facilities with 10,000 staff supporting 4,500 service
users. Since listing on AIM in 2005 (IPO), the business has transformed
from being focused on supporting adults with a learning disability
through residential and day care settings to one today where we cater
for young people and children with complex needs across a range of
settings, be it residential, education, CAMHS or community support.
The business has expanded its range of services to encompass mental
health, education, children’s residential care and therapeutic fostering.
The transformational acquisition of Cambian in October 2018, coupled
with the unconditional CMA clearance in February 2019, increased the
range of services and the UK geographic spread of our services. Over
the last 25 years, CareTech has become a trusted partner for Local
Authorities with a proven track record of delivering the highest
standards of care and governance. Across the Group, CQC quality
ratings are 95% Good or Outstanding in Adults Services, this compares
favourably to the market average of 84% and against our last update
report. The Ofsted ratings for the CareTech services are 93% Good or
Outstanding and 80% for the Cambian services resulting in a blended
82% Good and Outstanding ratings for Children’s Services across
the Group.
Remuneration policy
CareTech’s remuneration policy is to provide for each of its Executive
Directors and key personnel a package which is adequate to attract,
retain and motivate individuals of the appropriate calibre, whilst at the
same time not paying more than is necessary for this purpose.
Over the years, CareTech has developed a range of care pathways and
helped many of the adults and young people that we support to live
more independently. This is an outstanding outcome for both Caretech
and the individuals the Company supports and assists Local Authorities
to meet the ever-increasing cost of social care provision.
The Committee has the objective of ensuring that remuneration
packages are offered which:
– are set at a level reflecting the competitive market in which the
Group operates;
– have a significant part of remuneration linked to the achievement
of performance targets;
– have due regard to actual and expected market conditions;
– are structured in accordance with the interests of shareholders; and
– foster the development of a high-performance culture across
the Group.
Since IPO, EBITDA and EPS have grown by CAGR of 26% and 20%.
CareTech’s market capitalisation has gone from £60m at IPO through
to £400m, an increase of over six-fold in size. The Group has put in
place a Dividend policy which increases in line with growth in
underlying EPS. It is within this context that the Committee has
considered remuneration over recent years in order to align Executive
Board Directors remuneration with the sector and the size of the
business and its organisational structure.
CareTech Holdings PLC
Annual Report and Accounts 2019
44
The Company’s growth in revenue, EBITDA and Underlying EPS are graphically demonstrated as follows:
Revenue CAGR 21% A £m
400
EBITDA CAGR 21% A £m
80
EPS CAGR 21% A £m
40
350
300
250
200
150
100
50
70
60
50
40
30
20
10
0
2005
2010
2015
2019
0
2005
2010
2015
2019
35
30
25
20
15
10
5
0
2005
2010
2015
2019
Remuneration decisions and outcomes
Salary
The following table sets out salaries for our Executive Directors for the year ending 30 September 2019 and intended salaries effective for the year
ending 30 September 2020.
Executive Directors
Group Executive Chairman
Group Chief Executive Officer
Executive Director
Group Interim Finance Director
Chief Financial Officer
*
**
***
from appointment as an Executive Director on 1 June 2019.
from appointment on 10 December 2018.
from appointment on 13 January 2020.
Farouq Sheikh
Haroon Sheikh
Mike Adams OBE
Gareth Dufton
2019 salary with
effect from
1 October 2018
2020 salary with
effect from
1 October 2019
£350,000
£400,000
£400,000
(+14%)
£450,000
(+12.5%)
£125,000*
£125,000
(+0%)
£207,000**
£207,000
(+0%)
Christopher Dickinson
N/A
£278,000***
2019 bonus
The Committee assessed outcomes over the year ending 30 September 2019 with respect to Group Underlying EPS, EBITDA and the quality of
regulatory reports, and determined that bonuses of either 50% or 100% of the maximum (of 100% of salary) were appropriate for the Executive
Directors. Achievement against these measures is described in more detail in the Annual Report on Remuneration.
2020 bonus
For the year ending 30 September 2020, maximum bonus opportunities will be 100% of salary for the Group Executive Chairman and Group Chief
Executive Officer, and 50% for the Executive Director and Chief Financial Officer. For the FY20 bonus, we will have the same mix of three
measures, being a third each on EPS, EBITDA and the quality of regulatory reports. In line with our approach for the FY19 bonus, we will
retrospectively set out the targets set and the performance achieved in next year’s Annual Report on Remuneration.
Executive Shared Ownership Plan (ExSOP)
CareTech operates a discretionary ExSOP for Executive Directors and other selected senior executives. There were no ExSOP grants in the year
ending 30 September 2019. The most recent ExSOP grant was in November 2019, as disclosed in Stock Exchange announcements at the time
and summarised in the “at a glance” table below. Details of Directors’ interests and share option details for ExSOP and Sharesave awards are
provided in the Annual Report on Remuneration. The ExSOP provides each holder of shares awarded pursuant to the ExSOP (ExSOP Shares) a
joint beneficial ownership in the ExSOP shares (shared with the Employee Benefit Trusts) such that upon sale of the ExSOP shares, the holder will
be entitled to the proceeds of the sale less the initial market value of the ExSOP shares and a carrying cost of 3% per annum. The ExSOP shares
have a three-year vesting period with vesting subject to performance criteria being met and are usually conditional on continuous employment.
All-employee share-based arrangements
CareTech operates Sharesave option arrangements, allowing all employees (including Executive Directors) to participate in share ownership
and to share in our success over the medium term. CareTech also operates a Company Share Option Plan (CSOP) for selected individuals below
Board level.
CareTech Holdings PLC
Annual Report and Accounts 2019
45
Strategic reviewGovernanceFinancial Statements Directors’ Remuneration Report
Statement from the Chairman of the Remuneration Committee
continued
Executive remuneration at a glance
This table summarises the approach to remuneration arrangements for Executive Directors for FY19 and intended operation for FY20.
Element of remuneration
Year ending 30 September 2019
Year ending 30 September 2020
Salary
Group Exec Chair
Group CEO
Executive Director
Group Interim FD
£350,000
£400,000
£69,667
£155,250
Group Exec Chair
Group CEO
Executive Director
Group Interim FD
Chief Financial Officer
£400,000 (+14%)
£450,000 (+10%)
£125,000
£207,000
£278,000
Maximum Discretionary Bonus Opportunity
Group Exec Chair and Group CEO – 100%
of salary payable in cash
Group Exec Chair and CEO – 100% of salary
payable in cash
Executive Director 50% of salary payable in cash
Executive Director 50% of salary payable in cash
Group Interim FD – 50% of salary payable
in cash.
Group Interim FD – 50% of salary payable in cash
Chief Financial Officer – 50% of salary payable
in cash
Bonus performance measures
Three measures each with equal weighting: adjusted EPS; EBITDA; and quality of regulatory reports
ExSOP options
No grants in the year
Grants made in October 2019
(number of shares):
Group Exec Chair
Group CEO
Executive Director
Chief Financial Officer
400,000
400,000
93,750
155,250
Pension arrangements
15% of salary pension contribution (which can be taken as 13% of salary cash allowance)
CareTech Holdings PLC
Annual Report and Accounts 2019
46
Annual Report on Remuneration
Directors’ Remuneration (audited)
The table below reports a single figure of total remuneration for each of the Directors for the financial year ended 30 September 2019 and their
comparative figures for the financial year ended 30 September 2018.
Salary and fees
Benefits
Annual bonus
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
LTIP
2018
£000
Pension
2019
£000
2018
£000
2019
£000
Total
2018
£000
Executive Directors
Farouq Sheikh
Haroon Sheikh
Michael Hill
Gareth Dufton
Mike Adams OBE
Non-Executive
Directors
Karl Monaghan
Mike Adams OBE
Professor Moira
Livingston
Jamie Cumming
350
400
71
155
69
53
–
15
42
396
453
278
–
–
53
42
–
42
32
58
7
6
3
–
–
–
–
21
58
26
–
–
–
–
–
–
350
400
–
100
–
–
–
–
–
315
283
180
–
–
–
–
–
–
Total
1,155
1,264
106
105
850
778
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
53
62
–
17
–
–
–
–
–
46
53
30
–
–
–
–
–
–
785
920
78
278
72
53
–
15
42
778
847
514
–
–
53
42
–
42
132
129
2,243
2,276
Notes to the table:
-
Michael Hill, the Company’s then Group Finance Director, passed away on 9 December 2018. Gareth Dufton was appointed as Interim Group Finance Director the following day.
Remuneration details for Michael Hill and Gareth Dufton represent only those amounts in relation to their services as a Director on the Board.
Similarly, remuneration details for Mike Adams OBE above represent only those amounts in relation to his services as an Executive Director and Non-Executive Director on the Board respectively,
following his change in role during June 2019.
Professor Moira Livingston was appointed as a Non-Executive Director in June 2019.
-
-
Benefits
Benefits include car allowance (or company vehicle), vehicle expenses and healthcare insurance.
Annual bonus
Annual bonus awards were made in respect of the year ended 30 September 2019. Executive Directors were eligible for a maximum bonus
opportunity of either 50% or 100% of salary. For the avoidance of doubt, Non-Executive Directors are not eligible to participate in any annual
bonuses or share-based incentives at CareTech.
The awards were structured by reference to performance against three performance measures and targets, all equally weighted. If an individual
target is met, a third of the bonus award is payable. The following table sets out the performance measure, the weighting, the target and the
outcome in respect of the bonus for the year ended 30 September 2019.
Performance measure
Group underlying EPS
Group EBITDA
Quality % of Regulatory reports rated good or
outstanding, and there are also no serious
reputational risks identified
Total
Weighting
One third
One third
One third
Target
35.2p
Outcome
37.6p resulting in one
third payable
£71.0m £73.5m resulting in one
third payable
90%
93% resulting in one
third payable
100% of the maximum bonus opportunity available is payable
Long Term Incentive Plan (LTIP)
CareTech does not operate a typical LTIP in the form of performance shares. CareTech does occasionally grant share options and shares under its
Executive Shared Ownership Plan (ExSOP) to the Executive Directors. No grants were made in the year ending 30 September 2019.
In November 2019, the Remuneration Committee made awards to the Executive Directors (and other senior management) under the ExSOP. These
awards are subject to a time-related performance condition measured over a three-year period beginning at the date of the grant. The performance
condition is that the underlying EPS increased by 15% by the third anniversary of the grant. The awards to the Executive Directors were:
Group Executive Chairman
Group CEO
Executive Director
Chief Financial Officer
400,000 shares
400,000 shares
93,750 shares
155,250 shares
Details of share options made in previous years are set out in the share options section below.
CareTech Holdings PLC
Annual Report and Accounts 2019
47
Strategic reviewGovernanceFinancial Statements Directors’ Remuneration Report
Statement from the Chairman of the Remuneration Committee
continued
Pension arrangements
Executive Directors are offered a contribution of 15% of salary into a pension plan. Alternatively, they can take this as a cash allowance of 13%
of salary in lieu of a pension contribution.
Non-Executive Director Fees
The following sets out the current fees policy for Non-Executive Directors:
– Base fee of £42,000; and
– Additional fee of £10,500 for the role of Senior Independent Director.
Directors’ share options and Sharesave options
On 29 March 2017 the Group’s ExSOP was created. Farouq Sheikh and Haroon Sheikh each own 320,000 ordinary shares of 0.5p respectively
and Gareth Dufton owns 75,000 ordinary shares of 0.5p respectively under the Group’s Executive Shared Ownership Plan 2017 (see note 21).
On 17 March 2017, the Company granted options in aggregate over 474,581 ordinary shares pursuant to the CareTech Holdings plc Sharesave
Scheme 2017. It is a 3-year contract with a start date of 1 May 2017 with options exercisable at a price of 194p per share between 1 May 2019 and
31 October 2019. Within the options described above, there were options granted to Farouq Sheikh and Haroon Sheikh of 9,278 each under the
Sharesave Scheme.
On 17 October 2017, the Company granted options in aggregate over 254,681 ordinary shares pursuant to the CareTech Holdings plc Sharesave
Scheme 2017. It is a three-year contract with a start date of 1 December 2017 with options exercisable at a price of 308p per share between
1 December 2020 and 31 May 2021. Farouq Sheikh and Haroon Sheikh did not participate in the Sharesave Scheme 2017 as they already save
£500 a month under the Sharesave Scheme 2017 and this is a HMRC limit.
Gareth Dufton holds options over 30,000 shares at an exercise price of 305p which were awarded in August 2010.
Christopher Dickinson is interested in 155,250 ordinary shares in CareTech pursuant to the Executive Shared Ownership Plan, details of which
were announced on 8 November 2019.
No other Director has any share options in the Company.
None of the options above are subject to clawback arrangements, however it is a requirement of the ExSOP that the employee must have
continuous service by the third anniversary for the shares to vest.
The total number of shares issued in the ExSOP and options in the approved share option scheme in November 2019 was 4.9 million shares
representing less than 5% of the Company’s share capital.
Directors’ interests
The Directors who held office at the end of the financial year had the following interests in the ordinary share capital of the Company according
to the register of Directors’ interests:
Westminster Holdings Limited(1)
Cosaraf Pension Fund(2)
Sheikh Holdings Group(3)
Farouq Sheikh
Haroon Sheikh
Karl Monaghan
Jamie Cumming
Mike Adams
Gareth Dufton
30 September 2019
Number of ordinary
0.5p shares
10,547,864
230,000
500,000
638,919
690,226
41,795
2,500
2,145
23,601
30 September 2018
Number of ordinary
0.5p shares
9,763,519
170,000
–
638,919
690,226
34,250
–
2,145
Not appointed
Notes to the table:
(1)
(2)
(3)
Westminster Holdings Limited is a company owned by a trust, the beneficiaries of which include Farouq Sheikh and Haroon Sheikh.
Cosaraf Pension Fund is a self-administered scheme established for the benefit of Farouq Sheikh and Haroon Sheikh.
Grosvenor UK Limited is beneficially interested in these shares via a Contract for Difference (CFD) which was effected at a price of 350p per shares. Grosvenor UK Limited is a wholly owned
subsidiary of Sheikh Holdings Group Investments Limited, which is wholly owned by Haroon and Farouq Sheikh and their immediate family.
Additional disclosures relating to CEO pay
The following section sets out a number of additional disclosures relating to CEO pay, typically provided by FTSE-listed companies in their
remuneration reports:
– Percentage change in CEO remuneration
– Historic CEO pay
CareTech Holdings PLC
Annual Report and Accounts 2019
48
Percentage change in CEO remuneration
The following table compares the percentage change in the CEO’s
salary, benefits and annual bonus to the average percentage change
in salary, benefits and bonus for all employees from the year ending
30 September 2018 to the year ending 30 September 2019.
Historic CEO pay
The following table sets out historic CEO pay over the past ten years.
The single figure of total remuneration is provided, as well as the
annual bonus expressed as a percentage of the maximum for
the year.
Change in remuneration
Chief Executive Officer
Average pay of all
employees
Salary
0%
6.1%
Benefits Annual bonus
52%
25%
11%
37%
In the years to 2017, the maximum potential bonus for the CEO was
25%, changing to 100% in 2018. As set out above CEO pay has been
reviewed together with Executive Board remuneration periodically to
align it with the growth in the Group, the changes in organisational
structure and the sector as a whole.
Year ending 30 September
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Chief Executive
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Haroon Sheikh
Single figure
of total
remuneration
£000
Annual bonus
as a % of
maximum
LTIP as a
% of maximum
920
794
430
375
304
298
247
259
246
290
100%
62%
64%
76%
96%
69%
0%
0%
0%
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Notes to the table:
-
Single figure of total remuneration is as disclosed in previous annual reports, being the total figure in the relevant table plus any pension amounts disclosed in the same table.
By order of the Board
Jamie Cumming
Chairman of the Remuneration Committee
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
49
Strategic reviewGovernanceFinancial Statements Statement of Directors’ Responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have to prepare
the financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs and profit or loss of the Company and Group for
that period. In preparing these financial statements, the Directors are
required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and accounting estimates that are reasonable
and prudent;
– state whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the financial
statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors confirm that:
– so far as each Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
– the Directors have taken all the steps that they ought to have taken
as Directors in order to make themselves aware of any relevant
audit information and to establish that the auditor is aware of
that information.
The Directors are responsible for preparing the annual report in
accordance with applicable law and regulations. Having taken advice
from the Audit Committee, the Directors consider the annual report
and the financial statements, taken as a whole, provides the
information necessary to assess the Company’s performance,
business model and strategy and is fair, balanced and understandable.
The Directors are responsible for the maintenance and integrity of
athe corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
By order of the Board
Farouq Sheikh
Group Executive Chairman
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
50
Independent Auditor’s Report
to the members of CareTech Holdings PLC
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of CareTech Holdings PLC (the “parent Company”) and its subsidiaries (“the Group”) for the year ended
30 September 2019, which comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows, the Company Balance Sheet, the Company Statement of Changes in Equity and
notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the
parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 September 2019
and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
– the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and
as applied in accordance with the provisions of the Companies Act 2006; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of
the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks and going concern
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you
whether we have anything material to add or draw attention to:
– the disclosures in the annual report set out on page 26 that describe the principal risks and explain how they are being managed or mitigated;
– the Directors’ confirmation, set out on page 41 of the annual report, that they have carried out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity;
– the Directors’ statement, set out on page 43 of the financial statements, about whether the Directors considered it appropriate to adopt the
going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material uncertainties to the
Group and the parent Company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial
statements; or
As an AIM listed company, the Company is not required to comply with Listing Rule 9.8.6R(3) and therefore we do not report on whether we have
anything material to add or to draw attention to in respect of the Directors’ statement relating to going concern required under the Listing Rules
in accordance with Listing Rule 9.8.6R(3) and whether it is materially consistent with our knowledge obtained in the audit.
The Directors have explained on page 41 why they have not given an explanation as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions, and therefore we do not report on whether
we have anything material to add or to draw attention to in respect of this matter.
Overview of our audit approach
– Overall materiality: £2.2m, which represents 5% of the Group’s profit before taxation, after
adjustment for acquisition-related and other specific non-routine items.
– Key audit matters for the Group were identified as follows:
– occurrence of revenue;
– valuation of intangible costs;
– valuation of goodwill;
– acquisition accounting;
– presentation of non-underlying items;
– ground rent transactions; and
– completeness and accuracy of non-current provisions – sleep-in.
– We performed a full scope audit of the financial statements of the parent Company and of the
financial information of Cambian Group Limited. We performed specified audit procedures on
the financial information of certain smaller Group entities and we performed analytical
procedures over the remaining components.
– The acquisition of Cambian Group Limited caused a key change in the scope of the audit from
prior year.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those that had the greatest effect on the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
CareTech Holdings PLC
Annual Report and Accounts 2019
51
Strategic reviewGovernanceFinancial Statements Independent Auditor’s Report
to the members of CareTech Holdings PLC
continued
Key audit matters – Group
Occurrence of revenue
Under International Standard on Auditing (UK) 240 ‘The Auditor’s
Responsibilities Relating to Fraud in an Audit of Financial Statements’,
there is a rebuttable presumed risk that revenue may be misstated
due to fraud.
In addition, IFRS 15 ‘Revenue from Contracts with Customers’ involves
significant management judgement for the recognition of contract
revenue and therefore there is a risk that a material error could occur
if it was incorrectly recognised.
Due to the manual nature of the information on which billing and
credit notes are based, there is a risk that revenue is inaccurately
recognised. Additionally, there is a presumed risk of fraud in revenue
recognition and therefore occurrence of revenue was identified as a
significant risk, which was one of the most significant assessed risks
of material misstatement.
Valuation of intangible costs
The Group has a net book value of £7.3m of capitalised software and
licences as at 30 September 2019.
The valuation of intangible assets under IAS 36 ‘Impairment of Assets’
is a key risk. The intangible assets must be reviewed for impairment
indicators annually.
We therefore identified valuation of intangible costs as a significant risk,
which was one of the most significant assessed risks of material
misstatement.
Valuation of goodwill
The Group has a significant goodwill balance of £79.5m at the year
end, largely arising as a result of the acquisition of Cambian Group
Limited which took place on 19 October 2018.
Under IAS 36 ‘Impairment of assets’ there is significant judgement
surrounding the recognition and measurement of goodwill. The key
judgements are the determination of the CGUs, the forecast growth
rates and the applicable discount rates.
Additionally, IAS 36 requires that assets are not carried at more than
their recoverable amount. We therefore identified the valuation of
goodwill as a significant risk, which was one of the most significant
assessed risks of material misstatement.
CareTech Holdings PLC
Annual Report and Accounts 2019
52
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
– considering the Group’s revenue recognition accounting policies to
check these were appropriately applied to the revenue streams and
assessing compliance with IFRS 15;
– evaluating and testing the design and operating effectiveness of key
controls over the admission, discharges and fee movement during
the year for the material revenue streams (Adult, Children and
Fostering). The testing of these revenue streams was disaggregated
between CareTech and Cambian due to the different control
environments;
– substantive testing was performed on revenues in those smaller
entities where we did not place reliance upon the operating
effectiveness of controls;
– agreeing a sample of revenue transactions to subsequent cash
receipt and/or evidence of right to revenue recognition given
performance obligations of the service provided;
– completing analytical procedures on revenue based on occupancy
numbers across the Group; and
– testing the completeness of credit notes recognised in the year
against revenues billed in advance for discharged service users.
The Group’s accounting policy on revenue is shown in note 2 to the
financial statements and related disclosures are included in note 4.
Key observations
Our audit testing did not identify any material misstatements in relation
to the occurrence of revenue.
Our audit work included, but was not restricted to:
– evaluating the Group’s accounting policy for consistency with IAS
36 and considering whether these policies have been applied
appropriately across the Group; and
– inspecting impairment reviews prepared by management to ensure
that the carrying value of intangible assets was not overstated.
This incorporated challenge of management’s forecasts for
cash-generating units and testing management’s sensitivity
analysis of the applicable discount rate applied in these forecasts.
The Group’s accounting policy on capitalisation and valuation of
intangible costs is shown in note 2 to the financial statements and
related disclosures are included in note 14.
Key observations
Our audit testing did not identify any material misstatements in the
valuation of intangible costs.
Our audit work included, but was not restricted to:
– evaluating the Group’s accounting policy for consistency with IAS
36 and considering whether the accounting policy has been applied
accurately and consistently across the Group;
– testing the arithmetical accuracy and integrity of the underlying data
used by management in their impairment assessment by checking
the consistency of formulae used and agreeing inputs to supporting
documentation including historic profit and loss data and individual
market results;
– challenging management’s assessment of CGUs within the business
for reasonableness;
– using our in-house valuation specialists as an auditor’s expert to
assess the reasonableness of the discount rates applied to cash
flows for each CGU; and
– challenging management’s assumptions concerning forecast cash
flows, based on historical trends and any changes in customer
preferences and regulations; and
The Group’s accounting policy on the valuation of goodwill is shown in
note 2 to the financial statements and related disclosures are included
in note 14.
Key observations
Our audit testing did not identify any material misstatements in the
valuation of goodwill at the year end.
Key audit matters – Group
Acquisition accounting
The Group acquired Cambian Group Limited on 19 October 2018.
IFRS 3 ‘Business combinations’ involves significant judgement regarding
acquisition accounting and there is a risk that material error could occur
in the reporting of this business combination.
We therefore identified acquisition accounting, being the accounting
and disclosure of the business combination, as a significant risk, which
was one of the most significant assessed risks of material misstatement.
Presentation of non-underlying items
The Group separately discloses a number of profit and loss line items
into underlying and non-underlying items. Management believes the
disclosure is helpful to the users of the financial statements, but it has
a significant impact on the presentation of the results and can involve
judgement.
We therefore identified the presentation of non-underlying items as
a significant risk, which was one of the most significant assessed risks
of material misstatement.
How the matter was addressed in the audit – Group
Our audit work included but was not restricted to:
– inspecting documentation from the Competitions and Market
Authority and management to ensure the date of control was
accurately recorded and reflective of when control was obtained;
– evaluating the calculations and management judgements on the
fair value of assets and liabilities acquired, including any identified
intangibles on the acquisition of Cambian Group Limited in line
with IFRS 3;
– We engaged internal experts to assist with our audit of significant
inputs to the acquisition accounting;
– Inspecting evidence to support the completeness of provisions
and liabilities and the recoverability of receivables;
– Testing opening balances including the inspection of underlying
documentation to support the balances; and
– Performing testing to ensure that transactions undertaken in the
pre-acquisition period were eliminated from the consolidation.
The Group’s accounting policy on business combinations is shown in
note 2 to the financial statements and related disclosures are included
in note 5.
Key observations
Our audit testing did not identify any material misstatements in
accounting for the acquisition.
Our audit work included, but was not restricted to:
– evaluating the presentation and classification of non-underlying
items. This involved detailed challenge and testing of management’s
workings, and challenge by the audit team in respect of the items
included as non-underlying to ensure that the items were correctly
treated; and
– We have also verified the accuracy of information through
examination of corroborating evidence on a sample basis.
The Group’s accounting policy on non-underlying items is shown in
note 2 to the financial statements and related disclosures are included
in note 6.
Key observations
Our audit testing did not identify any material misstatements in the
presentation of non-underlying items within the financial statements.
CareTech Holdings PLC
Annual Report and Accounts 2019
53
Strategic reviewGovernanceFinancial Statements Independent Auditor’s Report
to the members of CareTech Holdings PLC
continued
Key audit matters – Group
Ground rent transactions
The Group has entered into ground rent transactions, whereby
properties are sold to financial institutions and leased back. The ground
rent was judgementally split into land and buildings in the ratio 75:25
based on the economic life of each element, the estimated split of
value between the elements, and the likelihood of certain future
events occurring that could affect the lease term. There was a profit
on disposal of £4.6m recognised in respect of the land element in
non-underlying items. An option exists to repurchase the assets
125 years into the lease term for £1. In addition, step-in rights exist
that may be exercised by the lessor during this 125-year period.
This is a judgemental area; because the split of land and buildings is
quantitatively material and subjective, and the presence of an option
to repurchase the leased assets is one of a number of indicators that
influences the judgement as to the nature of the lease as operating or
financing in nature. We therefore identified ground rent transactions as
a significant risk, which was one of the most significant assessed risks
of material misstatement.
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
– obtaining and inspecting management’s calculation of the profit on
disposal which included an assessment on the judgemental split of
land and buildings and the profit included in non-underlying items;
– reperforming the calculation of the profit on disposal to verify
mathematical accuracy;
– agreeing key amounts included in the calculation to supporting
documentation;
– challenging management on the key assumptions within the
underlying workings and corroborating explanations received to
supporting evidence where appropriate, including through the use
of an auditor’s expert;
– challenging management’s assessment of the nature of the option
agreement, including whether it had economic substance or was
likely to be exercised;
– obtaining a third party accounting firm’s assessment, prepared for
(and received from) management, of the accounting judgements
and estimates inherent in the transaction, discussing this directly
with management and the management’s expert, and challenging
and obtaining supporting evidence for the assertions made within
it as to the judgements made; and
– assessing the disclosure of judgements and estimates made in
respect of the ground rent transaction.
The Group’s accounting policy on ground rent transactions is shown in
note 2 to the financial statements and related disclosures are included
in note 6.
Key observations
Our audit testing did not identify any material misstatements in the
treatment of ground rent transactions during the year.
Completeness and accuracy of non-current provisions – sleep-in
As at 30 September 2019, the Group’s provisions include an amount for
sleep-in payments. There is currently an ongoing legal case involving
employees and the care provider, Mencap. The case relates to the
application of minimum wage law for care workers on “sleep-in” shifts.
Our audit work included, but was not restricted to:
– obtaining an understanding of the position taken by management
based on discussion with the in-house legal team and
management;
The case is scheduled to be trialled in front of the Supreme Court.
As a result, there is uncertainty around the outcome of the case,
which could have a material impact on amounts the Group is liable for.
The determination of whether a provision is required, and its quantum,
is a significant judgement exercised by management.
We therefore identified the completeness and accuracy of the sleep-in
provisions as a significant risk, which was one of the most significant
assessed risks of material misstatement.
– obtaining management’s workings of the provisions and checking
the mathematical calculations to supporting documentation for
the costs to verify the amount of the provision; and traced a sample
of employees to and from the payroll system; and
– challenging management assumptions used in calculating
the amount of sleep in liability and corroborating these to
third-party data.
The Group’s accounting policy on the provisions is shown in note 2 to
the financial statements and related disclosures are included in note 20.
Key observations
Our audit testing did not identify any material misstatements in the
completeness and accuracy of sleep-in provisions during the year.
CareTech Holdings PLC
Annual Report and Accounts 2019
54
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our
audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent Company
Financial statements
as a whole
£2,153,000, which is 5% of the Group’s profit before tax
after adjustment for acquisition-related and other specific
non-routine items. This benchmark is considered the
most appropriate because it is most reflective of the
underlying performance of the business.
£1,729,000, which is 2% of the Company’s total assets
capped at its component materiality. This benchmark is
considered the most appropriate because the Company
holds the Group’s investments and other assets and does
not trade.
Materiality for the current year is higher than the level that
we determined for the year ended 30 September 2018 to
reflect the change in benchmark from 4% of the Group’s
underlying operating profit stated before depreciation,
amortisation and share-based payments charges to 5% of
the Group’s normalised profit before tax, which is higher.
The change in benchmark is as a result of it being
considered most reflective of the Group’s underlying
performance.
Materiality for the current year is higher than the level that
we determined for the year ended 30 September 2018
as the Company’s total assets has increased due to the
acquisition of Cambian Group Limited, and so has the level
at which materiality has been capped, for the same reason.
60% of financial statement materiality.
60% of financial statement materiality.
We determined a lower level of specific materiality for
certain areas such as Directors’ remuneration and related
party transactions.
We determined a lower level of specific materiality for
certain areas such as Directors’ remuneration and related
party transactions.
£107,650 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
£86,450 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
Performance
materiality used to
drive the extent of our
testing
Specific materiality
Communication of
misstatements to the
Audit Committee
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected
misstatements.
Overall materiality – Group
Overall materiality – parent Company
60%
40%
60%
40%
Tolerance for potential uncorrected mis-statements
Performance materiality
CareTech Holdings PLC
Annual Report and Accounts 2019
55
Strategic reviewGovernanceFinancial Statements Independent Auditor’s Report
to the members of CareTech Holdings PLC
continued
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the Group’s business, its environment and risk profile,
and in particular included:
– Evaluation by the Group audit team of identified components to assess the significance of that component and to determine the planned audit
response based on a measure of materiality, considering the relative size of each component as a percentage of total Group assets, liabilities,
revenues and EBITDA. We performed a full scope audit of the financial statements of the parent Company and of the financial information
of Cambian Group Limited. We performed specific audit procedures on the financial information of certain smaller Group entities and we
performed analytical procedures over the remaining components.
– Evaluating controls over the financial reporting systems identified as part of our risk assessment. We tested the operating effectiveness of
controls relating to revenue recognition, payroll expenses and operating expenses to assess whether the controls were designed, implemented
and operating effectively. Due to the results of our controls testing on Cambian Group Limited’s revenues, we revised our audit approach and
performed substantive testing.
– The acquisition of Cambian Group Limited on 19 October 2018 for £359m caused a key change in scope of the audit from the prior year.
We assessed the accounting treatment for the acquisition. Cambian Group Limited has been identified as individually financially significant to
the Group. Changes include additional full scope audit for Cambian Group Limited and new identified risk areas of acquisition accounting and
valuation of goodwill.
– Inspecting the process that management follow to prepare and report results. Management prepare and report on the results on a Group basis
rather than on a Company basis. The subsidiaries in the Group are 100% controlled by the Company, apart from Spark of Genius (North East)
LLP which is 50% owned, and the Company provides a guarantee for all the subsidiaries’ liabilities, apart from those stated in note 29 of the
financial statements.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report and
accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information
and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
– Fair, balanced and understandable (set out on page 50) – the statement given by the Directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
– Audit Committee reporting (set out on pages 39 and 40) – the section describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee; or
As an AIM listed company, the Company is not required to comply with Listing Rule 9.8.10R(2) and therefore we do not report on whether we have
nothing to report in regard to our responsibility to specifically address the Directors’ statement of compliance with the UK Corporate Governance
Code and the parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for our review in accordance with Listing Rule 9.8.10R(2), and to report as uncorrected material
misstatements of the other information where we conclude that the Directors’ statement does not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
– adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the parent Company financial statements are not in agreement with the accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
CareTech Holdings PLC
Annual Report and Accounts 2019
56
Responsibilities of Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 50, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Philip Westerman
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
30 January 2020
CareTech Holdings PLC
Annual Report and Accounts 2019
57
Strategic reviewGovernanceFinancial Statements Consolidated Income Statement
for the year ended 30 September 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
EBITDA(i)
Depreciation
Amortisation of intangible assets
Acquisition expenses
Profit on ground rent transaction
Other non-underlying items
Share-based payments charge
Operating profit
Finance expenses
Profit before tax
Taxation
Profit for the year
Non-controlling interest
Profit for the year attributable
to owners of the parent
Earnings per share
Basic
Diluted
Note
Underlying
£000
4
394,994
(262,018)
132,976
2019
Non-
underlying(ii)
£000
Total
£000
Underlying
£000
2018
Non-
underlying(ii)
£000
–
–
–
394,994
185,689
(262,018)
(120,387)
132,976
65,302
(70,121)
(23,379)
(93,500)
62,855
(23,379)
39,476
73,546
(10,631)
–
–
–
–
(60)
–
–
73,546
(10,631)
(10,188)
(10,188)
(10,331)
(10,331)
4,565
(7,425)
–
4,565
(7,425)
(60)
13
6,14
6
6
6
62,855
(23,379)
39,476
6,9
(12,690)
(2,446)
(15,136)
(27,543)
37,759
43,862
(5,906)
–
–
–
(197)
37,759
(4,867)
–
–
–
(17,573)
(17,573)
–
–
(7,428)
(4,525)
(5,620)
–
(17,573)
51
Total
£000
185,689
(120,387)
65,302
(45,116)
20,186
43,862
(5,906)
(7,428)
(4,525)
(5,620)
(197)
20,186
(4,816)
15,370
(4,126)
11,244
(596)
50,165
(25,825)
24,340
32,892
(17,522)
6,10
(9,423)
5,209
(4,214)
40,742
(20,616)
20,126
(422)
–
(422)
(5,751)
27,141
(596)
1,625
(15,897)
–
40,320
(20,616)
19,704
26,545
(15,897)
10,648
11,12
11,12
37.60p
37.48p
18.38p
18.31p
35.07p
35.06p
14.07p
14.06p
There was no comprehensive income other than that passing through the Consolidated Income Statement and accordingly no separate statement
of comprehensive income has been prepared.
(i)
(ii)
EBITDA is operating profit stated before depreciation, share-based payments charge and non-underlying items.
Non-underlying items comprise: amortisation, acquisition expenses, integration, reorganisation and redundancy costs and profit associated with the ground rent transaction and are
explained in note 6.
CareTech Holdings PLC
Annual Report and Accounts 2019
58
Consolidated Balance Sheet
as at 30 September 2019
Non-current assets
Property, plant and equipment
Other intangible assets
Goodwill
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Loans and borrowings
Trade and other payables
Ground rent liabilities arising under IAS 17
Deferred and contingent consideration payable
Deferred income
Corporation tax
Derivative financial instruments
Non-current liabilities
Loans and borrowings
Ground rent liabilities arising under IAS 17
Deferred tax liabilities
Provisions
Derivative financial instruments
Total liabilities
Net assets
Equity
Share capital
Share premium
Shares held by Executive Shared Ownership Plan
Merger reserve
Non-controlling interest
Retained earnings
Total equity attributable to equity shareholders of the parent
Note
2019
£000
2018
£000
13
14
14
15
17
18
16
25
609,658
301,109
80,348
79,456
40,128
43,689
769,462
384,926
998
53,011
29,238
83,247
898
31,747
9,421
42,066
852,709
426,992
1,663
58,937
100
–
28,710
13,777
–
153,830
24,875
50
966
3,372
6,836
152
103,187
190,081
17
318,652
15,031
63,951
14,884
1,640
414,158
517,345
2,580
7,244
18,854
–
–
28,678
218,759
335,364
208,233
545
379
121,304
120,820
(3,537)
(4,750)
125,536
957
90,559
9,023
639
82,122
335,364
208,233
19
20
25
22
23
23
23
23
These financial statements were approved by the Board of Directors and authorised for issue on 30 January 2020 and were signed on its behalf by:
Farouq Sheikh
Group Executive Chairman
Company number: 04457287
CareTech Holdings PLC
Annual Report and Accounts 2019
59
Christopher Dickinson
Chief Financial Officer
Strategic reviewGovernanceFinancial Statements
Consolidated Statement of Changes in Equity
as at 30 September 2019
Share
capital
£000
379
Share
premium
£000
120,778
Shares held
by Executive
Shared
Ownership
Plan
£000
Retained
earnings
£000
(4,750)
78,771
Total
attributable to
owners of the
parent
£000
204,201
Merger
reserve
£000
9,023
–
–
–
–
–
–
–
42
–
–
–
42
–
–
–
–
–
–
10,648
–
197
(7,494)
–
(7,297)
–
–
–
–
–
–
10,648
42
197
(7,494)
–
(7,255)
Non-
controlling
Interest
£000
–
–
–
–
–
639
639
Total Equity
£000
204,201
10,648
42
197
(7,494)
639
(6,616)
At 1 October 2017
Profit for the year and total
comprehensive income
Issue of ordinary shares
Equity-settled share-based
payments charge
Dividends
Minority interest
Transactions with owners
recorded directly in equity
At 30 September 2018
379
120,820
(4,750)
82,122
9,023
207,594
639
208,233
Adoption of IFRS 91
Restated at 1 October 2018
Profit for the year and total
comprehensive income
Issue of ordinary shares
Equity-settled share-based
payments charge
Redemption of share options
Dividends
Minority interest
Transactions with owners
recorded directly in equity
–
379
–
166
–
–
–
–
–
–
(525)
–
(525)
120,820
(4,750)
81,597
9,023
207,069
–
639
(525)
207,708
–
484
–
–
–
–
–
–
–
1,213
–
–
19,704
–
19,704
–
60
–
(10,802)
–
116,513
117,163
–
–
–
–
60
1,213
(10,802)
–
166
484
1,213
(10,742)
116,513
107,634
–
–
–
–
–
318
318
19,704
117,163
60
1,213
(10,802)
318
107,952
At 30 September 2019
545
121,304
(3,537)
90,559
125,536
334,407
957
335,364
Notes:
1
The Group has applied IFRS 9 using the cumulative effect method. Under this method the comparative information is not restated. See note 2.
CareTech Holdings PLC
Annual Report and Accounts 2019
60
Consolidated Statement of Cash Flows
for the year ended 30 September 2019
Cash flows from operating activities
Profit before tax
Adjustments for:
Finance expenses
Depreciation
Amortisation
Acquisition expenses
Profit arising from the ground rent transaction
Other non-underlying items
Share-based payments charge
Operating cash flows before movement in working capital
Increase in inventory
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Operating cash flows before adjustment items
Integration and restructuring costs
Payment of charitable donations
Payments made under onerous contracts
Payment of acquisition costs
Cash inflows from operating activities
Tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Payments for business combinations
Acquisition of property, plant and equipment
Acquisition of software
Payment of deferred consideration
Net cash used in investing activities
Cash flows from financing activities
Proceeds from share capital
Proceeds from finance sale and leaseback
Interest paid
Cash outflow arising from derivative financial instruments
Bank loans drawdown
Loan arrangement fees paid
Repayment of borrowings
Payment of finance lease liabilities
Dividends paid
Net cash arising from/(used in) from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 October
Cash and cash equivalents at 30 September
CareTech Holdings PLC
Annual Report and Accounts 2019
61
Note
2019
£000
2018
£000
24,340
15,370
15,136
10,631
10,188
10,331
(4,565)
7,425
60
4,816
5,906
7,428
4,525
–
5,620
197
73,546
43,862
(100)
(6,518)
(604)
66,324
(5,597)
(736)
(151)
(14,393)
45,447
(5,889)
39,558
23,894
(160,271)
(27,810)
(2,699)
(966)
(63)
(8,228)
3,875
39,446
(3,652)
(380)
(377)
(839)
34,198
(4,135)
30,063
1,201
(72)
(14,519)
(2,538)
–
(167,852)
(15,928)
9
13
14
6
6
6
8
6
6
5
13
14
22
1,697
7,888
(10,945)
(308)
431,910
(4,696)
(263,576)
(3,057)
24
(10,802)
148,111
19,817
9,421
29,238
42
–
(4,650)
(649)
11,035
(1,436)
(5,775)
(2,189)
(7,494)
(11,116)
3,019
6,402
9,421
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
Background and basis of preparation
1
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 2019 comprise
the Company and its subsidiaries (together referred to as the “Group”).
The consolidated financial statements are presented in pounds sterling,
which is the Company’s functional currency, rounded to the nearest
thousand. The parent Company financial statements on pages 93 to 99
present information about the Company as a separate entity and
not about its Group.
The consolidated financial statements were approved for release by the
Board of Directors on 30 January 2020.
Going concern
The Group’s business activities together with the factors likely to affect its
future development, performance and position are set out in the Group
Chairman’s Statement and Group Chief Executive’s Statement and
Performance Review on pages 4 to 7 and pages 8 to 11. The financial
position of the Group, its cash flows, liquidity position and borrowing
facilities are described in the Group Financial Review on pages 27 to
31. In addition, note 25 to the financial statements includes the Group’s
objectives, policies and processes for managing its capital, its financial
risk management objectives, details of its financial instruments and
hedging activities and its exposures to credit risk, interest rate risk and
liquidity risk. As highlighted in that note, the Group meets its day-
to-day working capital requirements through cash flow from profits
together with existing bank facilities which are sufficient to fund present
commitments. Term facilities are utilised to fund capital expenditure and
short-term flexibility is achieved by the utilisation of cash resources in
respect of financial liabilities, which are shown in the table in note 25
and indicates their contractual cash flow maturities.
During the year, the Group entered into new banking facilities with
a consortium of eight banks (Barclays Bank PLC, HSBC UK Bank plc,
Santander UK plc, AIB Group (UK) plc, Clydesdale Bank PLC, Credit
Suisse AG, Lloyds Bank plc and National Westminster Bank plc) for
committed financing by way of term loans of between 3.5 to 5 years
up to £322m. In addition to the Term Loans, a £25m revolving credit
facility is available to provide working capital for the Enlarged Group
together with a day-to-day overdraft facility of £2m. There are a number
of Banking Covenants which ratchet depending on time and Group
performance. The Directors forecast that they are able to meet all
Banking Covenants which are reviewed regularly.
As part of the acquisition of Cambian 2018 the Group’s property
portfolio was revalued by Knight Frank and Cushman and Wakefield
and the market value was £774m. These valuations are not reflected
in the Consolidated Statement of Financial Position. The ground-rent
transaction during the year raised £31m of net cash on less than 10%
of the Group’s freehold asset portfolio.
The Group’s underlying operating business is cash generative, much
of the business has a long-term profile with both debtor days and
creditor days comparatively low. Non-underlying costs arising from the
acquisition of Cambian together with the integration costs and costs in
realising synergies have substantially been settled during the year. As at
the balance sheet date, the Group had cash balances of £29m.
The Directors have prepared a cash flow forecast taking into account
all expected cash flows for 12 months from the date of signing these
financial statements. After making due enquiries, the Directors have
a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern basis
of accounting for the Group and parent Company in preparing the
consolidated financial statements.
CareTech Holdings PLC
Annual Report and Accounts 2019
62
Accounting policies
2
(a) Applicable accounting standards
The Group financial statements have been prepared and approved
by the Directors in accordance with International Financial Reporting
Standards as adopted by the EU (“Adopted IFRS”) and those parts of
the Companies Act 2006 relevant to those companies which report
in accordance with IFRS.
The accounting policies set out below have, unless otherwise stated,
been applied consistently to all periods presented in these Group
financial statements.
New and amended standards and interpretations effective in the year
IFRS 9 Financial Instruments
The Group has adopted IFRS 9 Financial Instruments. The date of initial
application was 1 October 2018. In accordance with the transaction
provisions in the Standard, comparatives have not been restated.
The Group has not applied the requirements of IFRS 9 to instruments
that were derecognised prior to 1 October 2018.
The Group has reviewed its financial assets and liabilities from the impact
of IFRS 9 as follows:
Classification and measurement
IFRS 9 contains three principal classification categories for financial
assets: measured at amortised cost, fair value through profit and loss
and fair value through other comprehensive income.
The Group’s financial assets at 30 September 2019 consist primarily of
trade receivables, which will continue to be reflected at amortised cost
as the Group’s business model is to collect contractual cash flows from
customers, which are solely payments of principal.
In respect of the classification and measurement of financial liabilities,
the accounting has remained largely the same as under IAS 39.
Financial liabilities are measured at amortised cost or at fair value through
profit and loss (FVTPL). Financial liabilities are classified as at FVTPL when
the liability is (i) contingent consideration of an acquirer in a business
combination, (ii) held for trading, or (iii) it is designated as FVTPL.
Impairment of financial assets
IFRS 9 requires an expected credit loss (ECL) model to be applied to
financial assets rather than the incurred credit loss model required under
IAS 39. The ECL model requires the Group to account for expected
losses as a result of credit risk on initial recognition of financial assets
and to recognise changes in those expected credit losses at each
reporting date.
The main area of focus to the Group is considered to be the impairment
provisioning of trade receivables. For trade receivables, the Group uses
the simplified approach under IFRS 9 to recognise lifetime expected
credit losses. For trade receivables, the Group recognises a loss
allowance for expected credit losses at an amount equal to the lifetime
expected credit loss (ECL). In calculating, the Group uses its historical
experience, external indicators and forward-looking information to
calculate the expected credit losses using a provision matrix. This is
recorded through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in profit
or loss.
In assessing the credit risk, the majority of CareTech’s customers are
Local Authorities controlled by the UK Government. The credit risk
associated with trade receivables with Local Authorities controlled by
the UK Government is considered low. The remainder of the Group’s
customers are private payers. Management have made an assessment of
the recoverability of trade debtors under the new ECL requirements and
this has resulted in an additional charge of £0.5m which was made as an
opening balance adjustment as at 1 October 2018.
Aside from trade receivables, the carrying amount of the financial asset
is reduced by the impairment loss directly for all financial assets.
The table below illustrates the classification and measurement of financial assets and financial liabilities under IFRS 9 and IAS 39 at the date of
initial application.
Category
Original measurement category
under IAS 39
New measurement category under
IFRS 9
Trade and other receivables
Loans and receivables
Financial assets at amortised cost
Cash and bank balances
Loans and receivables
Financial assets at amortised cost
Trade and other payables
Financial liabilities at amortised cost Financial liabilities at amortised cost
31,747
9,421
24,875
Loans and borrowings
Loans and payables
Financial liabilities at amortised cost
156,410
Derivative financial instruments FVTPL
FVTPL
152
(525)
N/A
N/A
N/A
N/A
31,222
9,421
24,875
156,410
152
Carrying
amount under
IAS 39
£000
Additional
allowance
recognised
under IFRS 9
£000
New carrying
amount under
IFRS 9
£000
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 October 2018 and has adopted the modified retrospective
approach without restatement of comparatives. IFRS 15 provides a single, principles-based approach to the recognition of revenue from all contracts
with customers. It focuses on the identification of performance obligations in a contract and requires revenue to be recognised when or as those
performance obligations are satisfied.
CareTech Holdings plc provide care services to vulnerable adults and children which are consumed as soon as they are provided. CareTech satisfies
its performance obligations as care services are rendered to the client. There are no significant financing components and invoice payment terms are
typically 30 days. For Fostering Services, CareTech is acting as a principal as contracts are between CareTech and the Local Authority and separately
between CareTech and foster carers with a number of performance conditions attached to each. Our contracts provide that CareTech are entitled to
consideration based on the amount of care services delivered (for example number of days’ worth of care delivered in the period) and an agreed rate.
On this basis, CareTech have applied the practical expedient set out in IFRS 15 para 121.
This has not resulted in any significant adjustments to the Group’s revenue as reported.
Contract assets and liabilities/accrued and deferred income
The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as
deferred income in the balance sheet (see note 16). An example of this is where the Group will invoice in advance for education services. This is held
in deferred income until the service has been provided.
Similarly the Group recognises a contract asset when a contract has been agreed with a customer and a service user has been admitted to our
facilities but no sales invoice has been issued. This is disclosed as accrued income.
The Group will estimate the accrued income using the agreed contractual rate and the number of days where the service user was receiving care
from the Group.
Revenue disaggregation
The vast majority of the Group’s customers are state owned entities such as Local Authorities. All the Group’s operations are within the UK. As such
the Group have determined that because its revenue is earned in one geographical location to one specific type of customer, it is appropriate to
report the revenue recognised from contracts with customers in the same operating segments as are used for segmental analysis (see note 4).
CareTech Holdings PLC
Annual Report and Accounts 2019
63
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Accounting policies continued
2
Adopted IFRS not yet applied
At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been
published by the IASB but are not yet effective and these have not been applied early by the Group. Management anticipates that the following
pronouncements relevant to the Group’s operation will be adopted in the Group’s accounting policies for the first period beginning after the effective
date of the pronouncement, once adopted by the EU:
Title
IFRS 16
IFRIC 23
Subject
Leases
Uncertainty over Income Tax Treatments
Effective date per standard
1 January 2019
1 January 2019
Amendments to IFRS 9 (Oct 2017)
Prepayment Features with Negative Compensation 1 January 2019
Amendments to IAS 28 (Oct 2017)
Long-term Interests in Associates and
Joint Ventures
1 January 2019 per IASB. EU adoption date to
be confirmed
Annual Improvements to IFRS Standards
2015-2017 Cycle (Dec 2017)
Annual Improvements to IFRSs: 2015-17 Cycle
Amendments to IAS 19 (Feb 2018)
Plan Amendment, Curtailment or Settlement
1 January 2019 per IASB. EU adoption date to
be confirmed
1 January 2019 per IASB. EU adoption date to
be confirmed
Amendments to References to the Conceptual
Framework in IFRS Standards
Amendments to References to the Conceptual
Framework in IFRS Standards
1 January 2020 per IASB. EU adoption date to
be confirmed
Amendments to IFRS 3 (Oct 2018)
Definition of Business
Amendments to IAS 1 and IAS 8 (Oct 2018)
Definition of Material
IFRS 17
Insurance Contracts
1 January 2020 per IASB. EU adoption date to
be confirmed
1 January 2020 per IASB. EU adoption date to
be confirmed
1 January 2021 per IASB. EU adoption date to
be confirmed
Amendments to IFRS 10 and IAS 28 (Sept 2014) Sale or Contribution of Assets between an Investor
Postponed
and its Associate or Joint Venture
IFRS 16 will replace IAS 17 for accounting periods commencing on or after 1 January 2019 and from the perspective of the Group as lessee will
require (subject to certain practical expedients) most of the Group’s lease obligations (including the recent sale and leaseback transaction) to be
reflected on balance sheet with a corresponding asset reflecting the right to use the underlying leased asset. Management have performed a detailed
review of the Group’s lease arrangements and further information has been provided in note 28.
The Group’s current lease accounting policy and lease disclosures are included in notes 17 and 26.
There are other standards and interpretations in issue but these are not considered to be relevant to the Group.
The Directors expect that the adoption of the standards listed above, other than potentially IFRS 16, will not have a material impact on the financial
information of the Group in future reporting periods.
(b) Measurement convention
The financial statements are prepared on the historical cost basis except that derivative financial instruments are stated at their fair value and
contingent consideration is stated at fair value through profit or loss.
(c) Basis of consolidation
The Group financial statements consolidate those of the parent Company and all of its subsidiaries as of 30 September 2019. All subsidiaries have
a reporting date of 30 September. All transactions and balances between Group companies are eliminated on consolidation, including unrealised
gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are reversed on consolidation, the
underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
(d) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials
and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use and capitalised borrowing
costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
The cost of replacing an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future
economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the
replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the profit or loss
as incurred.
CareTech Holdings PLC
Annual Report and Accounts 2019
64
Where parts of an item of property, plant and equipment have different
useful lives, they are accounted for as separate items of property, plant
and equipment and depreciated separately.
The estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in estimate
being accounted for on a prospective basis.
Leases in which the Group assumes substantially all the risks and
rewards of ownership of the leased asset are classified as finance
leases. Where land and buildings are held under leases the accounting
treatment of the land is considered separately from that of the buildings.
Leased assets acquired by way of finance lease are stated at an amount
equal to the lower of their fair value and the present value of the
minimum lease payments at inception of the lease, less accumulated
depreciation and impairment losses. Lease payments are accounted for
as described in note 2(p).
Depreciation is charged to the Consolidated Income Statement over
the estimated useful lives of each part of an item of property, plant and
equipment. Land is not depreciated. The Directors reassess the residual
value estimates, particularly in respect of properties, on an annual basis.
The estimated useful lives are as follows:
– freehold buildings
– long leasehold property
– short leasehold property
– fixtures, fittings and equipment
– motor vehicles
2% straight-line to residual value;
over the life of the lease;
over the life of the lease;
15% straight line; and
25% reducing balance.
Intangible assets and goodwill
(e)
All business combinations are accounted for by applying the acquisition
method as described in note 2(r). Goodwill represents the excess of
the fair value of the consideration over the fair value of the assets,
liabilities and contingent liabilities acquired on acquisition of subsidiaries.
Identifiable intangibles are those which can be sold separately or which
arise from legal rights regardless of whether those rights are separable.
Amortisation is charged to the Consolidated Income Statement on a
straight-line basis over the estimated useful lives of intangible assets
unless such lives are indefinite. The estimated useful lives are as follows:
– customer relationships
– software and licences
1–20 years; and
5 years.
Inventories
(f)
Inventories are valued at the lower of cost and net realisable value.
The cost of inventories is based on a first-in first-out cost basis.
(g) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits
with maturities of three months or less from inception.
Financial Instruments (under IFRS 9)
(h)
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument
and are measured initially at fair value adjusted by transactions costs,
except for those carried at fair value through profit or loss which are
measured initially at fair value. Subsequent measurement of financial
assets and financial liabilities are described below.
Financial assets are derecognised when the contractual rights to the
cash flows from the financial asset expire, or when the financial asset
and all substantial risks and rewards are transferred. A financial liability is
derecognised when it is extinguished, discharged, cancelled or expires.
Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash-generating units and is not amortised
but is tested annually for impairment.
Negative goodwill (bargain purchase credit) arising on an acquisition
is recognised immediately in the Consolidated Income Statement.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are
classified into the following categories upon initial recognition:
– Financial assets at amortised cost
– Financial assets/liabilities held at fair value through profit or loss
(FVTPL).
Other intangible assets that are acquired by the Group are stated at cost
less accumulated amortisation and impairment losses.
Expenditure on research activities is recognised as an expense in the
period in which it is incurred.
All financial assets except for those at FVTPL are subject to review for
impairment at least at each reporting date to identify whether there is
any objective evidence that a financial asset or a group of financial assets
is impaired. Different criteria to determine impairment are applied for
each category of financial assets, which are described below.
All income and expenses relating to financial assets that are recognised
in the Consolidated Income Statement are presented within finance
costs or finance income, except for impairment of trade receivables
which is presented within other administrative expenses.
Financial assets at amortised cost
Financial assets at amortised cost are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market.
After initial recognition, these are measured at amortised cost using the
effective interest method, less provision for impairment. Discounting
is omitted where the effect of discounting is immaterial. The Group’s
cash and cash equivalents, trade and most other receivables fall into
this category of financial instruments. Individually significant receivables
are considered for impairment when they are past due or when other
objective evidence is received that a specific counterparty will default.
Receivables that are not considered to be individually impaired are
reviewed for impairment in groups, which are determined by reference
to shared credit risk characteristics. The impairment loss estimate is
then based on recent historical counterparty default rates for each
identified group.
Included within software are development costs in relation to software
which are capitalised when the related projects meet the recognition
criteria of an internally generated intangible asset, the key criteria being
as follows:
(a)
technical feasibility of the completed intangible asset has been
established;
it can be demonstrated that the asset will generate probable future
economic benefits;
adequate technical, financial and other resources are available to
complete the development;
the expenditure attributable to the intangible asset can be reliably
measured; and
management has the ability and intention to use or sell the asset.
(b)
(c)
(d)
(e)
These projects are designed to enhance the existing software within
the Group. Salaries associated with development time and directly
attributable overheads are capitalised within intangible assets.
Development costs recognised as assets are amortised on a straight-
line basis over their expected useful life. Development expenditure is
only amortised over the period the Group is expected to benefit and is
subject to annual impairment testing.
CareTech Holdings PLC
Annual Report and Accounts 2019
65
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Accounting policies continued
2
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that are either classified
as held for trading or that meet certain conditions and are designated at
FVTPL upon initial recognition. All derivative financial instruments fall into
this category. Assets in this category are measured at fair value with gains
or losses recognised in the Consolidated Income Statement. The fair
values of financial assets in this category are determined by reference
to active market transactions or using a valuation technique where no
active market exists.
Classification and subsequent measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade and other
payables and derivative financial instruments. Financial liabilities are
measured subsequently at amortised cost using the effective interest
method, except for financial liabilities held for trading or designated at
FVTPL, that are carried subsequently at fair value with gains or losses
recognised in the Consolidated Income Statement. All derivative financial
instruments that are not designated and effective as hedging instruments
are accounted for at FVTPL.
All interest-related charges and, if applicable, changes in an instrument’s
fair value that are reported in Consolidated Income Statement are
included within finance costs or finance income.
From time to time, the long-term debt held by the Group are either
refinanced as these come to maturity or the margin on these facilities
moves in line with the ratio of the Group’s net debt to EBITDA.
In either scenario, the Group reviews whether the debt is accounted
for as a modification or an extinguishment of the liability. A substantial
modification should be accounted for as an extinguishment of the
existing liability and the recognition of a new liability. A non-substantial
modification should be accounted for as an adjustment to the existing
liability. Both the quantitative and qualitative aspects of the modification
are taken into account to ascertain whether the modification is
substantial and these can include the change in covenants, repayment
dates and the effective interest rate. If modification accounting is
adopted, the carrying value of the existing liability is adjusted for fees
paid or costs incurred and the effective interest rate is amended at
the modification date. If extinguishment accounting is adopted, the
existing liability is de-recognised and the new or modified liability is
recognised at its fair value, the gain or loss equal to the difference
between the carrying value of the old liability and the fair value of the
new one is recognised, any incremental costs or fees incurred and any
consideration paid or received is recognised in profit or loss and a new
effective interest rate for the modified liability is calculated and used in
future periods.
Derivative financial instruments.
From time to time, the Group enters into derivative financial instruments,
such as interest rate swaps, to manage its exposure to interest rate risk.
Derivatives are initially recognised at fair value at the date a derivative is
entered into and are subsequently remeasured to their fair value at each
balance sheet date. A derivative with a positive fair value is recognised
as a financial asset whereas a derivative with a negative fair value is
recognised as a financial liability. The resulting gain or loss is recognised
in the Consolidated Income Statement immediately. A derivative is
presented as a non-current asset or non-current liability if the Group
has an unconditional right to defer payment beyond 12 months.
Otherwise derivatives are presented as current assets or liabilities.
FY2018 Financial Instruments Accounting policy under IAS 39
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument
and are measured initially at fair value adjusted by transactions costs,
except for those carried at fair value through profit or loss which are
measured initially at fair value. Subsequent measurement of financial
assets and financial liabilities are described below.
Financial assets are derecognised when the contractual rights to the
cash flows from the financial asset expire, or when the financial asset
and all substantial risks and rewards are transferred. A financial liability is
derecognised when it is extinguished, discharged, cancelled or expires.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are
classified into the following categories upon initial recognition:
– loans and receivables; and
– financial assets at fair value through profit or loss (FVTPL).
All financial assets except for those at FVTPL are subject to review for
impairment at least at each reporting date to identify whether there is
any objective evidence that a financial asset or a group of financial assets
is impaired. Different criteria to determine impairment are applied for
each category of financial assets, which are described below.
All income and expenses relating to financial assets that are recognised
in the Consolidated Statement of Comprehensive Income are presented
within finance costs or finance income, except for impairment of trade
receivables which is presented within other administrative expenses.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
After initial recognition, these are measured at amortised cost using the
effective interest method, less provision for impairment. Discounting
is omitted where the effect of discounting is immaterial. The Group’s
cash and cash equivalents, trade and most other receivables fall into
this category of financial instruments. Individually significant receivables
are considered for impairment when they are past due or when other
objective evidence is received that a specific counterparty will default.
Receivables that are not considered to be individually impaired are
reviewed for impairment in groups, which are determined by reference
to shared credit risk characteristics. The impairment loss estimate is
then based on recent historical counterparty default rates for each
identified group.
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that are either classified
as held for trading or that meet certain conditions and are designated
at FVTPL upon initial recognition. All derivative financial instruments
fall into this category. Assets in this category are measured at fair
value with gains or losses recognised in the Consolidated Statement
of Comprehensive Income. The fair values of financial assets in this
category are determined by reference to active market transactions or
using a valuation technique where no active market exists.
CareTech Holdings PLC
Annual Report and Accounts 2019
66
Classification and subsequent measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade and other
payables and derivative financial instruments. Financial liabilities are
measured subsequently at amortised cost using the effective interest
method, except for financial liabilities held for trading or designated at
FVTPL, that are carried subsequently at fair value with gains or losses
recognised in the Consolidated Statement of Comprehensive Income.
All derivative financial instruments that are not designated and effective
as hedging instruments are accounted for at FVTPL.
All interest-related charges and, if applicable, changes in an instrument’s
fair value that are reported in Consolidated Statement of Comprehensive
Income are included within finance costs or finance income.
From time to time, the long-term debt held by the Group are either
refinanced as these come to maturity or the margin on these facilities
moves in line with the ratio of the Group’s net debt to EBITDA.
In either scenario, the Group reviews whether the debt is accounted
for as a modification or an extinguishment of the liability. A substantial
modification should be accounted for as an extinguishment of the
existing liability and the recognition of a new liability. A non-substantial
modification should be accounted for as an adjustment to the existing
liability. Both the quantitative and qualitative aspects of the modification
are taken into account to ascertain whether the modification is
substantial and these can include the change in covenants, repayment
dates and the effective interest rate. If modification accounting is
adopted, the carrying value of the existing liability is adjusted for fees
paid or costs incurred and the effective interest rate is amended at
the modification date. If extinguishment accounting is adopted, the
existing liability is de-recognised and the new or modified liability is
recognised at its fair value, the gain or loss equal to the difference
between the carrying value of the old liability and the fair value of the
new one is recognised, any incremental costs or fees incurred and any
consideration paid or received is recognised in profit or loss and a new
effective interest rate for the modified liability is calculated and used in
future periods.
Derivative financial instruments.
From time to time, the Group enters into derivative financial instruments,
such as interest rate swaps, to manage its exposure to interest rate risk.
Derivatives are initially recognised at fair value at the date a derivative
is entered into and are subsequently remeasured to their fair value
at each balance sheet date. A derivative with a positive fair value is
recognised as a financial asset whereas a derivative with a negative fair
value is recognised as a financial liability. The resulting gain or loss is
recognised in the Consolidated Statement of Comprehensive Income
immediately. A derivative is presented as a non-current asset or non-
current liability if the Group has an unconditional right to defer payment
beyond 12 months. Otherwise derivatives are presented as current assets
or liabilities.
Impairment (excluding deferred tax assets)
(i)
The carrying amounts of the Group’s assets are reviewed at each balance
sheet date to determine whether there is any indication of impairment.
If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill and assets that have an indefinite useful life, the recoverable
amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount
of an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the Consolidated
Income Statement.
Impairment losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated
to cash-generating units and then to reduce the carrying amount of
the other assets in the unit on a pro rata basis. A cash-generating unit is
the smallest identifiable group of assets that generates cash inflows that
are largely independent of the cash inflows from other assets or groups
of assets.
Calculation of recoverable amount
The recoverable amount of the Group’s receivables carried at amortised
cost is calculated as the present value of estimated future cash flows,
discounted at the original effective interest rate. Receivables with a short
duration are not discounted.
The recoverable amount of other assets is the greater of their fair value
less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset belongs.
Reversals of impairment
An impairment loss in respect of a receivable carried at amortised cost
is reversed if the subsequent increase in recoverable amount can be
related objectively to an event occurring after the impairment loss
was recognised.
Any impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed when there
is an indication that the impairment loss may no longer exist or there
has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
Interest-bearing borrowings
(j)
Interest-bearing borrowings are recognised initially at fair value
less directly attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost
with any difference between proceeds (net of transaction costs)
and the redemption value being recognised in the Consolidated
Income Statement over the period of the borrowings on an effective
interest basis.
Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least
12 months after the reporting date.
Interest on qualifying assets is capitalised in accordance with IAS 23
borrowing costs. Refer to note 9.
Employee benefits
(k)
Defined contribution plans
Obligations for contributions to defined contribution pension plans
are recognised as an expense in the Consolidated Income Statement
as incurred.
CareTech Holdings PLC
Annual Report and Accounts 2019
67
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Accounting policies continued
2
Short-term benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is provided.
A provision is recognised for the amount expected to be paid under
short-term cash bonus or profit-sharing plans if the Group has a
present legal or constructive obligation to pay this amount as a result
of past service provided by the employee and the obligation can be
estimated reliably.
Share-based payment transactions
The grant date fair value of options granted to employees is recognised
as an employee expense, with a corresponding increase in equity, over
the period in which the employees become unconditionally entitled to
the options. The fair value of the options granted is measured using an
option valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognised on
exercise as an expense is adjusted to take into account an estimate
of the number of shares that are expected to vest as well as to reflect
the actual number of share options that vest, except where forfeiture
is due only to share prices not achieving the threshold for vesting.
Options lapsed are expunged from the relevant scheme.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trust (EBT) have been
included in the consolidated financial statements. Any assets held by the
EBT cease to be recognised on the consolidated balance sheet when
the assets vest unconditionally in identified beneficiaries.
The costs of purchasing own shares held by the EBT are shown as a
deduction against equity. The proceeds from the sale of own shares held
increase equity. Neither the purchase nor sale of own shares leads to a
gain or loss being recognised in the Consolidated Income Statement.
Provisions
(l)
A provision, other than provisions for deferred taxation, is recognised
in the Balance Sheet where a reliable estimate can be made when the
Group has a present legal or constructive obligation as a result of a past
event, and it is probable that an outflow of economic benefits will be
required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected, risk adjusted, and future cash
flows at a pre-tax risk-free rate.
(m) Revenue
Revenue in respect of the provision of care services is measured as the
fair value of fee income received or receivable in respect of the services
provided and is recognised in respect of the care that has been provided
in the relevant period. Any additional services provided by the Group are
recognised as services are provided. Fostering revenue is recognised
on the basis of the daily placements made with a full day’s revenue
recognised for every night a placement is with a foster carer.
Revenue in respect of educational services is recognised when the
young person is in school, over the academic year, as this is when the
customer is receiving the educational services.
Revenue in respect of apprenticeship and related learning services is
recognised over time and at a point in time. 80% of the revenues are
recognised over time as the courses are delivered. 20% of the funding is
directly linked to course completion milestones reached by apprentices
at which point the remaining funding is receivable and recognised.
A corresponding balance is recognised in receivables.
Income which has been invoiced but irrecoverable is treated as a bad
debt expense. Revenue invoiced in advance is included in deferred
revenue until the service is provided. Revenue is recognised net of VAT
and credit notes.
(n) Non-underlying items
The Group has applied an income statement format which seeks to
highlight significant items within Group results for the year. Such items
may include significant restructuring and onerous lease provisions,
fair values movements in contingent consideration, profit or loss on
disposal or termination of operations, litigation costs and settlement
of share-based payments, profit or loss on disposal of investments and
impairment of assets. The Group exercises judgement in assessing the
particular items which, by virtue of their scale and nature, should be
disclosed in the Income Statement and related notes as non-underlying
items. The Group believes that such a presentation is useful for the users
of the financial statements in helping to provide a balanced view of, and
relevant information on, the Group’s financial performance. Details are
included in note 6.
(o) Expenses
Finance lease payments
Minimum lease payments are apportioned between the finance charge
and the reduction of the outstanding liability. The finance charge is
allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability.
Financing costs
Financing costs, comprising interest payable on bank loans and
overdrafts, finance charges on finance leases, the unwinding of the
discount on provisions and the costs incurred in connection with the
arrangement of borrowings are recognised in the Consolidated Income
Statement using the effective interest method.
Interest payable is recognised in the Consolidated Income Statement
as it accrues, using the effective interest method. Financing costs that
are directly attributable to the acquisition or construction of a qualifying
asset are capitalised as part of the cost of that asset.
Financing costs also include losses arising on the change in fair value of
derivatives that are recognised in the Consolidated Income Statement.
(p) Operating leases
Payments made under operating leases are recognised in the
Consolidated Income Statement on a straight-line basis over the term of
the lease. Lease incentives received are recognised in the Consolidated
Income Statement on a straight-line basis over the lease term.
CareTech Holdings PLC
Annual Report and Accounts 2019
68
(q) Taxation
Tax on the profit or loss for the year comprises current and deferred
tax. Tax is recognised in the Consolidated Income Statement except to
the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity. Current tax is the expected tax payable
on the taxable income for the year, using tax rates and laws enacted or
substantively enacted at the balance sheet date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. The following temporary
differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting
nor taxable profit other than in a business combination; and differences
relating to investments in subsidiaries to the extent that they will probably
not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates and laws enacted or substantively enacted at the
balance sheet date. A deferred tax asset is recognised only to the extent
that it is probable that future taxable profits will be available against which
the asset can be utilised. The carrying amounts of deferred tax assets are
reviewed at each balance sheet date.
Business combinations
(r)
The Group applies the acquisition method in accounting for business
combinations. The consideration transferred by the Group to obtain
control of a subsidiary is calculated as the sum of the acquisition-date
fair values of assets transferred, liabilities incurred and the equity interests
issued by the Group, which includes the fair value of any asset or liability
arising from a contingent consideration arrangement. The calculation
of contingent consideration is based on the provisions included in
the sale and purchase agreement of each acquisition and is updated
if circumstances change. Acquisition costs are expensed as incurred.
Assets acquired and liabilities assumed are measured at their acquisition-
date fair values.
Accounting estimates and judgements
3
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions which
affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
In the process of applying the Group’s accounting policies, the
Directors have made the following estimates and judgements which
have the most significant effect on the amounts recognised in the
financial statements:
Estimates
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any future periods affected.
Goodwill
The Group annually tests whether there is any impairment in
goodwill, in accordance with the accounting policy outlined in note 1.
Determining whether goodwill is impaired requires comparison of the
value in use for the relevant CGUs to the net assets attributable to these
CGUs. The value in use calculation is based on an estimate of future
cash flows expected to arise from the CGUs and these are discounted to
net present value using an appropriate discount rate. In calculating value
in use, management judgement is required in forecasting cash flows
of cash-generating units, in determining terminal growth values and in
calculating an appropriate discount rate. The goodwill impairment test is
sensitive to these estimates. The Group has performed sensitivity analysis
over the value in use calculation with respect to the key estimates.
The discount rates applied in these calculations are disclosed in note 14.
Determining the useful life of intangible assets requires judgement.
Management regularly reviews these useful lives and changes them
if necessary to reflect current conditions. Changes in useful lives can
have a significant impact on the amortisation charge for the year.
The amortisation expense in the year by class of intangible asset and the
weighted average remaining useful lives for each category of intangible
assets are disclosed in note 2(e).
Property, plant and equipment
It is Group policy to depreciate property, plant and equipment items
to their estimated residual value over their estimated useful lives.
This applies an appropriate matching of the revenue earned with the
capital costs of delivery of services. A key element of this policy is the
annual estimate of the residual value of such assets and in particular
of freehold property. Similarly, the Directors estimate the useful life
applied to each category of property, plant and equipment which, in
turn, determines the annual depreciation charge. Variations in residual
values or asset lives could impact significantly Group profit through
an increase in the depreciation charge. The estimated useful lives and
depreciation policies for property, plant and equipment are disclosed
in Note 2(d).
Impairment of trade receivables
In the course of normal trading activities, judgement is used to establish
the net realisable value of various elements of working capital, principally
trade receivables. The Group applies the IFRS 9 simplified model of
recognising lifetime expected credit losses (ECL) for all trade receivables
as these items do not have a significant financing component.
In measuring the ECL, the trade receivables have been assessed on
a collective basis as they possess shared credit risk characteristics.
The provision matrix used to calculate the ECL is based on the facts
available at the time and are also determined by using profiles, based
upon past practice, applied to aged receivables. In assessing the ECL,
judgement is required, including the current creditworthiness of each
customer and related ageing of past due balances. Specific accounts
are assessed in situations where a customer may not be able to meet
its financial obligations due to deterioration of its financial condition,
credit ratings or bankruptcy. Further information regarding ECL is given
in note 25.
CareTech Holdings PLC
Annual Report and Accounts 2019
69
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Accounting estimates and judgements continued
3
Judgements
Business combination
Judgement is required in determining the fair value of assets and
liabilities on the date of acquisition as well as determining the date of
acquisition of Cambian. For the fair values, the Directors have made
judgements around the valuation of property, plant and equipment
and intangible assets based on external valuations they commissioned.
The fair values of trade and other receivables and trade and other
receivables reflect their value on a going concern basis. In determining
the date of acquisition, the Board has assessed this as the date on which
it obtained control over Cambian in accordance with IFRS3 paragraph
8, as 19 October 2019. This is the date on which the shares of Cambian
were delisted from the London Stock Exchange. This is also the date in
which the exposure, or rights, to variable returns from its involvement
with Cambian were obtained. Disclosure in respect of the business
combination is given in note 5a.
Provisions
As part of the business combination, certain provisions were identified
including sleep-in payments and onerous contracts. A “sleep-in” payment
refers to a type of work, common in the care sector, where employees
“sleep-in” and are paid an allowance for doing so. HMRC’s initial view
was that hours spent by employees performing sleep-in count as
“working time” and therefore should be included when calculating
whether or not someone has been paid in accordance with the National
Minimum Wage Regulations 2015. In November 2017, HMRC reiterated
its position and invited companies to join the Social Care Compliance
Scheme, a self-reporting scheme aimed at concluding historic payments
regarding sleep-ins. Whilst a number of other care service providers have
challenged HMRC’s original view, if it is ultimately individually determined
that the Group had to pay each individual engaged in a sleep-in an
amount by reference to the National Minimum Wage, the additional
cost could be material. A Court of Appeal judgement in the case of
Royal Mencap Society v Tomlinson-Blake 2018 EWCA 1641 found
that the care workers who did ‘‘sleep-ins’’ overnight in that case were
available for work during their sleeping shift, rather than actually working.
Accordingly, HMRC are considering the implications of this judgement.
Since this Court of Appeal ruling, the Supreme Court has agreed to hear
an appeal to the judgement. The outcome of the case and therefore
the implication on HMRC’s position is uncertain and the Directors
have used their judgement to provide for this matter for the affected
employees. Amounts in respect of sleeps and onerous contracts are not
separately disclosed to avoid any potential prejudice in the outcome of
each matter.
Ground rent transaction under IAS 17
As part of the accounting for the ground rent transaction, judgement
is required in determining whether the subsequent lease back is an
operating lease or finance lease, based on an evaluation of the terms
and conditions of the arrangements and whether it obtains all of
the significant risks and rewards of ownership of these properties,
in accordance with IAS 17. In determining the nature of the lease, it
is recognised that there is a significant element of judgement and
that there is an element of each type of lease embedded within.
Having considered the overall transaction and evaluated the terms
and conditions of the arrangement, the Directors concluded that in
substance the land element of the leases represented an operating
lease and the building elements represented a finance lease, with a
split of 75:25 respectively. This analysis required judgements around
the economic life of each element of the arrangement, the estimated
split of the value of each element, and the likelihood of certain future
events occurring that could affect the lease term. The lease contains
an option with an exercise price of £1 and is exercisable 125 years into
the lease term. Within the terms of the lease contract exists a number
of step-in rights and default clauses that are afforded to the landlord.
Principally, these step-in rights relate to loss of regulatory registrations
and changes in control of the lessee, which are not within the control
of the Company and could well occur within 125 years. The Board are
of the view that it cannot be determined with reasonable certainty that
these step-in rights will not be exercised, and therefore the option to
reacquire the assets is not substantive and the Group will not have the
right to exercise its option to repurchase the freehold interests in the
properties disposed of through the sale and leaseback arrangement
entered into with Alpha. As a result of the above, the risks and rewards of
ownership of the land element lie with Alpha. Further information on the
profit recognised from this transaction of £4.6m is provided in note 6.
Capitalised development costs
Capitalisation of development costs within software and licences
requires the Directors to make judgements in allocating staff time
appropriately to relevant projects and in assessing the technical
feasibility and economic potential of those projects as well as forecasts
for the useful economic life of each asset have been used. The useful
economic life of development costs is determined to be five years.
Segmental information
4
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 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 results as at the balance sheet date report segmental information on
the Group’s three operating divisions (and the comparative information
has been represented on this basis):
– Adults Services, comprising the core CareTech Adult Learning
Disabilities business (ALD) as well as the Specialist Services business
(SS) and Learning Services;
– Children’s Services, comprising CareTech’s and Cambian’s children’s
services; and
– Foster Care, comprising CareTech’s and Cambian’s fostering services.
For the current financial year ending 30 September 2019, the Group will
also provide the segmental data for the historic CareTech and Cambian
businesses to enable a like-for-like analysis in the first year following the
acquisition. For subsequent financial years, the results of the Group will
be combined on the basis of the operating segments described above.
CareTech Holdings PLC
Annual Report and Accounts 2019
70
Adults Services
Client capacity
Revenue £000
EBITDA £000
Children’s Services
Client capacity
Revenue £000
EBITDA £000
Foster Care
Client capacity
Revenue £000
EBITDA £000
Total
Client capacity
Revenue £000
EBITDA £000
Year to 30 September 2019
Year to 30 September 2018
CareTech
Cambian
Total
CareTech
Cambian*
Total
1,968
123,635
32,726
–
–
–
1,968
123,635
32,726
1,968
118,736
31,885
351
1,582
1,933
64,848
165,727
230,575
18,227
37,405
55,632
301
8,031
1,508
877
1,178
32,753
40,784
6,043
7,551
353
58,707
17,024
301
8,246
1,898
2,620
2,459
5,079
196,514
198,480
394,994
52,461
43,448
95,909
2,622
185,689
50,807
–
–
–
–
–
–
–
–
–
–
–
–
1,968
118,736
31,885
353
58,707
17,024
301
8,246
1,898
2,622
185,689
50,807
*
The figures for Cambian for 2018 have not been included in this table because Cambian was not controlled by CareTech during the year ending 30 September 2018.
Reconciliation of EBITDA to profit after tax;
EBITDA before unallocated costs
Unallocated corporate overheads
EBITDA
Depreciation
Share-based payments charge
Non-underlying items
Operating profit
Finance expenses
Profit before tax
Taxation
Non-controlling interest
Profit after tax
Year ended
30 September
2019
£000
Year ended
30 September
2018
£000
95,909
(22,363)
73,546
(10,631)
(60)
(23,379)
39,476
(15,136)
24,340
(4,214)
(422)
19,704
50,807
(6,945)
43,862
(5,906)
(197)
(17,573)
20,186
(4,816)
15,370
(4,126)
(596)
10,648
All operations of the Group are carried out in the UK, the Company’s country of domicile. All revenues therefore arise within the UK and all
non-current assets are likewise located in the UK. No single external customer amounts to 10% or more of the Group’s revenues.
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
Chief Operating Decision Maker and are not measures used by the CODM to assess performance and to make resource allocation decisions.
CareTech Holdings PLC
Annual Report and Accounts 2019
71
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Business combinations
5
(a) Acquisition of Cambian Group plc
On 19 October 2018 Caretech Holdings plc acquired the entire share capital of Cambian Holdings plc for £359.9m.
Cambian is a leading children’s specialist education and behavioural health service provider looking after around 2,000 children across a portfolio
of 222 residential facilities, specialist schools and fostering offices. It employs over 4,500 people. The rationale for the acquisition was:
– The acquisition of Cambian is a unique opportunity for investors to enhance exposure to the growing UK market for social care services for
children and adults.
– Highly complementary service offering and geographical coverage providing a nationwide integrated care pathway focused on higher acuity
social care.
– Combined operational expertise to better service local authority partners, deliver strong user outcomes, implement positive staff engagement
and improve care quality.
– Opportunity to unlock significant value through a compelling strategic fit, tangible near-term synergies and enhanced trading liquidity.
The book values attributable to the acquisition were £201.9m net assets and fair value adjustments were £122.6m.
The acquisition table is as follows:
Intangible assets
Property, plant and equipment
Trade and other receivables
Prepayments
Cash
Trade and other payables
Provisions (note 20)
Deferred income
Corporation tax
Finance leases
Deferred tax
Net assets on acquisition
Consideration paid
Goodwill
Consideration paid:
Cash
Settled in shares
Total consideration
Reconciliation to the cash flow statement
Cash paid
Cash acquired
Payments for business combination net of cash acquired
Book values
£000s
38,496
165,096
Fair value
adjustments
£000s
8,859
Total
£000s
47,355
142,474
307,570
11,366
2,532
81,467
(33,812)
(12,758)
(21,965)
(5,073)
(515)
(2,000)
–
–
(1,000)
–
–
–
–
9,366
2,532
81,467
(34,812)
(12,758)
(21,965)
(5,073)
(515)
(22,912)
(25,727)
(48,639)
201,922
122,606
324,528
359,920
35,392
£000
241,738
118,182
359,920
£000
241,738
(81,467)
160,271
Goodwill arises as a result of the surplus of consideration over the fair value of the separately identifiable assets acquired.
Costs relating to this acquisition are expensed in the Income Statement in accordance with IFRS 3 and are identified in note 6, non-underlying items.
The book values of the assets and liabilities were extracted from the underlying accounting records of the acquired entities on the date of
acquisition. The book value of receivables represent the gross contractual amounts receivable, all of which are considered recoverable. The fair
value adjustments to property, plant and equipment, intangible assets, trade and other payables and trade and other receivables are to reflect their
value on a going concern market basis. The property, plant and equipment and the intangible assets were both externally valued, based on forecast
cash flows. The adjustment to deferred tax is the tax impact of the aforementioned adjustment. The remaining goodwill is attributable to the future
economic benefits arising from assets which are not capable of being individually identified and separately recognised, these include the value of the
assembled workforce within the business acquired.
The consideration paid in shares was measured at the market price on the day of the acquisition.
CareTech Holdings PLC
Annual Report and Accounts 2019
72
(b) Acquisition after the balance sheet date
Subsequent to the year end, on 23 December 2019, the Group acquired a 51% interest in AS Investment Holdings Ltd and AS1 Investment Holdings
Ltd (the “AS Group”) which holds a majority equity interest in an out-patient facility in Abu Dhabi and a mental health outpatient group of clinics (the
“Investment”).
The initial consideration for the Investment is £7.2m1, to be satisfied by £3.6m in cash, the issue of 431,465 CareTech new ordinary shares
(“Consideration Shares”) and a payment of £1.8m into the investment to drive growth (the “Initial Consideration”). In addition to the Initial
Consideration, there is also a performance driven earn-out mechanism of up to £1.6m1 to be paid out in 2021. The Consideration Shares will be
subject to certain lock in arrangements for a period of 24 months.
The AS Group was established in 2015 by Shafqat Malik, co-founder and CEO, to introduce best-in-class mental healthcare services in the Middle East
and North Africa region. The Group has an agreement with a leading NHS Foundation Trust Hospital in the mental healthcare arena in the UK for the
provision of services in the greater Middle Eastern area. The current operations comprise an outpatient facility in the emirate of Abu Dhabi offering
the following services: child and adolescent mental healthcare services, adult psychiatry and psychology services, training, education, to professionals
and bespoke services to schools.
In addition the Group owns a majority equity interest in a premier mental health outpatient group of clinics focusing on providing highest
quality specialised medical care for neurological, psychiatric and psychological conditions. Key service offerings include psychiatry, psychology,
occupational therapy and rehabilitation.
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.
(1)
Based on an exchange of rate of GBP1: AED 4.7735
Non-underlying items
6
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:
Amortisation of intangible assets
Acquisition expenses
Profit arising from the ground rent transaction
Integration and restructuring costs
Onerous leases
Charitable donations
Impairment of goodwill
Other non-underlying expenses
Included in administrative expenses
Finance expenses
Fair value movements relating to derivative financial instruments
Charges relating to derivative financial instruments
IAS 17 lease imputed interest
Termination of old banking arrangements
Included in finance expenses
Tax on non-underlying items
Current tax
Deferred tax
Included in taxation
Total non-underlying items
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vi)
(vii)
(viii)
(a)
2019
£000
10,188
10,331
(4,565)
5,597
1,092
736
–
7,425
23,379
1,487
217
345
397
2,446
(1,090)
(4,119)
(5,209)
20,616
2018
£000
7,428
4,525
–
2,863
377
380
2,000
5,620
17,573
(787)
513
223
–
(51)
(1,004)
(621)
(1,625)
15,897
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
In accordance with IFRS 3 (as revised) items associated with business combinations have been taken to the Income Statement as incurred and includes costs relating to the review by the
Competition and Markets Authority (“CMA”).
Profit arises from a ground rent transaction with Alpha Real Capital LLP at a net yield of 2.85% which raised £31.0m in cash to further support its growth strategy. The £31.0m proceeds are
categorised as £23.1m relating to the operating lease element and £7.9m relating to IAS 17 ground rent liabilities.
During the year, the Group implemented a reorganisation of its internal operating, finance, IT and management structures with a view to achieving the integration of the Cambian business
combination into the Group, achieving greater flexibility, accountability and performance of a number of its back office divisions. Costs incurred in the year include redundancy costs, post
termination payments and transformation project delivery costs which comprise the costs of staff teams incurred in respect of the reorganisation, costs related to the dual running and
knowledge transfer of the back office division as part of the integration project and professional fees incurred in respect of advice and consultancy activities associated with the integration
and restructuring.
The present value of the future cash flows receivable from the operation of certain leased assets has been assessed as being lower than the present value of the rental payments to which
the Group is committed. Therefore, the Group has provided for £1,092,000 (2018: £377,000) being the present value of any onerous element of the remaining lease life.
These charges represent charitable donations made to the Caretech Charitable Foundation, an independent grant-making corporate foundation registered with the Charity Commission.
Funded and founded by CareTech Holdings plc, the Foundation has a number of independent Trustees responsible for delivering its Charitable Objects. The Trustees also include Haroon
and Farouq Sheikh, Christopher Dickinson and Mike Adams, Directors of the Group.
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.
As part of the Cambian business combination, the Group entered into new banking arrangements, extinguishing the previous arrangements and in accordance with IFRS 9, the costs of the
extinguished bank facilities were written off.
Represents the current tax on items (i), (iii), (iv) and (v) above.
CareTech Holdings PLC
Annual Report and Accounts 2019
73
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Non-underlying items continued
6
(a) Deferred tax arises in respect of the following:
Derivative financial instruments
Full provision for deferred tax under IAS 12
Intangible assets
Roll over relief
Other adjustments
Other adjustments comprise a number of deferred tax movements which are individually insignificant.
7
Auditor’s remuneration
Fees payable to the Group’s auditor for the audit of the consolidated and parent Company’s annual accounts
Audit of the accounts of subsidiaries
Audit-related assurance services
Company secretarial
All other non-assurance services
2019
£000
219
–
2,357
(776)
2,319
4,119
2019
£000
397
14
28
13
214
2018
£000
(134)
846
(124)
–
33
621
2018
£000
163
12
14
9
326
Other non-assurance services of £326,000 in 2018 and £214,000 in 2019 represents the reporting accountant work carried out on the acquisition
of Cambian Group plc.
Staff numbers and costs
8
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
Operational and service delivery staff
Maintenance
Management and administration
The aggregate payroll costs of these persons (including Directors) were as follows:
Wages and salaries
Share-based payments charge
Social security costs
Other pension costs
Number of employees
2019
9,111
111
707
9,929
2019
£000
203,387
60
19,523
4,467
2018
5,149
29
261
5,439
2018
£000
93,137
197
8,618
1,527
227,437
103,479
CareTech Holdings PLC
Annual Report and Accounts 2019
74
9
Finance expenses
Interest expense on financial liabilities at amortised cost:
On bank loans and overdrafts
Finance charges in respect of finance leases
Underlying financial expenses
Derivative financial instruments (note 6)
IAS 17 lease imputed interest (note 6)
Termination of old banking arrangements (note 6)
Total finance expenses
2019
£000
12,345
345
12,690
1,704
345
397
2018
£000
4,527
340
4,867
(274)
223
–
15,136
4,816
In accordance with IAS 23, borrowing costs at £186,000 (2018: £155,000) have been capitalised in the year on qualifying assets within property, plant
and equipment. The capitalisation rate used to determine the amount of borrowing costs capitalised is 3.5%.
10 Taxation
(a) Recognised in the Consolidated Income Statement
Current tax expense
Current year
Current tax on non-underlying items (note 6)
Corporation tax overprovided in previous periods
Total current tax
Deferred tax expense
Current year
Deferred tax on non-underlying items (note 6)
Total deferred tax
Total tax in the Consolidated Income Statement
(b) Reconciliation of effective tax rate
Profit before tax for the year
Tax using the UK corporation tax rate of 19.0% (2018: 19.0%)
Non-deductible expenses including impairment charge
Other tax adjustments
Gains on which roll-over relief is claimed
Corporation and deferred tax overprovided in previous periods
Total tax in the Consolidated Income Statement
2019
£000
2018
£000
(8,842)
1,090
–
(7,752)
(581)
4,119
3,538
(4,622)
1,004
(359)
(3,977)
(770)
621
(149)
(4,214)
(4,126)
2019
£000
24,340
4,625
2,438
(3,625)
776
–
4,214
2018
£000
15,370
2,920
1,059
27
–
120
4,126
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2017 (on 7 September 2017). This includes a reduction
to the main rate to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using this enacted tax rate and reflected in
these financial statements. Other tax adjustments comprise a number of items which are individually insignificant.
CareTech Holdings PLC
Annual Report and Accounts 2019
75
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
11
Earnings per share
Profit attributable to ordinary shareholders
Weighted number of shares in issue for basic earnings per share
Effects of share options in issue
Weighted number of shares for diluted earnings per share
2019
£000
2018
£000
19,704
10,648
107,231,912
75,690,422
365,090
25,235
107,597,002
75,715,657
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.
Earnings per share (pence per share)
Basic
Diluted
18.38p
18.31p
14.07p
14.06p
12 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.
Profit attributable to ordinary shareholders
Non-underlying items (note 6)
Underlying profit attributable to ordinary shareholders
Underlying earnings per share (pence per share)
Basic
Diluted
2019
£000
19,704
20,616
40,320
37.60p
37.48p
2018
£000
10,648
15,897
26,545
35.07p
35.06p
CareTech Holdings PLC
Annual Report and Accounts 2019
76
13 Property, plant and equipment
Cost
At 1 October 2017
Acquisitions through business combinations
Additions
Remeasurement(i)
Disposals
At 30 September 2018
At 1 October 2018
Acquisitions through business combinations
Additions
Disposals
At 30 September 2019
Depreciation and impairment
At 1 October 2017
Depreciation charge for the year
Disposals
At 30 September 2018
At 1 October 2018
Depreciation charge for the year
Disposals
At 30 September 2019
Net book value
At 1 October 2017
At 30 September 2018
At 30 September 2019
Land and
buildings
£000
Fixtures,
fittings and
equipment
£000
Motor
vehicles
£000
Total
£000
281,113
26,894
11,606
319,613
260
8,781
(4,997)
(852)
284,305
284,305
295,208
16,342
(15,803)
20
5,973
–
(4,475)
28,412
28,412
11,599
11,866
(3,061)
–
862
–
(670)
280
15,616
(4,997)
(5,997)
11,798
324,515
11,798
390
2,305
(1,076)
324,515
307,197
30,513
(19,940)
580,052
48,816
13,417
642,285
5,937
558
(6)
6,489
6,489
1,717
(213)
7,993
11,890
3,766
(4,475)
11,181
11,181
7,430
(630)
17,981
4,616
1,582
(462)
5,736
5,736
1,484
(567)
6,653
22,443
5,906
(4,943)
23,406
23,406
10,631
(1,410)
32,627
275,176
277,816
572,059
15,004
17,231
30,835
6,990
6,062
6,764
297,170
301,109
609,658
Included in the result for the year is a profit of £4,565,000 (2018: £146,000) on the disposal of freehold property, plant and equipment and motor
vehicles. Included in property, plant and equipment are amounts held under finance leases of £4,437,000 (2018: £4,665,000).
(i)
The re-measurement between tangible and intangible assets in the comparative period arises from the finalisation of the acquisition accounting for the Selbourne Care Limited acquisition
which took place on 19 June 2017.
Land and buildings
The net book value of land and buildings is as follows:
Freehold
Leasehold
2019
£000
2018
£000
520,550
243,675
51,509
572,059
34,141
277,816
The Directors believe that the market value of the Group’s current freehold property portfolio is £774m (comprising CareTech’s properties and
properties acquired as part of the Cambian transaction) as at 30 September 2019 (2018: £424m for the CareTech properties only). The CareTech
Group and the Cambian Group hold portfolios of freehold and leasehold assets which Cushman & Wakefield and Knight Frank LLP have valued at
£424.1 million and £350.0 million respectively, as at 19 September 2018. These valuations are based on the aggregate market value of the properties
for use as care facilities and these valuations would be lower if the properties were disposed of for an alternative use or sold individually. All of the
Group’s freehold properties are pledged as security for bank borrowings.
CareTech Holdings PLC
Annual Report and Accounts 2019
77
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
14
Intangible assets
Cost
At 1 October 2017
Acquisitions through business combinations
Additions
Reclassification
At 30 September 2018
At 1 October 2018
Acquisitions through business combinations
Additions for the year
At 30 September 2019
Amortisation and impairment
At 1 October 2017
Impairment
Amortisation for the year
At 30 September 2018
At 1 October 2018
Amortisation for the year
At 30 September 2019
Net book value
At 1 October 2017
At 30 September 2018
At 30 September 2019
Goodwill
£000
Software and
licences
£000
Customer
relationships
£000
Total
£000
43,126
17,413
59,280
119,819
906
–
1,685
45,717
45,717
35,392
375
–
2,538
–
19,951
19,951
–
3,054
–
752
3,312
63,344
63,344
47,354
–
906
3,290
4,997
129,012
129,012
82,746
3,429
81,484
23,005
110,698
215,187
28
2,000
–
2,028
2,028
–
2,028
43,098
43,689
79,456
9,316
–
3,281
12,597
12,597
3,066
15,663
8,097
7,354
7,342
26,423
–
4,147
30,570
30,570
7,122
37,692
35,767
2,000
7,428
45,195
45,195
10,188
55,383
32,857
32,774
84,052
83,817
73,006
159,804
2019
£000
10,188
2018
£000
7,428
Amortisation
The amortisation charge is recognised in the following line items in the Consolidated Income Statement:
Administrative expenses
Impairment testing for cash-generating units containing goodwill
The Group tests goodwill for impairment on an annual basis by considering the recoverable amount of individual cash-generating units against
carrying value.
Cash-generating units comprise operating segments. This is the lowest level at which goodwill is monitored for impairment by management.
There are no intangible assets with indefinite useful lives (other than goodwill).
For the purpose of impairment testing, the recoverable amount of each cash-generating unit has been calculated with reference to value in use.
The key assumptions for the period over which management approved forecasts are based and, beyond this, for the value in use calculations overall,
are those regarding discount rates, growth and occupancy rates, achievement of future revenues and expected changes in direct costs during
the periods.
CareTech Holdings PLC
Annual Report and Accounts 2019
78
In arriving at the values assigned to each key assumption management make reference to past experience and external sources of information
regarding the future – for example changes in tax rates. The key features of these calculations are shown below:
Period over which management approved forecasts are based
Growth rate applied beyond approved forecast period
Pre-tax discount rate
Adults Services
Children’s Services
Foster Care
2019
1 year
2%
8%
10%
12%
2018
1 year
2%
8%
10%
12%
In preparing value in use calculations for cash-generating units, the Group has assumed a growth rate of 2%, into perpetuity. The discount rates used
in each value in use calculation have been based upon the Group’s post-tax WACC together with divisional specific risk taking account of factors
such as the nature of service user need, cost profiles and the barriers to entry into each market segment as well as other macro-economic factors.
The Directors believe that, even in the current economic and public spending environment and taking into account the nature of the Group’s
operations, any reasonably possible change in the key assumptions on which the recoverable amounts are based would not cause the cash-
generating units’ carrying amount to exceed the recoverable amount.
The carrying value of goodwill is split between the following cash-generating units:
Adults Services
Children’s Services
Foster Care
15 Trade and other receivables
Trade receivables (note 25)
Other debtors and prepayments
Accrued income (note 16)
These balances do not include deferred income.
16 Accrued income and deferred income
At 1 October 2018
Amounts acquired at acquisition
Revenue recognised in the reporting period.
Revenue billed in period but relates to future periods
New accrued revenue
At 30 September 2019
2019
£000
27,525
44,769
7,162
79,456
2019
£000
38,299
8,343
6,369
53,011
Accrued
income
£000
4,117
1,337
(5,454)
–
6,369
6,369
2018
£000
23,238
13,289
7,162
43,689
2018
£000
21,421
6,209
4,117
31,747
Deferred
income
£000
(3,372)
(24,992)
28,364
(28,710)
–
(28,710)
There was a significant change in the accrued income and deferred income balances as a result of the acquisition of Cambian. Cambian has a
different billing profile and as a result of the acquisition, the deferred revenue related to income billed in advance for education over the Autumn
school term. This income is held in deferred income until the service is provided.
The Directors consider that the carrying value of accrued income and deferred income approximates its fair value.
CareTech Holdings PLC
Annual Report and Accounts 2019
79
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Interest-bearing loans and borrowings
17
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the
Group’s exposure to interest rate risk, see note 25.
Non-current liabilities
Secured bank loans
Finance lease liabilities
Current liabilities
Secured bank loans
Finance lease liabilities
Terms and debt repayment schedule
Term loan
Term loan
Revolving credit facility term loan
2019
£000
315,878
2,774
318,652
2019
£000
2018
£000
–
2,580
2,580
2018
£000
–
151,748
1,663
1,663
2,082
153,830
Currency
£
£
£
Nominal
interest
rate (%)
2.25
Year of
maturity
Book value
2019
£000
Book value
2018
£000
(2018: 2.25)(i)
2022
167,000
120,499
2.50
(2018: 2.25)(i)
2023
148,878
–
2.75
(2018: 2.25)(i)
2023
–
315,878
31,249
151,748
(i)
The margin on the facilities is stated at the current rate and can change between 1.50% and 3.25% based on the ratio of the Group’s Net Debt to EBITDA.
The Group entered into new banking facilities following the acquisition of Cambian and the previous banking facilities were extinguished. The facility
is a term loan of £322m and revolving credit facility of £25m to a group of banks comprising Barclays Bank PLC, HSBC UK Banks PLC, Santander
UK PLC, AIB Group (UK) PLC, Clydesdale Bank PLC, Credit Suisse AG, Lloyds Bank PLC and National Westminster Bank PLC and is stated net of loan
finance costs in accordance in IAS 23. The loans disclosed in prior year were extinguished.
Finance lease liabilities
The finance leases relate to company vehicles used in the business.
Finance lease liabilities are payable as follows:
Minimum
lease
payments
2019
£000
1,783
2,906
4,689
Interest
2019
£000
120
132
252
Principal
2019
£000
1,663
2,774
4,437
Minimum
lease
payments
2018
£000
2,200
2,802
5,002
Interest
2018
£000
118
222
340
2019
£000
12,378
46,559
58,937
Principal
2018
£000
2,082
2,580
4,662
2018
£000
3,808
21,067
24,875
Less than one year
Between one and five years
18 Trade and other payables
Trade payables
Accrued expenses
CareTech Holdings PLC
Annual Report and Accounts 2019
80
19 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Intangible assets
Derivative financial instruments
Share-based payments
Rolled-over gains on property, plant and equipment
Tax (assets)/liabilities
Net of tax assets
Net deferred tax liabilities
There are no unrecognised deferred tax assets or liabilities.
Movement in deferred tax during the year:
Property, plant and equipment
Derivative financial instruments
Intangible assets
Share options
Rolled-over gains on property
Movement in deferred tax during the previous year:
Property, plant and equipment
Derivative financial instruments
Intangible assets
Share options
Rolled-over gains on property
20 Provisions
At 1 October 2018
Acquired in business combination
Charge to income statement
At 30 September 2019
2019
Assets
£000
–
–
(278)
(90)
–
(368)
Liabilities
£000
42,213
18,270
–
–
3,836
64,319
(368)
63,951
2018
Assets
£000
–
–
–
(443)
–
(443)
Liabilities
£000
1,901
14,395
(59)
–
3,060
19,297
(443)
18,854
1 October
2018
£000
Recognised in
income
£000
Acquired
in business
combination
£000
30 September
2019
£000
1,901
(59)
(141)
(219)
40,453
42,213
–
(278)
14,395
(4,311)
8,186
18,270
(443)
3,060
18,854
353
776
–
–
(3,542)
48,639
(90)
3,836
63,951
1 October
2017
£000
Recognised in
income
£000
Acquired
in business
combination
£000
30 September
2018
£000
1,978
(160)
13,408
(443)
3,060
17,843
(77)
101
125
–
–
149
–
–
862
–
–
862
1,901
(59)
14,395
(443)
3,060
18,854
£000
–
12,758
2,126
14,884
Provisions principally comprise an amount provided for “sleep-in payments” and a provision for onerous contracts. These have been explained in
note 3 to the financial statements.
CareTech Holdings PLC
Annual Report and Accounts 2019
81
Strategic reviewGovernanceFinancial Statements Employee benefits
21
Share-based payments
The Company operates five share option schemes: The CareTech Holdings 2005 Approved Share Option Scheme (The Approved Scheme); the
CareTech Holdings 2005 Unapproved Share Option Scheme (The Unapproved Scheme), the CareTech Holdings 2005 Sharesave Scheme, the
CareTech Holdings 2016 Sharesave Scheme and the CareTech Holdings 2017 Sharesave Scheme. All share options are equity settled.
Share options granted in 2009 have now expired.
The Executive Shared Ownership Plan (ExSOP) was formed in March 2017. Under the provisions of the ExSOP, shares (the ExSOP shares) are jointly
owned by nominated senior employees and by an employees’ share trust. The ExSOP awards are subject to a time-related performance condition
measured over a three-year period beginning with the date of the grant. To the extent the performance condition is satisfied, the participant can
benefit from any growth of the share price in excess of the issue price. The options have been valued using the Black Scholes option pricing model
in line with IFRS 2 ‘Share Based Payments’. The assumptions used as part of the model include the following:
Expected volatility
Expected dividend yield
Risk free interest rate
Vesting period
25%
3.90%
2.39%
3 years
–
–
–
–
The grant of the ExSOP scheme requires specific performance conditions being satisfied. The EPS Target requires the growth in the Company’s
underlying Diluted EPS over the performance period to be at least 15% (being an average 5% annual growth rate, calculated without compounding)
during the year.
Approved and Unapproved scheme options are exercisable at any time from the third anniversary of the date of grant to the tenth anniversary, other
than nominal cost options which may become exercisable at the earliest after a period of 30 dealing days following the third anniversary of being
granted. SAYE scheme options are normally exercisable within six months following the third anniversary of the date of grant. Options granted under
the above schemes, together with those remaining at 30 September 2019 are as follows:
Date of grant
4 Aug 2009
4 Aug 2009
3 Aug 2010
3 Aug 2010
17 Mar 2016
29 Mar 2016
1 Dec 2017
Scheme
Approved Scheme
Unapproved Scheme
Approved Scheme
Unapproved Scheme
Sharesave Scheme 2016
Options
remaining
as at
30 Sep 2018
28,222
23,331
33,546
33,873
341,220
Options
lapsed to
30 Sep 2019
Options
exercised to
30 Sep 2019
Options
remaining
30 Sep 2019
Option price
(pence)
30 Sep 2019
(28,222)
(23,331)
–
–
–
–
–
–
–
(264,129)
–
–
33,546
33,873
77,071
Executive Share Ownership Plan 2016
1,919,000
(100,000)
(390,000)
1,429,000
Sharesave Scheme 2017
220,600
–
–
220,600
n/a
n/a
305
305
194
247.5
308
The charge for the year was £60,000 (2018: £197,000) relates to the ExSOP Scheme 2017, the CareTech Holdings 2016 Sharesave Scheme and the
CareTech Holdings 2017 Sharesave Scheme. The weighted average price of the remaining options is 254.8p.
Subsequent events:
On 8 November 2019, the Group issued 2,504,475 new ordinary shares of 0.5p in the Company (the New Ordinary Shares) under the Executive
Shared Ownership Plan (Share Plan) to 30 members of the senior and executive management team. An award under the Share Plan enables the
participant to benefit only from the future growth in the value of the New Ordinary Shares above their market value on the award date, in excess of
a “carrying cost” of 3% per annum.
The vesting of the Share Plan requires specific performance conditions being satisfied. As with the previous issuance of the Share Plan, the target is
an EPS Target which requires the growth in the Company’s underlying Diluted EPS over the three-year period beginning on the date of issue of the
awards to be at least 15% (being an average 5% annual growth rate, calculated without compounding). Participants may not normally realise any such
benefit from the Share Plan awards before 8 November 2022.
22 Share Capital
Allotted, called up and fully paid:
109,144,369 (2018: 75,691,423) ordinary shares of 0.5p each
53,402 deferred shares of 0.5p each
2019
£000
545
–
545
2018
£000
379
–
379
Share capital represents the nominal (par) value of shares that have been issued. The holders of ordinary shares are entitled to receive dividends as
declared from time to time and are entitled to one vote per share at meetings of the Company. The deferred shares have no such rights.
CareTech Holdings PLC
Annual Report and Accounts 2019
82
Notes to the Financial Statements
continued
22 Share Capital continued
Movements in the number of issued shares were as follows:
2019
Ordinary shares of 0.5p each
Deferred shares of 0.5p each
2018
Ordinary shares of 0.5p each
Deferred shares of 0.5p each
At
1 October
2018
Issued during
the acquisition
of Cambian
Issued under
SAYE Scheme
At
30 September
2019
75,691,423
33,188,817
264,129 109,144,369
53,402
–
–
53,402
At
1 October
2017
75,679,937
53,402
Issued under
SAYE Scheme
At
30 September
2018
11,486
75,691,423
–
53,402
23 Reserves
(a)
During the year, the issue of new shares charged to the share premium account are as follows:
Share Premium Account
Opening balance 1 October 2018
Premium on issue of shares
At 30 September 2019
2019
£000
2018
£000
120,820
120,778
484
42
121,304
120,820
Share premium includes any premiums received on issue of share capital, with the exception of shares issued in consideration in acquisitions.
Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.
(b) Merger reserve
The merger reserve represents the premium arising on the ordinary shares issued as consideration for the acquisition of shares in another company
(merger relief) (note 5).
Opening balance 1 October
Issue of shares
Costs associated with share issue
At 30 September
2019
£000
9,023
118,182
(1,669)
125,536
2018
£000
9,023
–
–
9,023
Shares held by Executive Shared Ownership Plan
(c)
Further information relating to the EBT reserve of the Group is detailed in note 21 to the consolidated financial statements of the Group.
(d) Retained earnings
Retained earnings includes all current and prior period retained profits and share-based employee remuneration. Dividend distributions payable to
equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.
24 Dividends
The aggregate amount of dividends comprises:
Interim dividend paid in respect of prior year but not recognised as liabilities in that year (3.50p per share
(2018: 3.30p per share))
Final dividend paid in respect of the prior year (7.50p per share (2018: 6.60p per share))
Aggregate amount of dividends paid in the financial year (11.00p per share (2018: 9.90p per share))
2019
£000
2,645
8,157
10,802
2018
£000
2,498
4,996
7,494
The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 11.7p per share, £13,000,000 (2018: 11.00p per
share, £8,166,018).
CareTech Holdings PLC
Annual Report and Accounts 2019
83
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Financial instruments
25
The use of financial instruments is managed under policies and procedures approved by the Board. These are designed to reduce the financial risks
faced by the Group, which primarily relate to credit, interest and liquidity risks, which arise in the normal course of the Group’s business.
Credit risk
Financial instruments which potentially expose the Group to credit risk consist primarily of cash equivalents and trade receivables. Cash equivalents
are deposited only with major financial institutions that satisfy certain credit criteria.
Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are carried out on all
significant prospective customers and all existing customers requiring credit beyond a certain threshold. Varying approval levels are set on the
extension of credit depending upon the value of the sale.
Where credit risk is deemed to have risen to an unacceptable level, remedial actions including the variation of terms of trade are implemented under
the guidance of senior management until the level of credit risk has been normalised.
The Group provides credit to customers in the normal course of business. The amounts presented in the Balance Sheet in relation to the Group’s
trade receivables are presented net of loss allowances. The Group measures loss allowances at an amount equal to the lifetime expected credit
losses (ECL’s) using both quantitative and qualitative information and analysis based on the Group’s historical experience and forward looking
information. During the year there was a charge to the Consolidated Income Statement of £403,000 (2018: £46,000) to increase the loss allowance.
At the Balance Sheet date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset. Based on past experience, the Group believes that no further impairment allowance is necessary in respect of trade
receivables not past due. The Group consider that the carrying value of trade receivables approximates its fair value.
The trade receivables as at 30 September are aged as follows:
Not due
Not more than three months past due
More than three months but not more than six months past due
Trade receivables (note 15)
The movement in provisions for impairment of trade receivables are as follows:
At 1 October 2017
Charged to the Consolidated Income Statement
At 30 September 2018
Adoption of IFRS 9
Charged to the Consolidated Income Statement
At 30 September 2019
2019
£000
23,417
12,217
2,665
38,299
2018
£000
10,918
5,021
5,482
21,421
£000
715
46
761
525
403
1,689
Interest rate risk
The Group finances its operations through called up share capital, retained profits, bank borrowings, and the sale of assets if appropriate. The Group’s
income is by its nature relatively stable and its growth is, inter alia, impacted by inflation. Group policy is to balance interest rate fixes between
the short, medium and long term. The benchmark rate for bank borrowings is LIBOR. The Group has not adopted hedge accounting. As at
30 September, the Group carried five hedging instruments, details of which are as follows:
– a three-year swap commencing 16 May 2019 at pre-determined amounts initially starting at £21.6 million at LIBOR fixed at 1.076%
– a three-year swap commencing 16 May 2019 at pre-determined amounts initially starting at £21.6 million at LIBOR fixed at 1.056%
– a three-year swap commencing 16 May 2019 at pre-determined amounts initially starting at £27.6 million at LIBOR fixed at 1.076%
– a three-year swap commencing 16 May 2019 at pre-determined amounts initially starting at £21.6 million at LIBOR fixed at 1.071%
– a three-year swap commencing 16 May 2019 at pre-determined amounts initially starting at £27.6 million at LIBOR fixed at 1.066%
CareTech Holdings PLC
Annual Report and Accounts 2019
84
Liquidity risk
The Group prepares annual cash flow forecasts reflecting known commitments and anticipated projects. Borrowing facilities are arranged as
necessary to finance requirements. The Group has available bank facilities, sufficient, with cash flow from profits, to fund present commitments.
Term facilities are utilised to fund capital expenditure and short-term flexibility is achieved by the utilisation of cash resources in respect of financial
liabilities. The following table indicates their contractual cash flow maturities.
Trade and other payables
IAS 17 Ground rent
Secured bank loans
Finance lease liabilities
Derivative financial instruments
Trade and other payables
IAS 17 Ground rent
Secured bank loans
Finance lease liabilities
Deferred and contingent consideration
Derivative financial instruments
2019
Effective
interest
rate %
Carrying
amount
£000
Contractual
cash flows
£000
< 1 year
£000
1 – 5 years
£000
5 years and
over £000
(58,937)
(58,937)
(58,937)
–
–
(15,131)
(15,131)
(100)
(500)
(14,531)
3.5%
6%
(315,878)
(355,569)
(10,146)
(345,423)
(4,437)
(1,640)
(4,689)
(1,640)
(1,783)
–
(2,906)
(1,640)
–
–
–
(396,023)
(435,966)
(70,966)
(350,469)
(14,531)
Effective
Interest
rate %
5%
11%
Carrying
amount
£000
(24,875)
(7,294)
2018
Contractual
cash flows
£000
< 1 year
£000
1 – 5 years
£000
(24,875)
(24,875)
(7,294)
(50)
(151,748)
(155,386)
(155,386)
(4,662)
(5,002)
(2,200)
(2,802)
(966)
(152)
(966)
(152)
(966)
(152)
–
–
–
(198)
–
5 years and
over
£000
–
(7,046)
–
–
–
–
See note 17 for the maturity dates and interest rates charged on the secured bank loans.
Capital risk management
The Group manages its capital to ensure that activities of the Group will be able to continue as a going concern whilst maximising returns for
shareholders through the optimisation of debt and equity.
(189,697)
(193,675)
(183,629)
(3,000)
(7,046)
The Group’s capital structure is as follows:
Net debt
Equity (see note 22)
2019
£000
291,077
335,364
2018
£000
146,989
208,233
Our policy is to increase the total dividend per year broadly in line with the movement in underlying diluted earnings per share. The final dividend will
therefore increase to 7.95p per share demonstrating a confident view of the Group’s fundamental strength.
Net Debt
Net Debt comprises cash and cash equivalents net of all loans and borrowings.
Net Debt in the balance sheet comprises:
Cash and cash equivalents
Bank loans
Finance lease and hire purchase contracts
Net Debt at 30 September
CareTech Holdings PLC
Annual Report and Accounts 2019
85
Note
2019
£000
2018
£000
17
17
29,238
9,421
(315,878)
(151,748)
(4,437)
(4,662)
(291,077)
(146,989)
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Financial instruments continued
25
Foreign currency risk
The Group operates entirely in the UK and is not exposed to any foreign currency risks.
Sensitivity analysis
In managing interest rate risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term,
however, permanent changes in interest rates would have an impact on consolidated earnings.
At 30 September 2019, it is estimated that a general increase of 1% in interest rates would impact finance expense and decrease the Group’s profit
before tax and equity by approximately £1,950,000 (2018: £410,000). Economic hedging instruments have been included in this calculation.
Fair values
The fair values together with the carrying amounts shown in the balance sheet are as follows:
Financial instruments at amortised cost
Cash at bank and in hand
Trade receivables (note 15)
Trade payables (note 18)
Secured bank loans (note 17)
Contingent consideration
Held at fair value through profit and loss:
Derivative financial instruments
Carrying
amount
2019
£000
Fair value
2019
£000
29,328
38,299
29,328
38,299
(12,378)
(12,378)
Carrying
amount
2018
£000
9,421
21,421
(3,808)
Fair value
2018
£000
9,421
21,421
(3,808)
(315,878)
(315,878)
(151,748)
(151,748)
–
–
(966)
(966)
(1,640)
(1,640)
(152)
(152)
Where market values are not available, fair values of financial assets and liabilities have been calculated by discounting expected future cash flows at
prevailing interest rates with the following assumptions being applied:
– for trade and other receivables and payables with a remaining life of less than one year the carrying amount is deemed to reflect the fair value;
– for cash and cash equivalents the amounts reported on the balance sheet approximates to fair value;
– for secured bank loans at floating rate the carrying value is deemed to reflect the fair value as it represents the price of the instruments in the
market place; and
– for the derivatives financial instruments, these were entered into to manage the Group’s exposure to interest rate risk on its external borrowings.
Fair value hierarchy
The financial instruments carried at fair value by valuation methods are:
Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either as a
direct price or indirectly derived from prices
Level 3 – inputs for the asset or liabilities that are not based on observable market data*
2019
£000
–
(1,640)
–
*
The financial liability measured at fair value in the Consolidated Balance Sheet at 30 September 2018 is deferred consideration. This liability has now been settled.
26 Operating leases
Non-cancellable operating lease rentals are payable as follows:
2019
2018
Land and
buildings
£000
6,426
12,425
228,127
246,978
Other
£000
1,935
2,726
–
4,661
Land and
buildings
£000
3,974
8,156
119,466
131,596
Within one year
Between two and five years
More than five years
CareTech Holdings PLC
Annual Report and Accounts 2019
86
2018
£000
–
(152)
(996)
Other
£000
244
265
–
509
Included in the operating lease rentals for land and buildings in more than five years are leases relating to the land element for the properties sold
to third parties and then leased back on 150 year leases. During the year the following was recognised as an expense in the Consolidated Income
Statement in respect of operating leases:
Charge for amounts currently payable
Total recognised in the Consolidated Income Statement
2019
2018
Land and
buildings
£000
6,300
6,300
Other
£000
1,841
1,841
Land and
buildings
£000
4,345
4,345
Other
£000
759
759
27 Related parties
During the year, CareTech Holdings plc paid rent totalling £226,000 (2018: £198,000) in respect of properties in which Farouq Sheikh and Haroon
Sheikh have an interest. At the year-end rent of £20,000 (2018:£104,000) was outstanding.
Dividends paid to Directors in the year totalled £157,000 (2018: £147,000).
Transactions with key management personnel
Salary
Benefits
Bonus
Total short-term remuneration
Post-employment benefits
Share-based payments
2019
£000
4,775
354
1,110
6,239
288
50
6,577
2018
£000
3,007
134
871
4,012
–
–
4,012
Key management personnel are defined as Directors of the Company and members of the Senior Management Team.
Directors’ emoluments are set out on page 47.
During the year, the Group made donations to the CareTech Charitable Foundation which are set out in note 6.
Impact of IFRS 16
28
IFRS 16 ‘Leases’ will be adopted by the Group on 1 October 2019 for the financial year ending 30 September 2020. IFRS 16 will primarily change
lease accounting for lessees. Under the new standard, lease agreements will give rise to the recognition of an asset representing ‘right of use’ assets
to be recognised on the balance sheet for almost all leases. This is expected to result in a significant increase in both assets and liabilities recognised.
The costs of operating leases currently included within operating costs will be split and the financing element of the charge will be reported within
finance expense whilst the total expense recognised in the Income Statement over the life of each lease will be unaffected by the standard.
The overall impact on earnings is not expected to be material. Finance lease obligations as at 30 September 2019 are set out in note 25, “Financial
instruments” and the commitments under non-cancellable operating leases are set out in note 26, “Operating leases”.
CareTech will implement IFRS 16 from 1 October 2019 applying the modified retrospective approach. The right of use asset at 1 October 2019 will be
set equal to the lease liability of the outstanding lease payments due to the lessor as at that date.
CareTech have performed an assessment of the impact of IFRS 16, having made the following assumptions:
– The discount rate to be used to calculate the financing component is the Group’s incremental cost of borrowing. For this assessment CareTech
have used a single discount rate of 3.5% as the Directors consider that all of the leases have similar characteristics
– All short-term leases which expire on or before 30 September 2020 where the annual rental cost is below £2,500 per month have been excluded.
– All low value leases have been excluded.
Based on the assessment, CareTech anticipate recognising an additional right of use asset at 1 October 2019 of:
Right of use asset
Property right of use assets
Equipment right of use assets
Total right of use assets
£000
67,418
4,300
71,718
On transition, CareTech would recognise a corresponding financial liability for the same amount as the right of use asset.
CareTech Holdings PLC
Annual Report and Accounts 2019
87
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
Impact of IFRS 16 continued
28
CareTech have estimated the impact of the change of accounting standard on the Income Statement and EPS, assuming that the only leases to be
considered are the ones identified at transition date and the discount rate used will be the Group’s incremental cost of borrowing.
Difference in EBITDA
Difference in IFRS 16 Depreciation
Difference in IFRS 16 Interest
Difference in profit before tax
Difference in EPS
FY 2020
(estimated)
£000
FY 2021
(estimated)
£000
FY2022
(estimated)
£000
8,025
(6,273)
(2,302)
(550)
7,595
(5,930)
(2,108)
(443)
5,963
(4,351)
(1,940)
(328)
(0.50)
(0.41)
(0.30)
IFRS 16 will not have any impact on the underlying commercial terms of each lease; and will not have any impact on the commercial performance
of the Group, nor the cash flow generated in the year.
29 Group undertakings
The Group has the following investments in trading subsidiaries included in the consolidated results for the year. The operating subsidiaries are
engaged in either owning property (“Property”) or in the provision of services to adults or children (“Trading”). Additionally, the Group has subsidiaries
that are non-trading, act as holding companies, or are dormant (“Non-trading”)
Company
Addington House Limited*
Company
number
Country of
incorporation
Type
Ownership
2019 %
Ownership
2018 %
4404355
England and Wales Operating
Advanced Childcare Services Limited*
07559570
England and Wales Non-trading
Advances In Autism Care & Education Limited*
3252453
England and Wales Non-trading
Applied Care and Development Ltd*
SC224352
Scotland
Operating
Ashcroft House Limited*
Ashring House Limited*
Ashview House Limited*
Barleycare Limited*
Beacon Care Holdings Limited*+
Beacon Care Investments Limited*+
Beacon Care Limited*
Beech Care Limited*
3390658
England and Wales Operating
3370991
England and Wales Operating
3304446
England and Wales Operating
5156601
England and Wales Operating
3293998
England and Wales Non-trading
4351554
England and Wales Non-trading
3160894
England and Wales Non-trading
4050685
England and Wales Operating
Branas Isaf (Ashfield House) Limited*
5761962
England and Wales Operating
Branas Isaf (Bythnod & Hendre Llwyd) Limited*
4826628
England and Wales Operating
Branas Isaf (Dewis) Limited*
4828115
England and Wales Operating
Branas Isaf (Education Centre) Limited*
4826662
England and Wales Operating
Branas Isaf (Llyn Coed) Ltd*
4826774
England and Wales Operating
Branas Isaf (personal development & approach training) Limited*
4826959
England and Wales Non-trading
Branas Isaf (Therapeutic Provision Limited)*
5355404
England and Wales Non-trading
Branas Isaf Holdings Ltd*
4827227
England and Wales Non-trading
Branas Isaf Personal Development Centre Ltd*
3744583
England and Wales Non-trading
Bright Care Limited*
By the Bridge Holdings*
By the Bridge Limited*
4050733
England and Wales Operating
05712186
England and Wales Non-trading
04050928
England and Wales Operating
By the Bridge Management Company Limited*
8587714
England and Wales Non-trading
By the Bridge North West Limited*
05448746
England and Wales Operating
Cambian Asperger Syndrome Services Limited*
04117476
England and Wales Operating
Cambian Autism Services Limited*
Cambrian Care (Powys) Limited*
Cambian Childcare Limited*
CareTech Holdings PLC
Annual Report and Accounts 2019
88
03449214
England and Wales Operating
3813824
England and Wales Non-trading
04280519
England and Wales Operating
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
Company
Company
number
Country of
incorporation
Type
Ownership
2019 %
Ownership
2018 %
Cambian Childcare Properties Limited*
05274924
England and Wales Property
Cambian Education Services Limited*
05554772
England and Wales Non-trading
Cambian FS Limited*
09501886
England and Wales Non-trading
Cambian Group Holdings Limited*
08929407
England and Wales Non-trading
Cambian Group Limited*+
Cambian Heritage I Limited*
Cambian Heritage II Limited*
Cambian Interact Care Limited*
Cambian Properties (UK) Limited*
Cambian Signpost Limited*
Cambian Whinfell School Limited*
Cameron Care Limited*
Care Support Services Limited*
8929371
England and Wales Non-trading
5150238
England and Wales Non-trading
3898254
England and Wales Property
4822716
England and Wales Operating
5554819
England and Wales Non-trading
6253729
England and Wales Operating
4617562
England and Wales Operating
SC283940
Scotland
Operating
5356025
England and Wales Operating
CareTech Community Services (No 2) Limited*
3894564
England and Wales Operating
CareTech Community Services Limited*+
2804415
England and Wales Operating
CareTech Consulting Limited*
CareTech Estates (No 2) Limited*+
CareTech Estates (No 3) Limited*+
CareTech Estates (No 4) Limited*+
CareTech Estates (No 5) Limited*+
CareTech Estates (No 6) Limited*+
CareTech Estates (No 7) Limited*+
CareTech Estates Limited*+
CareTech Foster Care Limited*
7186925
England and Wales Non-trading
6518327
England and Wales Property
6518491
England and Wales Property
6543818
England and Wales Property
7027116
England and Wales Property
8420656
England and Wales Property
8628141
England and Wales Property
5964868
England and Wales Property
5185612
England and Wales Non-trading
CareTech Fostering Holdings Limited*
7206363
England and Wales Non-trading
CareTech Fostering Services*
CareTech Housing Services*
7205262
England and Wales Non-trading
3438332
England and Wales Non-trading
CareTech International (Previously Family Assessment Services
Limited) Limited*
Clifford House Limited*
6902547
England and Wales Non-trading
3320573
England and Wales Non-trading
Colerne Community Care (kent) Limited*
2755757
England and Wales Non-trading
Community Support Project Limited*+
5941774
England and Wales Non-trading
Complete Care & Enablement Services Limited*
5905163
England and Wales Operating
Continuum Care and Education Group Limited*
5804360
England and Wales Non-trading
Counticare Limited*
Coveberry Limited*
Daisybrook Limited*
2585666
England and Wales Non-trading
1208511
England and Wales Operating
3026221
England and Wales Operating
Dawn Hodge Associates Limited*
4130146
England and Wales Operating
Delam Care Limited*
Delham Care Limited*
Elite Children’s Care Limited*
Emeraldpoint Limited*
EQL Solutions Limited*+
Farrow House Limited*
2995783
England and Wales Operating
2748991
England and Wales Non-trading
5251327
England and Wales Non-trading
3098166
England and Wales Operating
8758477
England and Wales Operating
3504115
England and Wales Non-trading
Fostering Support Group Limited*
2359399
England and Wales Operating
CareTech Holdings PLC
Annual Report and Accounts 2019
89
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
–
100
100
100
100
100
100
–
100
100
–
100
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
29 Group undertakings continued
Company
Franklin Homes Limited*
Glenroyd House Limited*
Company
number
Country of
incorporation
Type
Ownership
2019 %
Ownership
2018 %
3002865
England and Wales Operating
4326288
England and Wales Operating
Gloucestershire Autism Services Limited*
3091510
England and Wales Non-trading
Green Corns Limited*
3918305
England and Wales Non-trading
Greenfields Adolescent Development Limited*
4068839
England and Wales Operating
Greenfields Care Group Limited*
Hereson House Limited*
4642100
England and Wales Non-trading
4385252
England and Wales Operating
Herts Care (Escort and Supervision Services) Limited*
3648069
England and Wales Non-trading
Herts Care Group Limited*
Herts Care Limited*
Herts Care Property Limited*
Huntsmans Lodge Limited*
4539660
England and Wales Non-trading
3400914
England and Wales Non-trading
4132387
England and Wales Non-trading
4668317
England and Wales Operating
Independent Childcare Group of Schools Limited*
2525026
England and Wales Non-trading
Inhoco 2993 Limited*
K O B Care Limited*
Kirkstall Lodge Limited*
Leigham Lodge Limited*
Lonsdale Midlands Limited*
4495879
England and Wales Non-trading
3039698
England and Wales Non-trading
4778674
England and Wales Operating
4583599
England and Wales Operating
2834141
England and Wales Operating
Lyndhurst Psychiatric Residential Care Limited*
2958528
England and Wales Non-trading
Magnolia Court Limited*
5444649
England and Wales Operating
Mason Property Development Company Limited*
4308273
England and Wales Property
Oakleaf Care (Hartwell) Limited*
One Six One Limited*
One Step (Support) Limited*
Onetrue Step Limited*
5225317
England and Wales Operating
4136284
England and Wales Operating
4534652
England and Wales Operating
8339192
England and Wales Non-trading
Outlook Fostering Services Limited*
4357704
England and Wales Operating
Palm Care Limited*
Park Foster Care Ltd*
Park Foster Care Services Scotland Limited*
Phoenix Therapy and Care Limited*
Pinnacle Supported Living Limited*
Prestwood Residential Homes Ltd*
Primrose Court Limited*
4050739
England and Wales Operating
4861395
England and Wales Operating
SC427502
Scotland
SC254555
Scotland
Operating
Operating
2736242
England and Wales Non-trading
4129564
England and Wales Operating
4803769
England and Wales Operating
Professional Integrated Care Services Limited*
4771613
England and Wales Non-trading
Purple Zest Limited*+
Roborough House Limited*
ROC North West Ltd*
11421082
England and Wales Operating
5054294
England and Wales Operating
5564417
England and Wales Operating
Rosedale Children’s Services Limited*
4932054
England and Wales Operating
SACCS Care Limited*
SACCS Limited*
Selborne Care Limited*
Selwyn Care Limited*
South East Care Services Limited*
Spark of Genius Limited*
CareTech Holdings PLC
Annual Report and Accounts 2019
90
3400914
England and Wales Non-trading
4497910
England and Wales Non-trading
5513162
England and Wales Operating
3737832
England and Wales Operating
2296352
England and Wales Non-trading
SC479758
Scotland
Non-trading
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
–
–
–
–
100
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
60
100
100
100
–
–
100
100
100
100
Company
Spark Of Genius (North East) LLP
Spark Of Genius (Training) Limited*
Company
number
Country of
incorporation
Type
Ownership
2019 %
Ownership
2018 %
OC384807
England and Wales Operating
SC196146
Scotland
Operating
St Michael’s Support & Care Limited*
5978585
England and Wales Operating
Sunnyside Care Homes Ltd*
4589719
England and Wales Operating
The Community Care Company UK Limited*
2816119
England and Wales Non-trading
TLC (Wales) Independent Fostering Limited*
4824925
England and Wales Operating
Trojan Spark Limited*
Uplands (Fareham) Limited*
SC453152
Scotland
Non-trading
3488896
England and Wales Operating
Valeo Community Projects Limited*
3941224
England and Wales Non-trading
Valeo Limited*+
Victoria Lodge Limited*
Vosse Court Limited*
White Cliffs Lodge Limited*
Wyatt House Limited*
Advanced Childcare Capital Limited
Advanced Childcare Finance Limited
Advanced Childcare Group Limited
Advanced Childcare Holdings Limited
Cambian Capital Limited
Cambian Developments I Limited
Cambian Developments II Limited
Cambian Developments Limited
Cambian Finance Limited
Cambian Holdings Limited
Cambian Manco Limited
Care Aspirations Finance Limited
Care Aspirations Holdings Limited
Care Aspirations Capital Limited
H2O Limited
Hazeldene UK Limited1
Cambian Properties II Limited
4099715
England and Wales Operating
4454845
England and Wales Operating
4778676
England and Wales Operating
4351559
England and Wales Operating
4319271
England and Wales Non-trading
107650
107661
107672
107660
87311
106304
104724
102148
91181
87312
109922
101512
101522
101503
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
Jersey2
FC97291
Gibraltar
FC015967
Gibraltar
91131
Jersey2
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Operating
Property
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
–
1
2
+
*
Has a UK designated trading branch, Hazeldene UK Limited.
Registered office 9 Burrard Street, St Helier, Jersey JE4 5SE.
Owned directly by the Company.
These subsidiaries have taken advantage of the audit exemption under s479A and s479C of the Companies Act 2006 for the period ended 30 September 2019. As such, CareTech Holdings
PLC has provided a guarantee against all debts and liabilities in these subsidiaries as at 30 September 2019.
Exemption from audit by parent guarantee
The Company being the ultimate sole shareholder of its subsidiaries has decided to take the exemption from audit of a number of subsidiaries for
the year ended 30 September 2019 under Sections 479A and 479C of the Companies Act 2006 and the Company will provide a guarantee for
all the liabilities of those entities as at 30 September 2019 detailed above with the exception of Hazeldene UK Limited, H2O Limited and Spark of
Genius (North East) LLP and Advanced Childcare Capital Limited, Advanced Childcare Finance Limited, Advanced Childcare Group Limited, Advanced
Childcare Holdings Limited, Cambian Capital Limited, Cambian Developments I Limited, Cambian Developments II Limited, Cambian Developments
Limited, Cambian Finance Limited, Cambian Holdings Limited, Cambian Manco Limited, Care Aspirations Finance Limited, Care Aspirations Holdings
Limited, Care Aspirations Capital Limited and Cambian Properties II Limited.
Wholly owned subsidiaries incorporated in Gibraltar and Jersey will not be covered by the parent Company guarantee as they are incorporated
outside of the UK.
CareTech Holdings PLC
Annual Report and Accounts 2019
91
Strategic reviewGovernanceFinancial Statements Notes to the Financial Statements
continued
29 Group undertakings continued
Unless otherwise stated above, the registered offices of all subsidiaries is 5th Floor Metropolitan House, 3 Darkes Lane, Potters Bar, England, EN6 1AG
with the exception of:
Company
Address
Applied Care and Development Ltd*
Netherlea House, Bankend Road, Dumfries, DG1 4AL
Cameron Care Limited*
Inspire Children Services, Lochview, Fort William, Inverness-Shire, PH33 7NP
Dawn Hodge Associates Limited*
Fiveways House, Buildwas Road, Neston, CH64 3RU
Park Foster Care Services Scotland Limited*
272 Bath Street, Glasgow, G2 4JR
Phoenix Therapy and Care Limited*
1 Lodge Street, Haddington, East Lothian, EH41 3DX
Professional Integrated Care Services Limited*
Tan Y Fron, Pontardulais Road, Crosshands, Carmarthenshire, SA14 6PG
Spark of Genius Limited*
Trojan House Pegasus Avenue, Phoenix Business Park, Paisley, PA1 2BH
Spark Of Genius (North East) LLP
King Edwin School Mill Lane, Norton, Stockton-On-Tees, North Yorkshire, TS20 1LG
Spark Of Genius (Training) Limited*
Trojan House, Pegasus Avenue, Phoenix Business Park, Paisley, PA1 2BH
Trojan Spark Limited*
H2O Limited
Hazeldene UK Limited
Trojan House, Pegasus Avenue, Phoenix Business Park, Paisley, PA1 2BH
Montagu Pavillion, 8-10 Queensway, Gibraltar
Montagu Pavillion, 8-10 Queensway, Gibraltar
CareTech Holdings PLC
Annual Report and Accounts 2019
92
Company Balance Sheet
as at 30 September 2019
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Loans and borrowings
Trade and other payables
Non-current liabilities
Loans and borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Total equity attributable to equity shareholders of the parent
Note
2019
£000
2018
£000
32
395,822
395,822
35,623
35,623
33
217,532
278,108
1,012
218,544
614,366
466
278,574
314,197
34
35
34
37
–
151,748
3,866
3,866
1,446
153,194
317,358
321,224
293,142
–
153,194
161,003
545
121,304
125,536
45,757
379
120,820
9,023
30,781
293,142
161,003
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Income Statement. The profit for
the year included in the financial statements of the Company was £25,778,000 (2018: £12,519,000).
These financial statements were approved by the Board of Directors and authorised for issue on 30 January 2020 and were signed on its behalf by:
Farouq Sheikh
Group Executive Chairman
Christopher Dickinson
Chief Financial Officer
Company number: 04457287
CareTech Holdings PLC
Annual Report and Accounts 2019
93
Strategic reviewGovernanceFinancial Statements
Company Statement of Changes in Equity
as at 30 September 2019
At 1 October 2018
Profit for the year and total comprehensive income
Issue of shares
Dividends
At 30 September 2018
At 1 October 2018
Profit for the year and total comprehensive income
Issue of shares
Sharesave Scheme charge
Dividends
At 30 September 2019
Share capital
£000
Share
premium
£000
Merger reserve
£000
379
120,778
9,023
–
–
–
–
42
–
–
–
–
379
120,820
9,023
379
–
166
–
–
120,820
–
–
484
–
9,023
–
116,513
–
–
Retained
earnings
£000
25,756
12,519
–
(7,494)
30,781
30,781
25,778
–
–
Total Equity
£000
155,936
12,519
42
(7,494)
161,003
161,003
25,778
116,679
484
(10,802)
(10,802)
545
121,304
125,536
45,757
293,142
CareTech Holdings PLC
Annual Report and Accounts 2019
94
Notes to the Company Financial Statements
30 Accounting policies
(a) Basis of preparation
CareTech Holdings plc (the Company) meets the definition of a qualifying entity under Financial Reporting Standard (FRS) 100, issued by the Financial
Reporting Council (FRC). Accordingly, the financial statements have been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’.
The financial statements have been prepared on a historical cost basis except in respect of those financial instruments that have been measured at
fair value at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for goods
and services.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based
payment, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of cash flow
statement and certain related party transactions.
Accounting policies for financial instruments have been listed under part of the accounting policies for the main Group’s consolidated accounts.
Investments
(b)
Investments in subsidiary undertakings are stated in the Balance Sheet of the Company at cost less impairment written off.
(c) Cash and liquid resources
Cash, for the purpose of the Cash Flow Statement, comprises cash in hand and deposits repayable on demand and those with maturities of three
months or less from inception, less overdrafts payable on demand.
Interest-bearing borrowings
(d)
Interest-bearing borrowings are recognised initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference between proceeds (net of transaction costs) and the redemption value being
recognised in the Consolidated Income Statement over the period of the borrowings on an effective interest basis.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months
after the reporting date.
(e) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in profit or loss except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws enacted or substantively enacted at the Balance
Sheet date, and any adjustment to tax payable in respect of previous years.
Revenue
(f)
Revenue represents management fees receivable, in respect of the period to which management services relate.
Share-based payments
(g)
The share option programme allows employees to acquire shares of the Company. The fair value of options granted is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees
become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account
the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of
share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.
Where the Company grants options over its own shares to the employees of its subsidiaries it recognises an increase in the cost of investment in its
subsidiaries equivalent to the equity settled share-based payment charge recognised in its subsidiary’s financial statements with the corresponding
credit being recognised directly in equity.
(h) Dividends on shares presented within shareholders’ funds
Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are
no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements.
(i) Merger reserve
The merger reserve represents the premium arising on the ordinary shares issued as consideration for the acquisition of shares in another company
(merger relief).
Merger reserve
Opening balance 1 October
Issue of shares (see note 23)
At 30 September
CareTech Holdings PLC
Annual Report and Accounts 2019
95
2019
£000
9,023
116,513
125,536
2018
£000
9,023
–
9,023
Strategic reviewGovernanceFinancial Statements Notes to the Company Financial Statements
continued
31 Dividends
The aggregate amount of dividends comprises:
Interim dividend paid in respect of prior year but not recognised as liabilities in that year
(3.50p per share (2018: 3.30p per share))
Final dividend paid in respect of the prior year (7.50p per share (2018: 6.6p per share))
Aggregate amount of dividends paid in the financial year (11.00p per share) (2017:9.90p per share))
2019
£000
2,645
8,157
10,802
2018
£000
2,498
4,996
7,494
The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 11.7p per share, £13,000,000 (2018: 11.00p per
share, £8,166,018).
32
Investments
Cost and net book value
At end of year
Acquisitions (see note 5)
Other additions
At 30 September
33 Trade and other receivables
Amounts owed by Group undertakings
Shares
in Group
undertakings
£000
35,623
359,920
279
395,822
2019
£000
2018
£000
217,532
278,108
These balances accrue intercompany interest at a rate of 3% per annum. Please refer to note 1 and the statement on going concern. Based on these
factors described, the Directors consider that this debt is recoverable.
Interest-bearing loans and borrowings
34
This note provides information about the contractual terms of the Company’s interest-bearing loans and borrowings. For more information about the
Group’s exposure to interest rate risk, please see note 25 in the Group accounts.
Terms and debt repayment schedule
Term loan
Term loan
Revolving credit facility term loan
Currency
Nominal interest
rate (%)
Year of
maturity
£ 2.25 (2018: 2.25)1
£ 2.50 (2018: 2.25)1
£ 2.75 (2018: 2.25)1
2022
2023
2023
Book value
2019
£000
167,000
150,358
–
317,358
Book value
2018
£000
120,499
–
31,249
151,748
1
The margin on the facilities is stated at the current rate and can change between 1.50% and 3.25% based on the ratio of the Group’s Net Debt to EBITDA.
The Group entered into new banking facilities following the acquisition of Cambian. The facility is a term loan of £322m and revolving credit facility of
£25m to a group of banks comprising Barclays Bank PLC, HSBC UK Banks PLC, Santander UK PLC, AIB Group (UK) PLC, Clydesdale Bank PLC, Credit
Suisse AG, Lloyds Bank PLC and National Westminster Bank PLC and is stated net of loan finance costs in accordance in IAS 23.
35 Trade and other payables
Other creditors
2019
£000
3,866
2018
£000
1,446
36 Contingent liabilities
As per note 29, CareTech Holdings plc have taken the audit exemption for a number of subsidiaries by virtue of s479A of the Companies Act. A parent
Company guarantee has been provided for these entities under s479C of the Companies Act.
CareTech Holdings PLC
Annual Report and Accounts 2019
96
37 Called up share capital
Allotted, called up and fully paid:
109,144,369 (2018: 75,691,423) ordinary shares of 0.5p each
53,402 deferred shares of 0.5p each
2019
£000
545
–
545
2018
£000
379
–
379
The holders of the ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings
of the Company. The deferred shares have no such rights. Details in respect of the movements in equity are given in note 22 to the Group
financial statements.
Details in respect of the reserves are given in note 23 to the Group financial statements.
38 Staff numbers and costs
The Company has no employees (2018: none) other than the Directors. Directors’ emoluments are shown on page 47.
39 Employee benefits
Defined contribution plans
The Company operates a number of defined contribution pension plans.
The total Company expense relating to these plans in the current year was £nil (2018: £nil).
Share-based payments
There was no expense for share-based payments relating to the Company in the year (2018: £nil).
The grants and related accounting treatment adopted by the Company is identical to that operated by the Group under IFRS 2 ‘Share-based
Payments’ (see note 21).
40 Related parties
The Company receives dividends from its subsidiaries according to their ability to remit them and received interest in inter-Group loans. Other details
of related party transactions have been given in note 27 to the consolidated accounts.
Under FRS 101, the Company is exempt from disclosing key management personnel compensation and transactions with other entities wholly
owned by CareTech Holdings plc.
CareTech Holdings PLC
Annual Report and Accounts 2019
97
Strategic reviewGovernanceFinancial Statements Appendix: Alternative Performance Measures
The Group reports certain non-IFRS performance measures, known as Alternative Performance Measures (APMs). The Directors believe that they
provide useful supplemental information for the readers of the annual report and, when read in conjunction with the IFRS financial information, assist
in providing a balanced view of the Group’s financial performance and financial position.
In assessing its performance, the Group has adopted a number of APMs because statutory measures can have limitations as analytical tools and are
necessary to readers of the accounts when understanding our performance relative to other companies in our sector and in the wider economy.
We set out below those APMs which management use in assessing its own performance and a reconciliation of those APMs to the statutory IFRS
financial statements.
EBITDA
a)
EBITDA is defined as Earnings Before Interest, Tax, Depreciation, Amortisation, share-based payments and non-underlying items. EBITDA is
considered the most relevant performance measure in our (and many other) sectors. We reconcile EBITDA to the statutory measure of operating
profit on the face of the Income Statement as below:
EBITDA
Adjusted for:
Depreciation
Amortisation of intangible assets
Profit on ground rent transaction
Acquisition cost
Other non-underlying items
Acquisition adjustments
Share-based payments charge
Operating profit
2019
£000
2018
£000
73,546
43,862
(10,631)
(10,188)
4,565
(10,331)
(7,425)
–
(60)
(5,906)
(7,428)
–
–
(4,525)
(5,620)
(197)
39,476
20,186
13
6,14
6
6
6
b) Non-underlying items
Non-underlying items relate to events or transactions that, in the opinion of the Directors, by virtue of size and incidence are disclosed separately
in order to improve a reader’s understanding of the financial statements. They include: costs relating to the acquisition of new businesses, the
integration of acquisitions and the reorganisation of the internal operating and management structure, redundancy costs, costs associated with
terminating lease agreements and profit arising on the ground rent transaction.
Also included are the non-cash charges of amortisation of intangible fixed assets together with any impairment of intangible assets or goodwill.
Non-underlying items also comprise costs relating to derivative financial instruments and include the movements during the year in the fair value
of the Group’s interest rate hedging arrangements which do not qualify for hedge accounting, together with the quarterly cash settlement and
accrual thereof.
They also include the current tax and deferred tax adjustments relating to the above.
We present a reconciliation of our underlying earnings to our statutory profit on a line by line basis including Operating profit, Finance expenses,
Profit before tax and Taxation as follows:
Operating profit
Finance expenses
Profit before tax
Taxation
Profit for the year
Note
Underlying
£000
2019
Non-
underlying
£000
Statutory
£000
Underlying
£000
62,855
(23,379)
39,476
9
(12,690)
(2,446)
(15,136)
50,165
(25,825)
24,340
6,10
(9,423)
5,209
(4,214)
40,742
(20,616)
20,126
37,759
(4,867)
32,892
(5,751)
27,141
2018
Non-
underlying
£000
(17,573)
51
(17,522)
1,625
(15,897)
Statutory
£000
20,186
(4,816)
15,370
(4,126)
11,244
CareTech Holdings PLC
Annual Report and Accounts 2019
98
c) Net Debt
A key performance indicator for many readers of accounts is the level of Net Debt within the business. Net Debt comprises cash net of all loans and
borrowings as defined by the Group’s banking facilities. Accordingly, the Group provides information on its Net Debt and which is reconciled to the
statutory financial statements as follows:
Net Debt in the Balance Sheet comprises:
Cash at bank and in hand
Bank loans
Finance lease and hire purchase contracts
Net Debt at 30 September
Note
2019
£000
2018
£000
17
17
29,238
9,421
(315,878)
(151,748)
(4,437)
(4,662)
(291,077)
(146,989)
d) Working capital conversion
The Group considers that a key element of its performance is the cash generation from its EBITDA and that there is a correlation between working
capital performance and the quality of earnings. In the current year, the working capital conversion is impacted by the fact that Cambian was
acquired mid-October and as such cash receipts in the first few weeks of the month are excluded, whereas payroll payments and creditor payments,
which typically fall at the end of each month, are included given a skewed working capital position. Accordingly, the Group provides a calculation
of working capital conversion both including and excluding the first 19 days of October which is reconciled to the statutory financial statements
as follows:
Operating cash flows before adjustment items
EBITDA
Working capital conversion
Operating cash flows before adjustment items
Cambian cash receipts and payments pre-acquisition
At 30 September
EBITDA
Working capital conversion
2019
£000
66,324
73,546
90.2%
2019
£000
66,324
8,140
74,464
73,546
101.2%
2018
£000
39,446
43,862
89.9%
2018
£000
39,446
–
39,446
43,862
89.9%
CareTech Holdings PLC
Annual Report and Accounts 2019
99
Strategic reviewGovernanceFinancial Statements Directors and Advisers
Company Number
04457287
Registered Office
5th Floor
Metropolitan House
3 Darkes Lane
Potters Bar
Herts
EN6 1AG
Directors
Farouq Sheikh
Haroon Sheikh
Christopher Dickinson
Mike Adams
Karl Monaghan
Jamie Cumming
Moira Livingston
Solicitors
Charles Russell Speechlys
6 New Street Square
London
EC4A 3LX
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2AG
(Group Executive Chairman)
(Group Chief Executive Officer)
(Chief Financial Officer)
(Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
CareTech Holdings PLC
Annual Report and Accounts 2019
100
Nominated Adviser and Joint Broker
Panmure Gordon and Co
One New Change
London
EC4M 9AF
Joint Brokers
WH Ireland
24 Martin Lane
London
EC4R ODR
Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
Bankers
The Royal Bank of Scotland PLC
280 Bishopsgate
London
EC2M 4RB
Lloyds Bank PLC
Large Corporate
25 Gresham Street
London
EC2V 7HN
Santander Corporate Banking
2 Triton Square
Regents Place
London
NW1 3AN
HSBC UK Bank PLC
Level 6
71 Queen Victoria St
London
EC4V 4AY
AIB Group (UK) PLC
Corporate Banking
9-10 Angel Court
London
EC2R 7AB
Barclays
Level 12
1 Churchill Place
London
E14 5HP
Clydesdale Bank PLC
138 New Street
Birmingham
B2 4JQ
Credit Suisse AG
The Gate
Dubai
United Arab Emirates
Registrars
Link Asset Services
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 OGA
Design and production:
Gather +44 (0)20 7610 6140
www.gather.london
The paper used in this Report is
derived from sustainable sources.
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9
CareTech Holdings PLC
Metropolitan House
3 Darkes Lane
Potters Bar
Hertfordshire
EN6 1AG
Tel: 01707 601800
Fax: 01707 655265